Avanti Feeds : A Comprehensive Stock Analysis

Avanti Feeds is the leading manufacturer of Prawn and Fish Feeds and Shrimp Processor and Exporter from India. Avanti Feeds Limited has established joint venture with Thai Union Frozen Products PCL., the world's largest seafood processors and leading manufacturer of prawn and fish feeds in Thailand with integrated facilities from Hatchery to Shrimp & Fish processing and Exports.

Prawn and Fish Feed Manufacturing Units

Avanti has Four Prawn and a Fish Feed Manufacturing Units, certified ISO 9001:2008, in Kovvur, Vemuluru and Badapuram in West Godavari District, Andhra Pradesh and Pardi in Valsad District, Gujarat, in India with a capacity of 4,00,000 MT per annum.

Shrimp Processing and Exports Unit

The Shrimp Processing and Exports Unit, certified ISO 22000: 2005 is located in Gopalapuram near Ravulapalem, East Godavari District Andhra Pradesh, India and confirms to HACCP, USFDA, EU & BRC Global standards. It is also an ACC Certified for best aquaculture practices.

Avanti started its commercial operations in 1993 in technical collaboration with Pingtai Enterpries, Taiwan. Later it expanded the capacity and enhanced technical and marketing capabilities by bringing on board Thai Union Frozen Products PCL., Thailand, the world's largest seafood manufacturers and also having Feed Mill and Prawn Hatchery in Thailand. Today Thai Union is closely associated with Avanti Feeds with equity participation, technical collaboration and marketing tie-up in India.

Financials (FY'16) : A Bird's View 

• Revenue = INR 2018 Crore 

• Operating Profit = INR 222 Crore 

• Net Profit = INR 155 Crore  

Financials (Historical Trends) : Some Insights

• Compounded Annual Sales Growth Rate has been as below 

• 3 Years = 46%

• 5 Years = 58%

• 7 Years = 62%

• 10 Years = 37%

            Company has shown a consistently high rate of growth in sales 

• Profit After Tax has grown by a CAGR of 114% for last five financial years 

• Operating Profit Margin has gradually grown from 0% in FY09 to 11% in FY16

• Return on Capital Employed is more than 23% for last five financial years

• Return on Equity has been > 25% for last five financial years , with most recent (FY’16) being 49%

         Company is regularly generating good level of profits for its shareholders

• Company's Receivable Days is only 4

• There is a consistent rise in Fixed Turnover Ratio, 2.18 in FY’09 to 23.92 in FY’16

         Alongwith financial parameters , operational parameters are also improving                 with each FY.

• Share Capital is constant for last five years

• Dividend Payout Ratio is more than 20% for last five financial years

         Management /Promoters are honest and committed towards retail and non-                promoter shareholders

• Total  Debt has come down drastically down from 58 crore in FY’15 to 10 crore in FY’16

• Debt/Equity Ratio has come down from 0.7 in FY’11 to 0.027 in FY’16

• Interest Coverage i.e. ability to serve interest has grown from 1.7 in FY’11 to 53.8 in FY’16

       Company has an excellent ability to serve its debt in addition to bringing                     down debt regularly

• Ratio of 10 Years Sales Growth to Capital Expenditure of 10 years is 1.13

       It signifies high ability to generate sales growth with every rupee invested in               capital expenditure

• Price to Earnings ratio has increased from 2.9 in FY’12 to 12.7 in FY’16

• For Every Rupee of Retained Earnings of last 10 years, company’s market cap has increased by 7.19

Avanti Feeds has been highly successful in generating wealth for its shareholders

Avanti Feeds: Shareholding Pattern

•  With promoter family’s holding of more than 35% (44%) , promoters family has big commitment towards the company
• Foreign Partner i.e. Thai Union Frozen Products PCL represents itself with one board member against its 25% shareholding
• Even though Mutual Fund houses have a low shareholding of around 0.5% only, they have started increasing their exposure with 7 major mutual fund schemes buying into it last quarter i.e Sep’16 quarter
• One very unique feature about the stock is the huge holdings by small investors (holding value upto 2 lakhs INR). Such investors have around 17% of the total stock of the company
• Andhra Pradesh Industrial Corporation is another major shareholder with total shareholding of more than 2.72%
• Foreign Portfolio Investors hold another 4% of the shareholding

Avanti Feeds: SWOT Analysis 

Strength

• First Mover’s Advantage – Avanti Feeds is one of the earliest players in Indian Sea Food Industry. 
• It is also the biggest player of the domain
• Strong Foreign Partner – Thai Union Frozen Products, being the world’s largest Sea Food company brings the latest technology and best practices to the venture
• Exceptional financial and operation efficiencies
• Growing Industry – Sea Food in India is a rapidly growing industry

     Weakness

• High Cash Reserves even though provides cushion against capital requirements for expansion, brings challenge for productive deployment as well
• Low Mutual Fund Houses Exposure

Opportunities 

• Shifting eating habits of Indian population towards sea food
• Expansion into Ready to Eat and Restaurant segment recently (Avanti has started an eatery in "Eat Street in Necklace Road, Hyderabad" and plans to open similar outlets in a span of one year in Hyderabad and expand to other cities in phased manner)
• Export expansion (Avanti's Prawn King processed hygienically complies with HACCP standards with USFDA, BRC accreditations in place. It is certified ISO 22000:2005 and certified by ACC for its best aquaculture practices)

Threats 

• Foreign Currency Movements – Due to dependence on exports
• Global Slowdown – May bring down export earnings

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Summary 

Stock has excellent financial, operational and market dynamics. Company currently has market cap of around 2300 crore INR and hence belong to Small Cap category. Even though company has low institutional holdings, but recently domestic institutional investors have started increasing their holdings in the company. Avanti Feeds’ P/E value of ~16 provides a very good opportunity of investments as growing and robust small caps generally have at least 25-30 P/E if not more. Company is market leader in the nascent but rapidly growing Indian Sea Food Industry. Company provides an excellent buying opportunity provided it manages to sustain the level of growth and efficiency demonstrated till now.        

Financial Management : A Holistic Approach

Coming from an Agarwal (traditional merchant community of India) family, financial management for me was a part of childhood learning at home. How regular savings - no matter how small - can make a profound impact on your portfolio was understood by me by looking at money management of my father. I learnt the magic of compounding by noticing how his regular albeit small savings in the form of monthly investments ensured that I could afford my university education, without any financial obligation like education loan on my young shoulders, unlike many of my friends, who ironically had much better family background than I had. 

Thanks to these habits of my father , I could manage MBA from one of the Top 10 colleges of MBA in India and eventually landed as Senior Wealth Manager with the largest Wealth Management player of Indian market, before joining a Dubai based bank as a Wealth Manager for portfolios of their client-ale which consists of motley nationalities and ethnicity.

We Indians are known the world over for bringing the best synchronization of traditional habits with modern knowledge. I feel my own experiences and learning of financial management are a shining example of the same capability of us Indians. The financial discipline that was inculcated into me since childhood along with portfolio management practices learnt during my job as Senior Wealth Manager has brought huge level of confidence in my personal finances. Almost all clients give me some learning or other as far as money matters are concerned.In case you wish to go through my journey of Financial Planning, you can click here. 

Below is my holistic framework for a robust financial planning , which I am sure is relevant for everyone of us , irrespective of our earnings, expenses, job, business or any other parameter. 

1. Adequate Insurance - At first, life and health insurance seems totally unrelated to portfolio management, but once you take into view the fact that medical expenses are the biggest factor which prevent people from moving out of poverty , you do feel the importance. Many of us believe that health insurance provided by the employer is sufficient for taking care of our family medical needs, but in an era of minimum job security and towering medical costs, having a dedicated medical insurance for the family makes lots of sense. Unfortunately in India, endowment policies of LIC has become synonym with insurance, which has resulted in twin harms of under cover and less than satisfactory returns on investments. Here is my article which gives you a scientific procedure of planning life insurance.  Click Here to understand how Life Insurance ensures continuity of the family fiances and what are different types of Life Insurance policies. 
2. Portfolio Management - While it may sound a very fancy term to most of us, Portfolio Management is the most fundamental and foremost principle followed by seasoned investors. It is preceded by Risk Profiling, which is a psychometric analysis of your attitude and standing in respect to various investment avenues. Understanding Risk of various investment products is a prerequisite for a sound investment portfolio. Only after these two steps, one can go for Portfolio Management. 
   
3. Proper Tax Planning - Every penny saved, is every penny earned. More so in case of Income Tax. Nobody likes to pay income taxes. Still like many other things, ignorance inflicts a heavy damage to this field, where otherwise we can make huge savings.You can refer this Ready Reckoner as a checklist for ensuring that all tax savings has been availed before the close of financial year. Also investing in products like Life Insurance policies, Fixed Deposits and Post Office schemes, not only brings down the returns, but also hampers liquidity of the portfolio. On the other hand , non traditional tax saving instruments like ELSS and Debt Funds scores heavily on both liquidity and returns. 
4. Avoiding Mis-Buying - Thanks to hefty commissions and less awareness, many of the investors end up buying investment products which are not only irrelevant to their needs and goals , but are also in complete contradiction to their own stated objective. National Pension Scheme is one of them. While it is marketed as a Tax Saving scheme, it is in reality just a tax deferment, which means you will end up paying tax in your old age instead of young age. 
5. Proportionate Asset Allocation - A good asset allocation means proportionate percentage for all kinds of assets , based on relative concurrence of the asset class with the expectations of the investor. Typical example of wrong allocation in India are too much exposure to real estate, no allocation to mutual funds, over-allocation to FDs etc. While REITs provides more liquid (more on liquidity , in this article ) and better managed channel of investing into real estate, Debt Funds are better and more tax efficient channel of investing into secured debt assets as compared to fixed deposits. Here are details of some of the other investment instruments , which though are not as prevalent as FDs , but are very unique in their characteristics and are better in many sense as well -         

• Equity Mutual Funds
• Sukanaya Samriddhi Scheme
• NPS and PPF
• Equity Market
• Gold Monetisation Scheme

1. Not Committing the strict NO-NOs - Some money mistakes committed early in life wreaks havoc to finances for rest of the life. We all have seen how financial bankruptcy has destroyed Greece, similar implications for personal finances can be avoided by following these rules. 
2. Employing Debt - While for most of us loan is something which is worth abhorring, in reality it provides a very good opportunity for not only meeting expenses but also in a very efficient manner. If you still feel otherwise , read this article on the benefits of Home Loan, which busts many a myths.  

In case the above knowledge was interesting for you, you may like these articles as well - 

• CandleStick Analysis : Brightening the Trading
• Forex Variations : Implications to Portfolio
• Shifting to New Shores : An NRI's Guide to Finances
• Warren Buffett timeless investing Principles
• Annuity- Healthy retirement Income

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CandleStick Analysis : Brightening the Trading

A robust decision making framework demands analytical approach which takes into the view the parameters, limitations and environment surrounding and including the problem universe. Similarly when it comes to any market - equities, forex, commodities - which has inherent component of speculation in it, Technical Analysis finds favour, at least among the traders (short term) , if not investors (long term). 

Technical Analysis at a very crude level means analyzing and predicting market based on 'historical data' i.e. historical values of the underlying asset being analysed. Number of tools are available to perform technical analysis. One of them is CandleStick Pattern. In this article we are going to explore the basics of this 400 year old Japanese technique, invented by rice traders , to be followed by more comprehensive write up on "Patterns" formed by CandleStick charts in coming articles.  

A single candlestick is used to depict the valuation data of an underlying asset (equities, forex, commodities) for a day. It is plotted against "Date" on a graph, this graph throws "patterns" formed by abutting candlesticks belonging to different dates which is used to deduce predictions.  

A candlestick consists of four data - 

1. Opening price of the asset (O)
2. Closing price of the asset (C)
3. Highest price of the asset achieved in the day (H) 
4. Lowest price of the asset achieved in the day (L)

A candlestick consists of two parts - 

1. Body - "Broader" part of the candlestick. It depicts "O" at one end and "C" at other end. 
2. Shadow - "Thinner" part of the candlestick depicting "H" and "L" data of the asset. 

"O" and "C" are plotted on the extreme ends of the "Body", hence length of the Body is decided by the difference between the values of "O" and "C". "H" and "L" form the two extremes of "Shadow" part. 

Based on different combinations of "O", "C" , "H" and "L" , there can be motley forms of candlestick.

Lets first consider variations based on values of "O" and "C" - 

1. C > O   , represented by "White Body"
2. O > C   , represented by "Black body" 
3. C = O   , represented by horizontal line in place of Body, also called Doji. 

Candlesticks based on "Shadow" 

White Morubozu - A white candle without any shadow on any side. It signifies very bullish market condition as bulls manage to close the markets on the same level as the highest valuation of the day. The fact that value didn't go below the "O" also signifies that Bulls had a field day. 

Black Morubozu - Complete opposite of the White Morubozu, it is formed when Bears rule the market and value closes at the lowest level achieved in the day and all valuations achieved during the day are below the Open Price. 

Opening Morubozu - They denotes candles that do not have shadows attached to their "O" part of the body. Same as White Moruvozu, White Opening Morubozu also signifies Bullish trend but albeit of lesser intensity than white Moruvozu. Similarly Opening Morubozu with black body signifies bearish sentiment , but of lesser intensity than Black Morubozu.  

Opening Morubozu

Based on CandleStick's size, position on the chart and relative placement (during uptrend or downtrend), predictions are made by the traders. Many traders also use them in consonance with other Technical Analysis tools like MDA, RSI etc. to strengthen their predictions.

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Forex Variations : Implications to Portfolio

When it comes to choosing which Mutual Fund to invest in, there are a number of parameters based on which people make decisions. One of the most prevalent , even though unscientific parameters is Historical Returns. So assuming that you have to decide one mutual fund out of below two funds - based on last 5 year returns - which one will you choose?

Fund Name	Five Years Annualized Returns
Pictet Water P USD Fund	13.79%
Birla Sun Life Frontline Equity Fund (Regular Plan) - G	18.39%

*Performance as on 10th Sep’16. Source Morningstar.co.uk and moneycontrol.com

Please note that Pictet Water P USD is a $ (USD) denominated fund while Birla Sun Life Equity Fund is denominated in Indian Rupee (INR).

Needless to say you will choose Birla Sun Life Frontline Equity Fund (Regular Plan) - G based on its performance which is around 5% better than that of Pictet Water P USD Fund. Now if I tell you that 5 years back US Dollar was trading at 47.80 against Indian Rupee  while today’s exchange rate is 66.59, will that bring any change of heart to you? If this rate fluctuation doesn't ring any bells in your mind, read the below analysis.

Let's assume that 5 years back you had 10,00,000 INR investible surplus and you had invested 5,00,000 each in the above two funds.So lets evaluate both funds’ performance one by one.

First let's analyse Pictet Water P USD Fund. As it is denominated in USD , so we can invest in it in USD only. We are assuming a level of 47.80 (which was recorded on 13th Sep, 2011) of INR against USD for exchange rate five years back. That means we invested $ 10460.25 in it five years back. At a return rate of 13.79% growth for last five years , this investment should grow to a value of $ 19955.5 in today’s (10 Sep’2016)  date.

Now let's analyse Birla Sun Life Frontline Equity Fund (Regular Plan) - G in a  similar manner. As it is denominated in INR so 500000 INR invested five years back growing at a rate of 18.39% for five years , will grow to INR 1162907 in today's date.

So 500000 INR invested in each of them 5 years back grows to $ 19955.5 (Pictet Water P USD Fund) and INR 1162907 (Birla Sun Life Frontline Equity Fund) in today’s date. To compare them on a level ground we should convert both of them in same denomination. Let’s convert both of them to INR. So at today (10th Sep’2016)’s exchange rate of 66.95, Pictet Water P USD Fund’s corpus is equivalent to INR 1336021, which is 14.68% more than Birla Sun Life Frontline Equity Fund’s corpus of INR 1162907.

What the above case study means is that foreign exchange fluctuations can bring substantial gains to your portfolio even if underlying assets (mutual funds in above case) have lower returns per se. The implicit message in the above case study was that INR has depreciated by more than 6% (compounded ) against USD per year for last five year. So a very crude form of thumb rule means that at same level of returns in respective currencies, USD denominated returns will beat INR denominated returns by 6%.

In India we resort to diversification in our portfolio at asset class level only , i.e. taking exposure to different kinds of Mutual Funds, Fixed Deposits , Small Saving Schemes etc. But geography and currency diversification hardly make their presence felt. Unfortunately very few options are available in India for taking global and currency diversification, that too with constraints like unfavorable tax treatment and large amount of initial investment. Still a smart and shrewd investor should always be on look out for those channels which can help in bringing currency and geographical diversification to your portfolio.

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Shifting to New Shores : An NRI's Guide to Finances

One of the biggest changes brought about by globalisation has been  the huge amount of manpower movement across national boundaries. The first wave of Industrialisation made national boundaries fluidic for manufactured goods. But next wave of progression made humanity realize the importance of Services sector in overall economic development and better standard of living. It was this phase which facilitated the movement of manpower beyond national boundaries as services needs to be delivered at the point of consumer.

Hordes of people move to foreign lands every year in hopes of better lifestyle, career progression and higher level of savings. In the process we trade off our culture, family bonds and safety of our country.

So recognising the huge level of manpower movement across boundaries, we take a holistic view of how migration can and should affect your life in general and finances in particular.

Lets start with major costs involved when we move to a new country.

Before Shifting : -

Passport 

In case you plan to move with family, do ensure that passports of everybody is in place and updated well in advance. Though cost of Passport is not much of an amount and thanks to automation and facility of Tatkal, it has become less of an headache, still rules and complication can prove to be a dampener. Like for example, for issuance of passport of a minor, both parents have to be present in person at the passport office. So don't plan to leave the country before getting the same in place, trusting your spouse to take care of it. 

Visa

We Indians are habitual of paying pittance when it comes to availing government services and assume the same about Visa fees. But Visa fee can prove to be a major dent in your pocket , based on the country that you plan to shift to. So better check about Visa costs well in advance both for yourself and for the family.

After Shifting [One Time Expenses] :-

Local Documents

Like Aadhaar in India , many countries have their biometric/non-biometric ID cards required for expats. Sometimes employer decline to reimburse the cost of it for the employee and family. So do check about the same first hand from your employer.  

Medical

We in India have comparatively cheaper medical facilities (based on purchasing power parity i.e. our earnings). But sadly case is not so in many first world countries. Even in a supposedly advanced nation like USA, medical expenses form a major part of a family's expenses. Most times, employer provide medical cover for the employee and the family. Otherwise do plan medical cover for your family ASAP so that you are better prepared for any eventuality in a foreign land.

Rentals and Accommodation

Shifting to a new place brings with it whole lot of expenses related to accommodation, some of which are -

·         Rental advance and security

·         Appliances

·         Furniture

·         Kitchenware

While rentals and security are on higher side  [as compared to earnings], fortunately appliances and furniture is cheaper as a proportion of one's salary in most of the first world countries.

After Shifting [Recurring Expenses] :-  

Travel

Thanks to high airfare travelling to and fro the native country is a big annual expense no matter in which part of the world you live. One can mitigate the same by checking the trend of airfare and planning one's travel during the off season rates.  

Education

Children's education is another struggle both because of high fee and high admission criterion. Best is to try to take advice of those parents who have been living for long and hence knows the intricacies of admission process and quality of schools.

 Before Closing, I will delve upon two very critical learning for Expats -  

·         Never compare costs of foreign land by forex rate. Rather compare them taking in view your salaries.I will elaborate with an example. 

Zoheb who was working with HDFC bank in India at a monthly take home of 85000 INR shifted to work for a bank in Dubai earning a monthly salary of 17000 Dhiram (local currency of Dubai). A Dhiram is approximately equivalent to 18 INR as per forex rates.

Now Zoheb decides to buy a sofa set. After much pondering he zeroed in one at Ikea store whose price was 5000 Dhiram. As per Zoheb similar sofa would have cost 50000 INR back home in India, while as per forex rates it was costing him 90000 (18X5000) INR in Dubai. So Zoheb concluded that furniture was expensive in Duabi in comparison to India.

But Zoheb was wrong in his conclusion because though Forex Multiplier (number of times a unit of foreign currency is, in comparison of Indian currency i.e. INR) was 18, his salary multiplier (i.e. number of times his salary in Dubai is that of his salary in India) was only 5 [85000/17000]. Hence he should multiply cost in Dubai by 5 to make a justified comparison, because expenses should be compared with earnings not forex rates.  

·         The Initial On-boarding expenses are monumental as we take care of the same from our Indian savings which are in INR and hence are generally very low because of currency rates. A corpus of 500000 INR may look high in India but if you convert it into $, its only about $ 8300 which can sustain only for 3-4 months in an USA city. But once you have 3-4 salaries in your tow, then comes the real windfall of savings, as then you are on other side of the currency rates and make huge savings in INR. Hence the initial on-boarding expenses should be treated as investment for long term savings.  

In addition to finances, our lives get affected in numerous ways when we throw our anchor at foreign shores. While many parameters like local culture, food, pollution levels etc are beyond the ambit of our control, our personal finances are something that we can take good control by a little bit of planning and meticulous execution.

Click here to learn about the pros and cons of NPS and PPF.

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Year Review 2015

As 2015 comes to a dawn let’s do a quick analysis over how this year was in terms of investment and taxation. We will try to list all the big changes in taxation and a brief summary on how asset classes performed during this year. Lets start with changes in income tax rules

1. Govt declared Rs 50,000 additional deduction under section 80CCD. So now you can save up to 50,000 Rs in NPS and claim tax benefit on this income.
2. Govt doubled transport allowance amount to Rs 1600 Per month from earlier 800 Per month

There were several other minor changes in Tax codes but those were minor ones.

Now coming to various asset class and their performance in past year

Equities: 2015 was supposed to be one big year for equities after euphoric 2014 when SENSEX returns were massive 40%. 2015 was supposed to be an year when corporate earnings will pick up after somber of 2 years, but nothing like that happened actually and equities suffered. This year Sensex and Nifty started year at 27,900 and 8,400 levels and grew 5% in Jan to levels of 29,500 and 8900 respectively before bears became dominant and remain rangebound for whole year. Both the indexes are ending the year down about 6-7%. There were few bright spots in between large disappointments with midcaps giving positive returns of about 6-7%. Overall 2015 have been a disappointing year as far as Indian equities are concerned

Debt: As RBI reduced interest rates debt instrument yield came down and hence prices increased. Overall return of 8%-8.5% were best return available during the year as equities faltered and Gold, reality etc failed to pick up.

Gold: Gold (and all other commodities) remained depressed during 2015. It means Gold have been depressed since last 3 years and there is no revival in sight. But Gold saw some action in terms of some new and very exciting schemes from Govt. More details here.

Real Estate: Real Estate too remained depressed in 2015 with some minor exception. It have also been a 3-4 year phase of consolidation and full scale revival will still take time. Though as credible data is unavailable making sweeping recommendation about this market is difficult but some money have been made in certain pockets but overall market have been subdued.

Overall 2015 was not that good year as far as returns are concerned but it provided a good consolidation which will yield to better results in years ahead