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.