Avanti Feeds Explained: Is 12% Hike in a Day Worth the Buzz?

Avanti Feeds, a top Indian shrimp feed producer, saw an amazing 12% hike in its share prices. The reason: the Union Budget.

So, here's the deal: The recent union budget announced some major support for the aquaculture industry:

• Shrimp farming, processing, and export will receive financial support through NABARD.
• The basic customs duty for many of the inputs for shrimp and fish feed will be reduced to 5%.
• Many inputs used to manufacture shrimp and fish feed will be exempted from customs duty.

These initiatives come under the Pradhan Mantri Matsya Sampada Yojana (PMMSY).

In FY 2023-24, seafood exports in India reached an all-time high, at a value of ₹6,165.3 crore and weighing 1.78 million metric tonnes. 🤯

Frozen shrimp is the star of India’s seafood exports. It stayed on top as an export with some big markets like China and the USA, even after its value decreased by 5.38%.

The government’s aim here is:

• to double these already impressive export numbers, and
• create as many as 50 lakh new jobs.

The Union Budget 2024-25 Impact

Let us understand how the change in the custom duty of shrimp and financial support from NABARD has impacted the company's revenue and position in the market:

a. Increased Profit Margins:

With the basic customs duty reduced to 5%, the government has effectively reduced the prices of raw materials for companies like Avanti Feeds. This means the company has better profit margins, allowing it to offer its products at competitive prices all over the world.

b. Increased Export Competitiveness:

Since the company is paying less for its imports, it can offer its products at cheaper prices. This gives it a competitive advantage over other international peers like Ecuador and Indonesia.

This also opens doors to new markets for Avanti Feeds, potentially allowing it to grow in terms of both revenues and volumes.

c. Boost in Overall Seafood Exports:

This reduction is supposed to help India sell more seafood altogether. India's seafood exports have been peaking over the past few years due to worldwide demand. Frozen shrimp is a significant component of these exports.

Considering the sheer scale of Avanti Feeds in the production and supply chain, the reduction is set to boost overall exports.

d. Support for Shrimp Farmers:

The government has announced financial aid through NABARD for shrimp farmers, which will give them access to more capital to grow shrimp. An increase in production means more supply for Avanti Feeds, ultimately benefiting both its feed and processing segments.  

e. Long-Term Growth Potential:

The reduction in the customs duty is part of a bigger picture. The ultimate goal here is the advancement of the aquaculture industry, with support for nucleus breeding centres and exemption in input duty.

Avanti Feeds can fully take advantage of these initiatives because of its integrated business model. Ultimately leading to increased growth and profitability.

Avanti Feeds' Foundation Story

Avanti Feeds was established by Venkateswara Rao Alluri on 6 January 1993 and is headquartered in Hyderabad, India.

It is a big wig of the Indian aquaculture industry with a speciality in producing and processing shrimp farming, accounting for over 80% of its revenue. The company also dabbles in generating renewable energy.

Let me blow your mind with some big numbers here. Avanti Feeds operates 5 manufacturing units with a total production capacity of around 6,00,000 metric tonnes a year. Farmers from the states of Andhra Pradesh, Tamil Nadu, and Gujarat are its primary customers.

The company sells its products under multiple brand names:

• Profeed
• Titan
• Manamei

Around 19.65% of Avanti Feeds’ revenue is thanks to its subsidiary, Avanti Frozen Foods. And, surprise-surprise; it also processes and exports shrimp!

Most of its Research & Development (R&D) is dedicated to upgrading the quality of its feed and its processing techniques.

The Union Budget's announcement of reduced customs and financial aid is a great boost to the entire aquaculture industry. If Indian shrimp exports were doing well before, with the new and reduced customs duty on shrimp and fish feed inputs, they are likely to do great (hopefully double).

Let's understand the business segments of Avanti Feeds.

Avanti Feeds' Business Model

The company has two primary business segments:

a. Aquaculture Operations

The company handles the entire shrimp production process, which includes three sub-segments:

1. Shrimp Feed:

Its speciality is manufacturing top-quality shrimp feed, which is formulated with just the right nutrients to help the shrimp grow healthy and sustainably.

The company places a great focus on the quality of its feed and innovates it on a regular basis to stay toe-to-toe with the growing industry demands.

It produced around 5.32 metric tonnes of shrimp feed in FY24 alone, with a goal of further cementing its position in the market.

2. Shrimp Hatchery

Avanti Feeds also hatches shrimp. The company has an advanced hatchery in the Gudiwada village of the Visakhapatnam district of Andhra Pradesh. This hatchery is capable of producing 600 million post-larvae shrimp seeds.

The hatchery segment provides a steady supply of healthy shrimp seedlings, which is vital to the aquaculture industry. The company focuses on breeding superior shrimp.

3. Shrimp Processing

Avanti Feeds purchases, processes and exports shrimp. Its state-of-the-art facility is designed to handle and enhance the value of shrimp products for a global market.

The company's focus on quality is also the reason why its products are on par with international standards of quality and are seen as premium in the international markets.

b. Power Generation

This segment is unrelated to shrimp. Avanti Feeds supports sustainable power, using windmills to generate energy. Additionally, it is involved in other projects, including hydroelectric and gas-based power. This can be seen as a strategic move to help the company diversify its sources of revenue.

Avanti Feeds’ business model is a well-oiled machine. It has adopted an integrated approach to managing the aquaculture segment. It also places a great focus on expanding its operations and quality through investments and innovation.

Aquaculture and Seafood Industry Overview

The global aquaculture & seafood industry is doing better than it has in years. The sector is expected to reach around ₹2.84 lakh crore by 2028, with a Compound Annual Growth Rate of 6.5%. It has even left the capture fisheries behind for the first time.

This growth is projected thanks to the growing demand for seafood, consumer preferences changing towards more health-conscious trends and the increase in fish oil needs.
The landscape of the sector is seeing major changes due to advancements in technology, such as Internet of Things (IoT) connection, Artificial Intelligence (AI), drones and climate resistant species.

Did you know that the global population is expected to reach a whopping 10 billion by 2050?

So many mouths to feed! Obviously, the increase in population means an increase in the demand for food. Seafood sectors are set to see a rise in demand due to the increasing need for food.

The aquaculture industry will need to step up and fill the gap in the global demand for aquatic food and bolster income & employment. The Food and Agriculture Organisation of the United Nations (UN FAO) places great emphasis on the need for this expansion to be sustainable.

The Indian seafood sector is doing pretty great itself, thanks to the “Blue Revolution”. It gave a much needed boost to shrimp culture. Over the past years, it  has led to exponential growth in the exports of processed shrimp. 

In FY 2023-24, India’s seafood exports reached their highest level yet, at a value of ₹6,165.3 crore or $7.38 billion. It weighed 17,81,602 metric tonnes, and the star of these exports was frozen shrimp.

These are mind-blowing numbers, but the government aims to double them to ₹1 lakh crore and create more than 50 lakh new jobs under the PMMSY program.

Even with great growth projections and serious government support, the industry did hit some speed bumps. In FY24, shrimp culture faced a few issues, including:

• White spot disease
• Unfavourable climate
• Fluctuations in farm gate prices

However, the industry is set to leave those speed bumps behind with the improving conditions. The rise in sales of feed and processing capacity will help the industry recover and grow.
The newly established Krishnapuram Processing Plant by Avanti Feeds and its focus on providing quality products might be just what the industry needs to boost exports. It might even expand into new global markets like the US and Canada.

Avanti Feeds’ Financials

Now, on to the heart of the matter: the numbers behind Avanti Feeds.

The company’s net sales have seen a steady increase, going up to ₹5,368.89 crore in March 2024 from ₹5,035.96 crore in March 2022. This rise shows that the company’s growth trend is healthy.

Additionally, it has also demonstrated efficient cost management, with its operating margin increasing to 8.55% from 6.43%. The company is also doing well in terms of profitability growth, as indicated by its net profit, which went up to ₹393.81 crore from ₹245.23 crore.

The company is also working hard at expanding itself while investing in assets, as can be seen with the increase in its total assets and total liabilities. The increase in total reserves is a clear indication that the financial health of the company is robust with a healthy share of retained earnings.
Although the share capital of the company has not changed, its borrowings have risen slightly in March 2024. This means the company has taken new debt, maybe to finance its growth initiatives.

The company has a promoter holding of over 43%, which means that it's significantly under the control of insiders. It also means that the promoters have confidence in the business model of the company. Overall, Avanti Feeds’ financials showcase stability.  

Peer Comparison: Who is Avanti Feeds' Against?

With over 45% market share, Avanti Feeds is a leader in the industry. Compared to its peers, we can see that its operational efficiency is quite strong.

As is clear in the infographic below 👇

Its 3-year sales (9%) and profit growth (1%) are the lowest among its peers. This may be an indication of profitability issues. It has low debt-to-equity (0.01), which may create a solid foundation for sustainable future growth.

It can gain a competitive advantage in the market by using its profit margins and taking advantage of its efficient capital utilisation.

The Bottom Line

That’s all, folks. Avanti Feeds’ share price saw a 12% hike, and the reason was not just the Union Budget 2024-25. Yes, some serious government backing was announced, including financial aid and reduced customs duty, but there’s more to it.

You see, Avanti Feeds is a market leader with strong fundamentals, financials and growth possibilities. Hence, the turn of market sentiment in the company’s favour.

The question now is, “Will it be able to maintain its standing in the face of rising competition?”

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Finology Insider and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.