Vodafone-Idea in dilemma about Adjusted Gross Revenue dues.

Sometimes, the destiny does not favor you come what may. Think of a farmer who wishes to produce a great yield of pulses this year. Suppose, another farmer acquired land just beside this farmer’s land and starts seeding pulses too. The new farmer had seeds and fertilizers in stock and started the farming process just at the right time. On the other hand, the old farmer had taken a loan to fulfill his supplies and start the process.
 

Unluckily, the seeds’ and fertilizers’ prices went up this year. Above that, the laborers who were supposed to help in the farming, couldn’t come due to some reason. Even after all this, the farmer didn’t give up and went ahead with the farming of pulses. But then, the crop was destroyed by hailstorm. Now, compare this farmer with Vodafone-Idea.

Also, compare the other farmer with Jio who faced similar circumstances but did not encounter failure. We’ve recited this story because Vodafone-Idea is once again stuck with AGR (Adjusted Gross Revenue) dues. Just yesterday, the honorable Supreme Court of India adjourned the hearing of this case till June 18. But, the problem is that the court has also asked telecom operators (including Vodafone-Idea) to file affidavits withing next few days quoting the roadmap that they have prepared to clear their dues.

What Does This Mean?

Upon receiving the instruction of filing affidavit form the apex court, Vodafone Idea has submitted that they are not in a position to follow this. The company has said that the dues are too much for them and hence, they won’t be able to submit the affidavit in next few days. The company has also said that it is not left with enough money to even pay salaries and meet its expenses. This is definitely not a good sign for the company.

Since October 2019 when the Supreme Court ordered regarding AGR dues, situation has been only worsening for Vodafone-Idea. There were rumors in between that Vodafone might exit India which the company clarified that it’s not thinking this way.

But, the current situation hints at something different. Telecom industry has moved towards monopoly with Jio at top and the rest struggling for survival. Airtel, the number two is only able to sustain to a certain extent. But, with the raining investments on Jio from all over the world its leadership position has strengthened further.

On the other hand, Vodafone-Idea has come to a stage where it’s now openly claiming its sorry state. Forget about investments, the subscriber base is declining constantly for them. They were expecting some respite from the Supreme Court but, what happened yesterday has put them in doldrums. If the situation continues, the rumors might turn into reality! But, it’s too early to say anything on this. Let’s wait till June 18th and see what comes up.

Avanti Feeds Limited

Avanti Feeds Limited was founded in 1993 with a vision to support the aqua farmers. It fulfilled the requirements of aqua farmers of the then nascent industry by manufacturing feed for shrimp farming of international quality. The company is mainly engaged in the business of shrimp feeds, and power generation through its subsidiaries.

Subsidiary companies are Svimsan Exports & Imports Private Limited and Avanti Frozen Foods Private Limited (AFFPL). Apart from manufacturing feeds, it is one of the largest shrimp processor and exporter in India. It produces nutritionally balanced and scientifically formulated international quality shrimp feed and is one of the largest shrimp feed suppliers in India.

The company is a pioneer in the shrimp industry in India with over 25 years of expertise. Farmers are a key resource to the firm as they supply raw material (shrimp) for its export business. Also, it has a strong dealership network pan-India catering to the requirements of the farmers. It manufactures, markets, and distributes shrimp feed to farmers which are used in aquaculture to grow shrimp.

Farmers are treated as brand ambassadors and are provided with technical assistance in shrimp culture. With its expertise to develop need-based feed formulation based on different regions of our country, it provides quality feeds to its ambassadors. This level of experience and expertise helps the company to maintain its performance in varying climatic and other conditions with an assured yield to farmers.

It observed a decrease in revenue of 2.38% (₹ 2738.02 Crores) and an increase in expenses of raw materials by 10.8% which resulted in a net decline in profits by 47.47% during FY19. But the prices of the shrimp feed were kept unchanged despite an increase in costs to ensure the sustainability of shrimp culture by farmers. It added about 1,400 new farmers to its customer base during FY19.
 

The strategy of incremental improvements and keeping constant prices helped Avanti Feeds to yield better returns in terms of an increase in market share from 43% in FY18 to 47% in FY19 even when the shrimp market declined by 15-20% during the same period. Even in such circumstances, it was able to fully pay its debt of 75.06 Crores and became a debt-free company.

Given its technical expertise, it is capable of scaling up the production at short notice with competitive capital expenditure. The export sales by volume and value have jumped by 40.83% and 29.48% in FY19 even when the exports from India reduced as compared to the previous year. It is increasing its global footprint by expanding its customer base abroad and increase sales with existing customers in non-US geographies.

It was largely dependent on the US market but this expansion strategy paid off and the share of exports to the US has reduced from 85% to 74% in FY19. Also, it has observed an increase in the sales volume of value-added products by 347% during the same period.

Avanti Feeds has 4 windmills generating 3.2 MW in Karnataka. The company holds 49.99% shares of Srivathsa Power Projects Private Limited, a 17.2 MW gas-based independent power project in Andhra Pradesh. Also, it holds 25.88% equity shares of Patikari Power Private Limited which has a 16 MW Hydel Power Project in Himachal Pradesh. During FY19, it generated 5.8 lakhs units of saleable energy and yielded a gross income of ₹ 11.88 Crores resulting in net profit of ₹ 5.31 Crores.  

Risks:

The company’s growth is exposed to unpredictable climatic conditions and natural calamities. Despite the rich experience and developed expertise, there are possibilities of shrimps getting affected by viruses and diseases. Volatility in the cost of raw materials and prices of shrimp in the international market and fluctuating forex rates could affect business profitability. Also, the geographic concentration risk of over-depending on a particular market such as the US may impact its growth prospects.

There are certain external factors that are not in control of the firm such as inadequate infrastructure facilities (power supply, cold storage, etc) and the industry is still waiting for considerable recognition and benefits to be received by the government.