Moderator Thank you, sir. Ladies and gentlemen, we will now begin the question-and- answer session. If you have a question, please press * and 1 on your telephone keypad and wait for your turn to ask the question. If you would like to withdraw your request, you may do so by pressing * and 1 again. Ladies and gentlemen, if you have a question, please press * and 1 on your telephone keypad. First question comes from Faisal Hawa from H. G. Hawa and Co. Please go ahead. Faisal Hawa Sir, how much more expansion is now viewed? And what is the kind of CapEx that we'll see in the next one or two years? And how much will it add to our revenues? What is sales for the expansion that will not now lose? C. Ramachandra Rao To answer this, the expansion, one is, that which is already we have undertaken for the shrimp processing, which will commence in end of this year or financial year. So, the 7,000 tons capacity. And our endeavour is to make maximum utilization of the capacity and particularly the value-added products. So, that is going to give you the higher sales volume, exports volume. That is one area. And the second area is that, the pet care, but it will take time. We are expecting that it should be completed by end of 2024, it will take about a year and or to complete the project. And from 1st January 2025, we'll be able to commence the sales in the pet care products. So, coming to the feed, we already have sufficient capacity, and last year we had the slowdown of the shrimp culture because of the unrelative prices and so many other reasons. But now since, the market is picking up particularly in the US, exports to US is increasing. So, we expanded. The culture is also now briefly going on, even though it is not the normal season. But keeping in that, we expect that the coming year 2024, the sales of the feed also will go up to their higher capacity and the value-added products and shrimp exports, these two will form the majority of the export sales and domestic sales in the next year. Faisal Hawa So, what is the sales that we expect in FY24-25? C. Ramachandra Rao As we know that, particularly this industry, we can't exactly precisely say this is going to be the turnover, the figures we cannot give. But one thing what we can say is that, the things are improving. See, initially, if you remember during our earlier last quarter's call, we were having a very sort of not pessimistic view rather on the entire industry in the next one year and perhaps even in the 24 also. But however, thanks to the improvement in the market, US market pickup and exports and also the culture. So, we are expecting that the things will be much better and more optimistic in the rest of this year and also 2024. So, that is an indication with what we can do at this point of time. So, once we have the figures for 31st March 2024, that is, this financial year, I mean, the most important thing is how the next season starts. Normally, the shrimp culture season starts in end of January or February, but as it stands today, the field report is that the farmers are enthusiastic about the next year and soon after the harvest of the current crop, they will start, as early as possible they would like to start next year. That is what the indication we give. Perhaps after 31st, that is next quarter and we'll be able to give you an idea about what is the picture that is going to emerge in 2024-25, that is financial year. Faisal Hawa And sir, as a market cap you sale, our valuation is at the lowest, it should be over the last one decade or so. And the biggest concern about our stock is how we utilize our cash reserves. So, why do we not undertake a small buyback, open market buyback from the market, really lose our cash also as well as address the valuation issue? This is the best valuation it has been in the last. C. Ramachandra Rao I think this question we are getting almost in every con call. And we have been explaining the reason, because the buyback would not result in any advantage to the investors at all, because the money which we are going using it for our working capital is helping us a lot to make whatever the value, the profitability of the company. If you go for bank financing, which is very, very expensive. So, instead of going for bank financing, we are using this particular, the reserves, that funds which we have, we are keeping on using them at optimum level. So, we are able to get much, much better the prices for the raw materials, as well as from the banks that we don't borrow. If you look at our balance sheet, we don't have any debts to the company and to the banks for working capital limits, that gives a great advantage. And on the other hand, by just giving 1% or 2% or 5% buyback, it is not going to help anybody, neither the company nor the investor. So, it is always advantageous to keep the resources as and when we want. Now, for example, the pet care, we don't have to invest anything. Neither the collaborators nor the company is interested in borrowing it, because so many conditions attached to date, the interest, all these things would make the project much higher than what it is. So, we have the great advantage of the funds to immediately implement and go ahead with our production as early as possible. So, we need not have to depend upon the bank borrowing. In fact, this is being appreciated by even the collaborators also. So, because they also would not like to go for bank borrowings. They always prefer only better to use our own resources for any expansions and all. So, as and when we decide, it should be readily available. On the other hand, whatever the surplus that is remained, is we are giving for working capital limits, because seasonality of the industry is one of the, again, major concern because, the seasons keep changing and the aquaculture also keeps changing. So, what is there in the first quarter is not there in the second quarter. So, first quarter spillover comes in the next quarter. So, we must be ready with the funds so that we can use them for raw material procurement. And particularly, when the prices are low, we are able to keep higher stocks and take advantage of it. Now, for example, soyabean meal, fresh crop is coming, we are waiting for the price to come down. If they come down, immediately we buy quantities for normal cost, if you keep 15 days, we keep more than one month. So that gives you lots of advantage for us. That is the reason why, this has been several times discussed at the board level. But somehow, the board considers that it is a wise thing to go ahead with this policy. Faisal Hawa Okay. Thank you, sir. Moderator Thank you. Next question comes from Nitin Awasthi from Incred Equities. Please go ahead. Nitin Awasthi Hello, sir. Am I audible? C. Ramachandra Rao Yes, sir. Nitin Awasthi Sir, firstly, I would like to recall that, like you mentioned in the opening remarks, that the sales are starting to pick up in the last two months, at least that's what the data is showing, theexport from India is picking up. What would you attribute this fact to? Is it that problems in Ecuador where we are finally backing off because of their internal issues or something else? C. Ramachandra Rao Nikhilesh, can you please take up this question? Alluri Nikhilesh Hi, Nitin. Am I audible? C. Ramachandra Rao Yes. Alluri Nikhilesh Hi, Nitin. I hope you're well. So, to answer that question, it's not due to any other factor, but the reason being that the first half of the year, the imports have been down as data shows, but in the second half, especially during this period the product for Thanksgiving and Christmas goes in, so that's why you see an uptick in the shipment to the US in particular. I hope that is answer. Nitin Awasthi Yes, that fairly answers it. Secondly, because of this uptake, we are seeing an optimistic outlook at least building up for the next year, next harvest, like calendar year harvest. However, the two raw materials that you will use, fish meal and soya. Officially, particularly even now seems to go big, is going buzzer, because I think all the supply from India has been absorbed by China, which we have not seen in many years and it's been abnormal prices that we're seeing. So, profitability seems to be very largely impacted because of that. At least, going forward, we see that prices of 150, it is not very farfetched. C. Ramachandra Rao True. What you said is correct. See, the profitability is impacted, but we are making a lot of efforts to convince the government that you make a provision by whatever the procedure you call, whether it is on the imposing a restriction on exports or discouraging by withdrawing export incentives or whatever it is. So, whatever the shrimp meal that is produced in India is first made available to the local industries, because this is a value-added product. What we are doing is, we are producing the shrimps and we are exporting the shrimps and the value-added product is more advantageous to the government. But however, as you know, we have made representations to the government and we are awaiting. This is a thing which has to be answered by only the government, because we as a consumer, we do not have much choice because if you fish meal exporter, the producer says that when I am getting so much there, why should I give it to you. That’s what. At least as Avanti Feeds has got a better relationship with most of the manufacturers, at least when they don't have export orders, they’ll first refer to Avanti. So, that we have been able to keep our requirements getting, but the price is something which is very difficult. Only marginally they reduce the price compared to their exports, that is the only thing which we could do at this point of time. Hopefully, the government would realize the necessity for regulating this exports of shrimp, fish meal to other countries. Most so, what happened is, Southeast Asian countries which they consume the fish meal, the Chile and Peru, the transportation and also off late there has been decrease in the fish catches in Chile and Peru that is also has contributed to some extent, the shortage of fish meal in those countries. So, they added to that, the cost effective fish meal procured from India, that is the reason why most of the Southeastern countries are importing from India, the fish meal. I think that's what we can do at this point of time, sir. Nitin Awasthi Understood sir. But this seems to be a very serious factor, which could actually halt the growth of the industry for no fault of its owns. So, I think action should be taken from the government side, it's good that you are representing. I think the representation should grow because the numbers speaks for itself , one country has plucked out more fish meal from India in this year than I think four- five years combined exports. C. Ramachandra Rao Yes, see, in fact, our CMD, Indra Kumar, he represented twice. He went to Delhi, met the Finance Ministry and also the Commerce Ministry and requested them to do something to regulate it. It's not necessary. You're completely banned. But you can always put the parity, you can bring the level playing for Indian consumers also. So, if you make the big difference, that is not going to help the domestic industry. Though, they realize, but it's all the government procedures and all the that they said, when we are getting foreign exchange why should we discourage them. So that is the stand the government always takes, because they are getting foreign exchange. That's a valuable foreign exchange. So naturally, they say why should we put restrictions. It is what is happening. Anyway, it will not happen, but one day definitely they’ll realize that how it is they helps the domestic industry to increase its the same foreign exchange much more multiple number of times you can get it if shrimp is exported. That has to be realized by the various levels with the government and the policy has to be brought whereby they can at least put some quota or something like that or discourage these incentives that is duty drawback, road tap and all these things can be discouraged. So that a portion of the production is given to the Indian consumers. Nitin Awasthi Got it, sir. So last question from my side. India Shrimp Tariff Act has been introduced in the Senate in US. Any thoughts on this? Why India being targeted specifically? Because, I think, Ecuador share has also being considerably up in exports to the US. However, they are getting treaties being signed, trade deals being signed by them and tariffs being reduced. And on the other hand, you have Indian Shrimp Tariff Act which brings, I mean, like that just makes the business unfeasible the tariffs this Act goes through. C. Ramachandra Rao Nikhilesh, can you take this question, please? Alluri Nikhilesh Could you repeat what you're saying, Nitin? I'm sorry, I couldn't hear the first part. Nitin Awasthi No worries. I'll just repeat it. So, there's this Act which is being introduced in Senate in the US, the India Shrimp Tariff Act. And meanwhile, there are also import from the Ecuador, which is our competitor. So, US has been increasing multi-fold, and whereas with Ecuador, US has been signing trade agreements in trade deals, lowering their tariff and they are introducing bills like this, which will actually make business in the shrimp processing industry impossible if bill like this go through. So, what are your thoughts on that? Alluri Nikhilesh Thank you, Nitin. I would like you to double check on the information. The duty, it's not the Indian shrimp Tariff, it's called the CVD or Countervailing Duty that's being put by the US on shrimp from India, Ecuador, Indonesia, Vietnam, so all the major shrimp processing countries. And in addition to the Countervailing Duty, I see that Indonesia and Ecuador might will be subject to, even Antidumping Duty. So, I feel that this is not to India specific, but it's more towards the general shrimp producing country. The biggest, in my opinion, the duty which is proposed to be included if everything passes, which also again, there's so many bills introduced. So, it’s not all of them go through, right? So, if it does get introduced, it's going to be a country specific duty. So, we need to see how this develops, but it's not India specific. So, it is a big question mark right now, but this is an external factor, which is the US Government governing this. So, we are waiting for the developments and the following and taking the necessary precautions. But again, I just want to assure you this is not India specific. Nitin Awasthi Understood. So, heartening to hear that. Thank you. That's all from my side. Moderator Thank you. Next question comes from Jasdeep Walia from Clockvine Capital. Please go ahead. Jasdeep Walia Hi, sir. Thanks for taking my questions. So, I just wanted your thoughts on, how does cost of production compare between India and Ecuador, first at the raw shrimp level and then at the processed shrimp level? C. Ramachandra Rao Nikhilesh? Alluri Nikhilesh I'll take that question. So, the specifics on the cost structure, I'm not 100% aware, because it's not usually clearly disclosed. We just have an information on people giving us information by word-of-mouth. But looking at it, the cost structure, the cost of the farm gate shrimp in Ecuador is lower than India. This is due to a variety of factors, because most of the processors in Ecuador are actually also large farmers, right? So, they are controlling the farm gate price and doing the vertical integration play, where it's unclear what is the actual cost of production. But on processed shrimp, definitely, Ecuador is very cost competitive. They are the biggest competitor to Indian shrimp today. But again, we play in different, I would say like Avanti, in particular, plays in a different game compared to Ecuador, because Ecuador just focuses on very commodity products like headless shell on or head on, shell on. So, just basically taking the shrimp and selling it there. We focus more on value- added play. Nevertheless, there is intense competition from Ecuador and the processed shrimp on the commodity products, they're more attractive than India. But again time and again, we've been saying in the last few years, we focus on moving away from commodity to value-added products, which is beneficial for us. I hope I answered your question. Jasdeep Walia Sir, in your earlier commentary, you used say that on the processed shrimp side India is more competitive because cost of labour is lower in India. So now you said that Ecuador is more competitive. So, can you explain this dichotomy? Alluri Nikhilesh Yes, I can explain that. So, Ecuador has become the largest producer in the past two years. So, it's not something that we know the last decade. It's come up to be the largest produced in the last two years. So, that is the reason, the commentary has changed today. They have expanded their production from 600 to 1 billion to 1.5 billion now. That is the targeted production for this year. So, we have almost doubled every year for the last two to three years. So, that’s the distance that you see, but we are very competitive on certain products which Ecuador does not focus on. Like, I was saying in my previous comment, Ecuador focuses on value, I mean, commodity shrimp where we focus on value-added shrimp. Jasdeep Walia By value-added shrimp, I understand one category of products is the breaded shrimp or let's say, ready-to-cook kind of shrimps. So, what about basic process shrimp where you just devein the shrimp, clean the shrimp, packet and send it for export? So, there also you're saying, Ecuador is more competitive. Alluri Nikhilesh No. I would say over there, we would be par-to-par, like you must understand, like on a general basis, you see that India has a population about 1.5 billion people today. For Ecuador if I'm not wrong, is not even a 10th of what we have in terms of manpower. So, we are able to process more cut peel deviation compared to Ecuador, and coming to breaded and ready-to-eat products they are still far away. Jasdeep Walia Got it. My second question is that; I've been reading that the prices of beef in US have increased significantly. Also, prices of pork in China have increased significantly over the last couple of months. So, in your experience, you would have seen these kind of trends earlier also. What do you think will be the impact of these price changes on the shrimp consumption in US? Does it need to faster clearing of inventory of shrimp or it doesn't mean much? Alluri Nikhilesh So, it's very difficult to say, because you pinpointed only one factor, which is the price increase in different protein. But you must also, there are so many other factors, like I'm not sure if you came across the Chairman of JPMorgan, who recently said that the disposable income of the US middle class is at all-time low. The savings that they made through the pandemic, et cetera, they're quickly diluting through it. So, there are so many factors that affected. As of now, I would say, like, there is no change in our forecast for shrimp sales in the next six months. Jasdeep Walia Got it, sir. Thank you. That's all from my side. Moderator Thank you. Ladies and gentlemen, if you have a question, please press * and 1 on your telephone keypad. I repeat, ladies and gentlemen, if you have a question, please press * and 1 on your telephone keypad. We have a follow-up question from Faisal Hawa from H. G. Hawa and Co. Please go ahead. Faisal Hawa So sir, since our business is constantly throwing up cash and we are very much debt away. Would it be a right assumption to make that we will keep on making small expansions in different capacity, wherever we see some areas where it can be sold easily and this way we will at least double revenue every four to five years? C. Ramachandra Rao That has been always the, see, always we look for the expansion provided. It creates value addition for the investors, the investment. So naturally, as you know that we have been trying almost like last five, six years to continuously on lookout for a suitable product for expansion, diversification. Of course, fish feed has being discussed quite often. But there is a reason why we did not take up that fish feed a couple of years ago, because there was not a proper demand for the product. We should be able to make profit out of that business. So, that's why we have been keeping. At the appropriate time, that is the answer which we have been giving in all our earlier calls. This is how we are doing it. See, the expansion we are ready to do provided, it has some advantage to the company and the investors, definitely we'll do that. There is no time limit four or five years like that, but we can always. Faisal Hawa Sir, in the last five to six years, has there been any expansion where we have fallen behind deadlines and not been able to start the production on time? C. Ramachandra Rao No, there was no such this thing. Only one occasion that feed at Bandapuram. Because of the post after corona time, shipments did not come. There was about three to four months’ delay. But for that, there was never such a way. We were ready. Only thing is the shipments took time for three to four months, because of the availability of vessels and all those things at that time, this was very, rather, a very complicated issues were there at that time. So that is the only occasion, we did not have any real impact on account of that. Faisal Hawa And sir, debtor days are up a bit. So, is that a seasonal matter or there is more to it? C. Ramachandra Rao Seasonal matter. It is purely seasonal. Faisal Hawa So, we will be always in single-digit debtor days? C. Ramachandra Rao Yes. Faisal Hawa Okay sir. Thank you so much. Moderator Thank you. That will be the last question for the day. Ladies and gentlemen, we would like to come to the end of the conference. We appreciate the interest from the investors and analysts for the participation. Thank you. And if you need any further information, you may connect with Ms. Lakshmi Sharma and Mr. Narender Sharma of Avanti Feeds Limited at investors@avantifeeds.com. Thank you for your participation and for using Door Sabha's conference call service. You may disconnect your lines now. Thank you and have a good day.
AVANTIFEED · Sep 2023 call
Avanti Feeds Limited analyst Q&A
1. This document has been edited to improve readability 2. Blanks in this transcript represent inaudible or incomprehensible words.