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 any questions, please press * and 1 on your telephone keypad. First question comes from Atharva from Purnartha Investment Advisors. Please go ahead. Atharva Bhutad Yeah. So I have 2 questions. 1 was on the EBITDA point of view. Last quarter, we reached 10%. So what are the plans to reach 12% to 13% of EBITDA? Because over the last 10 years, we have had a GP margin of around 20%, and we have already reached that. So how do we plan to increase our EBITDA margins to 12% to 13%? C. Ramachandra Rao Yes. See, basically, the EBITDA gross margins depend on the raw material cost for this industry as we have been almost discussing on every investor's call. Because our major raw materials are fish meal, soyabean meal, and wheat flour. So, for these products, prices keep chang ing. Your question was that the what are the plans for increasing the EBITDA and the gross margin? That is what your question is. Am I right? - 10- Atharva Bhutad Yes. So basically, we have already reached like a 20% GP margin because raw material costs have come down. So how if they remain the same, how do we plan to increase our EBITDA margins? C. Ramachandra Rao Yes. See, that's what I was about to explain. See, this year, the prices have just stabilized, particularly in the year '23. We have seen that compared to year '22, '23 was more stable. All the prices except the fish meal which went very high because of the overseas demand. And that was also the reason because of very low production in Chile and Peru. So that has caused the international market high prices of fish meal because India was the supplier of fish meal to all the Southeast Asian countries which were hitherto getting from Chile and Peru. This year there is a very good crop that is the fish catches are very good in Chile and Peru and they have resumed the production of fish meal and supply. So the prices have come down from INR 125 per kg. It went up even INR 135 also. Now it has come down to about INR 98 - 99 is now. We expect that it will be stable between INR 95 to 98. It may not come down further. But certainly, it will be around definitely much lesser than INR 124, 125 levels. And we for the rest of the year, we hope this will be continued. And similarly, the IMD has predicted a good rainfall this year also. Sothough you got very good crop last year, both soya as well as wheat. So this year also, we are expecting that the soyabean production and wheat production would be at same level if not more in the current year also. Because the sowings will start sometime in June-July, the soya. And September-October we get the 1st crop. Similarly, the wheat harvesting will be in March '25. So we see that the much variance is not going to take place for these 2 products. And fish meal again is a very, what you call, a dice situation because there is a shortage of fish catches in the West Coast in India.In fact, some of the factories have suspended production. And they may have banned from 1st July or so the fishing ban.So, with all these figures taken into consideration, we see that if it can be less than INR 100, that will be a very good sign. We should be able to keep up the margins in a comfortable level, both EBITDA and also the gross margins. And as far as the produc tivity is concerned, we have a good production, good yields are coming and we have sufficient production capacity also. And again, it depends on the how the culture, takes, its, you know, way in the coming months in 2024. As I just explained, the farmers when they started with the enthusiasm in January and February, their enthusiasm did not last long because of the climatic conditions and the white spot and all. They had to do some, early harvesting. So, they are now looking for stocking it again from Jun e. From June, it should be good because there it is not an extreme climate. It's an ideal climate through June, July, August we'll have a good season. So we are expecting that the farmers would be able to take out good production during the next 4 months o r so. 60 - 11- days to 90 days we should be able to do. As we expect it happens, it will be good production. Whatever is we have lost in the first quarter, we'll make it up in the 2nd and 3rd quarters. So that way we look forward for a stable performance for the 2024, 2025 year also. Atharva Bhutad Ok. Another question was could you explain why the cash flow from operations have reduced from INR 451 crores to INR 263 crores this year? C. Ramachandra Rao This is mostly because we do more working capital. We are using it for working capital. It will be more, inclination for that side. Shanti Latha There is a cash flow statement is there. but you see because of working capital changes there is a reduction in the cash flow. Otherwise, from the operations, if you see profit before tax and the adjustments, there is an increase from INR 274 crores to INR 341 crores. But the adjustments in the working capital because there is an increase in the inventory, if you can see, and also, there is an increase in the debtors. So that is what has made it like the operations, it is INR 288 versus INR 177 crores. I think you have the numbers! Atharva Bhutad Yes. I have the numbers. I just wanted to understand the inventory part of it. Like, what is the what is the reason for the increase? Because I think last quarter, it was said that, we will stock up inventory for value added products. So I just wanted to understand if that was the case. C. Ramachandra Rao Frozen or feed? Atharva Bhutad Frozen. C. Ramachandra Rao Consolidated the cash flow statement. You see, we have consolidated and standalone fee. Atharva Bhutad Yes. So actually , last quarter you had just said that we are going to stock up inventory. So, I just wanted to understand if that is the reason why inventory has gone up. - 12- Yes. See, what happens is I'll explain this. See, the what happens is when we for accounting purposes, what we do is, though it is dispatched, but it has not reached the destination. As per accounting standards, we are taking it out as inventory only, as a stock in transit that we are taking. So, compared to that, it will be more in the end of the year. There are more shipments have taken place. So it is mo re now. Inventory is more. After 45 days, it will come down. At 31st March, it will be more, because all the shipments that have taken place in the second half of March, which is much higher this year, that would not have reflected in the form of a sale. It will come in as an export sale only after it reaches the destination. Atharva Bhutad Ok, thank you. Moderator Thank you. I request the participants to restrict with 1 question in the initial round and join back the queue for more questions. Next question comes from Amit Agarwal from Leeway Investments. Please go ahead. Amit Agarwal Good afternoon. My question is regarding domestic market. Sir, there is a domestic market is huge for prawn market, but surprisingly, your presentation show that you don't sell anything in domestic market. Any particular reason for this? C. Ramachandra Rao We have started domestic market sales, and we did lot of study on what type of products are required and we have already appointed 1 DGM and 2 RMswho are working on that. We have identified the areas and we have in fact have some dealers also have been appointed. And see, the most important thing is that this is again a credit market. We have to be very careful because, when we are trying to only focus on the cash sales, I mean cash in the sense immediate daily addressed payment. So, it will take some time, but we are very confident that in time to come next, maybe by end of this year, we should be able to increase our domestic sales significantly. Everybody wants credit. So they don't pay on time. That is a big risk. If you supply material and then go after them for money. This is a very big headache which we do not want to take it up for the domestic sale. If we are giving credit, everybody will come and take it. - 13- Amit Agarwal Sir, what is the size of the market? And who are the big players in the market right now, in domestic market? C. Ramachandra Rao I don't have any exact lead. You can you send an email and we will get back to you? Because we'll discuss with marketing team and come back to you with survey reports. Amit Agarwal Just last question regarding the same thing. Sir, is this a low margin business or is that a profitable margin? C. Ramachandra Rao I'll clarify that point, because this market, there is no statistics readily available. It is only our marketing staff or an y company's marketing staff t hey go around the market and find out and give the reports. But they do not have any published reports as per the market survey on this. That is one issue and whatever figures that we are giving is only the data collected by our marketing team. Yes, please go ahead with your next question. Amit Agarwal My last question is I'm a vegetarian, so I just don't know much about it. Sir, is prawns and shrimps the same thing or we are specialized in shrimps only and not in prawns? C. Ramachandra Rao I think my colleague, Mr. Venkata, you answer it. A. Venkata Sanjeev It is the same thing in the Indian market. There's no difference between prawn and shrimps in the Indian market. We just use different names for it. Amit Agarwal And same in the export market, is it also the same? Shrimps and prawns are the same thing? In export market, USA market? A. Venkata Sanjeev Yes, in export market is also similar. Actually, there's a not a big difference. - 14- In export market, they call it as frozen shrimp. Amit Agarwal Okay. And in domestic market, you call it prawns, right? C. Ramachandra Rao Yes. The locals call it prawns. Amit Agarwal Okay. Thank you. C. Ramachandra Rao Thank you. Moderator Thank you. Next question comes from Kaustav Bubna from BMSPL Capital. Please go ahead. Kaustav Bubna Yes. Hi thank you for taking my question. How is the pricing of Indian processed shrimp compared to Ecuador and Indonesia post the addition of duties by the United States on all three of these nations? So, could you please give the pricing of processed shrimp into the United States for India, Ecuador and Indonesia pre and post imposition of countervailing and antidumping duties? C. Ramachandra Rao Yes. As you said, the Ecuador, normally the pricing depends upon the production supply and demand. S o, the Ecuad or being having large production capacity, they are in a position to slightly lesser in cost perspective. And they are being nearer to U.S. t hey try to capture U.S. market. And China is also there, one of the big markets that they diverted. Last year, there was some problem with China. They were not exporting much to China. Now they focused on Ecuador. But of course, India and Southeast Asian countries more or less same cost of production will work out. And we stand in a better footing for the reason that our quality of the value added products or the raw traditional products is more compared to others. So, we have more exports to U.S. compared to others. I think in the U.S is one of the largest exporter to U.S. is India. So, pricing also varies. And it depends upon the international market price. So it keeps on fluctuating, almost, like every day there is a new price. What we work - 15- is we take into our cost of production and conversion cost and see the margin. But it is notnecessary that always you make a big margin out of it. It all depends upon the demand and supply andanother thing is the inventory situation in U.S. and other countries, Europe. As far as our company Avanti is concerned, we are very happy to say that we have been able to make good inroad into the Japanese market and in fact, CMD and also Mr. Nikhilesh, ED, both of them are working very seriously on that. And we are very confident that many importers from Japan are showing more interest towards our product s. So I think that we should be more spread in the global market, not only U.S. But we'll have whole of Europe as well as the Japanese market also with you. We have some Vietnam also we got. Korea, I'm sorry, Korea, not Vietnam. Korea. Kaustav Bubna No, but sir, I mean countries would put import duties onto other nations, if they were promoting domestic production, right? So how is the domestic production of growing in U.S? And how do you see that as a risk to exports in general to the U.S? And also Ecua dor is really close to the U.S. So how do you view a nation who is so close to the U.S, taking market share from India? C. Ramachandra Rao See, the method of levying the dumping duty or CVD depends on the cost of production. And the basic dumping duty co mes from the concept that these countries are dumping the products in U.S. market less than what their cost of production is. That is the concept that comes. And, U.S is very, meticulous and particular about this aspect. And they go into it almost like every year there is an exercise going on what, to for determination of the, rates that are being charged for these products because almost every country definitely resists this. And if they go with an appeal, the figures that what you have arrived at the rate is not correct. It is not that so much subsidies or certain things, we are not getting it, our cost of production is equally high and the exporters are giving details to them and trying to convince them to reduce the duty. However, the U.S. has its own methodology and its own criteria for determining the rates, and they do come to countries and they take the figures, work out what is the cost of production. They take into consideration what are all the subsidies, support that's being given to these exporters from the government side. So, they take all these things into consideration and they arrive at what is the dumping duty. Or even the CVD is nothing but what the taxes that we are giving the relief. The government is giving relief on taxes paid on expo rt products that they consider it as a subsidy. So, they added in CVD. Like that, these are the things. In fact, the government of India as well as these export associations are fighting very tough, saying that these are all not the, actually, the subsidies, but it was only the, you know, reimbursement of duties and taxes paid by the, domestic exporters for the export. Even every country has this provision that any export is made from their country, whatever taxes paid locally is refunded. - 16- The same thing this is the stand which the Indian exporters are taking in their briefing which when you submit objections to the pr eliminary determination of 4.36% CVD, these are the things which we are going to present it to the Department of Commerce in justifying that every country will have this and so you should not be charged as CVD. So, these are all the things which are always continuously being, you know, engaged with the lawyers and experts on this with the Department of Commerce. So, by October, we will know exactly what is the final determination. Is it going to be less than 4.36 %. And so, we have all our efforts towards that. Similarly, dumping also. We cannot specifically say, the criteria is that what is the cost that the local exporting countries are incurring to make this product. Are they selling it in U.S. lesser than that cost? That is the basic criteria for dumping duty. The difference is treated as a dumping duty and they are charging the anti-dumping duty. Kaustav Bubna Ok sir. Thank you. Moderator Thank you. I request all participants to restrict with 1 question in the initial round and join back the queue for more questions. Next question comes from Nitin Awasthi from Incred Equities. Please go ahead. Nitin Awasthi Hello, sir. Just wanted t o understand how the booking of the CVD will be done given that the rates are out, but they're not final as of now. And the final rates will be out on October 6, like you mentioned. So, from Q1, will we already start expensing it out and booking it when we report our first and second quarter numbers? And finally, when the final rate is out, will we make an adjustment post that or will we keep it separately on the balance sheet till the time the final rate is out? C. Ramachandra Rao So, the practice is that we will take it as a cost, the product expenditure only. We add on and even that is taken into consideration while we were working for cost of the product also. As and when they make the determination and when they refund it, only we take it as an income. Nitin Awasthi Understood, sir. Understood. Yes. Because it's only preliminary, we are depositing, but it is from their point of view, it is a deposit. But from our point of view, it is an expenditure. Since, CVD - 17- is an expenditure, we have to add to the cost of the product like any taxes. So, we take it as and when the final determination is made. If it is less than 4.36 %, the difference is refunded. If it is more than that, we have to pay it. The difference also we have to pay from the date. So that adjustment will be made as and when the final determination is announced on 6th October. Nitin Awasthi Understood sir. So, you supplied shrimp directly to a related party, which is Thai Union, which goes ahead and also supplies shrim ps to a related party of Thai Union, which is Red Lobster, which has filed for bankruptcy. So, are we directly exposed to any payments or any receivables from Red Lobster? C. Ramachandra Rao No. As of now, we are not supplying anything to Red Lobster dir ectly. It is only the Thai Union's company, Chicken of the Sea, which is a company of, Thai Union. Through them, it's being exported to Red Lobster through them. Of course, there are so many developments that are taking place in the whole scenario in the U.S. market but so far we have been only doing through Chicken of the Sea. Nitin Awasthi Understood, sir. So last question, capital outlay for the pet food business? C. Ramachandra Rao See, we have initially estimated INR 100 crores. The INR 100 crore s, we are in the process of, you know, like, land cost, you know how it is going up and all. See, we are now working practically on what is going to be the actual cost nearer to the reality, because whatever the plant and machinery cost or land cost or any other civil constructions like factory, other buildings and all we have taken on an estimated basis because full information was not available at the time of estimating the project cost, we have taken on the basis of the information that is provided by Bluefalo, for instance, the area of the factory or other administrative buildings and also the machinery imported, then local domestically purchased machinery and all. But maybe next 6 months, we should be able to come to the real cost of total project, which we are expecting about 20%, 25% increase by the time we complete the project? That's what our expectation. But as of now, the cost is estimated at INR 100 crores and the entire thing is being funded through equity. We are not going for any borrowing as of now. Nitin Awasthi Understood, sir. Bluefalo has any shareholding in the JV? See Bluefalo has got, the owner Dr. A. Indra Kumar, CMD is also having a share in that. - 18- Nitin Awasthi No. So the JV that we have made for the pet food division, how much is owned by Avanti Feed? How much is owned by others including Bluefalo? C. Ramachandra Rao Yes, capital structure is 51% is held by Avanti Feeds and 17% by the promoters, another 15% by Bluefalo, another 17% by some private investors. Nitin Awasthi Understood, sir. Thank you. Moderator Thank you. Next question comes from Gunit Singh from Counter Cyclical Investment PMS. Please go ahead. Gunit Singh Hi, sir. In one of the replies to our previous participant, you said that, wh atever loss or whatever conditions we are seeing in the first quarter, they will be made up in the coming quarters looking at the season and the cultivation. So, I would like to understand, since we are 2 months into Q1, what are the current conditions in the market? What kind of sales and what kind of, I mean, margins are we looking at as of now? Is it like below expectations? I want to understand your views on that. C. Ramachandra Rao Yes. As explained, I told that in the first quarter that is till 30th June '24, that is the first quarter, which is rather lesser than what our expectations were. In the normal course, you may see that May, June are the peak months. But this year, it was slightly different because the first crop was not, when continued for a period which is normally should have. But they have, there was premature, at least harvesting. So that's why there was a gap. And now they are starting again. In June 1st week, they are starting. It means that June month, it will be less only, because they will not be stopping, all the points at a time. They gradually, they go on stocking it. So, what I said was the second quarter means that is July, August, September, October, November, December. See, like that stage wise, you get better yields, becausewe are presuming that on one side, the culture will be very good, so that gives, you know, opportunity for increasing our feed production and sales that we make, and raw material costs are also likely to be more or less stable in the next half year. So, there 2 quarters. So, I think all these things put together, subject to the conditions, all these work out favourably. We should be able to makeover whatever the loss of sales, that was there in the first quarter, can be made good in the second quarter and third quarter. - 19- Gunit Singh Alright, sir. So, I mean, look, Q1 is normally our heaviest quarter in terms of sales. So I mean, that we could not be able to maintain the Q1 sales that we made in Q1 last year. Is that a fair assumption? Santhi Latha No. I think we are not expecting any drop in the margins or in the quantity sold in the Q1. Though, the market is not doing well. Santhi Latha We want to increase. C. Ramachandra Rao You expected more, but, it did not happen. But nevertheless, the overall situation will be, next to make up the shortfall in the 1st quarter, in the 2nd & 3rd quarters because there is a delayed drop rate. Santhi Latha So, we expect our market share to go up because the overall market is down. The overall market has not reached its peak in the first quarter as expected. We are talking about the overall market, not only about Avanti Feeds. C. Ramachandra Rao June, we a re expecting to be good stockings in June and July and which will result in a good crop. Already started at some places, but we are expecting that this will pick up momentum in June and it will be somewhere around September, October, November we will be able to get good results. The crop will come and it will be safe manner . It will not be at a one time. we will see the results, the performance in the second and third quarters. Gunit Singh Alright sir. Got it. So, despite the slower market, I mean, Avanti sales and margins in Q1 would not be, I mean, anywhere lower than last year? C. Ramachandra Rao Yes. Still June is there. We are expecting that June will give some relief for us. So we hope so. We'll wait for that. See, because still we have got full month. June entire month is not yet started. So we'll have full month of June. I think, it will have real, impact on the performance. If the June month, we get more sales and all, we get good prices and raw metal prices are also stable, we get good performance in the first quarter, if June goes on well. - 20- Gunit Singh Alright, sir. And you mentioned that raw material prices have mostly softened down and even fresh meal prices have come down from INR 135 to about INR 98 levels. So, what are our outlooks for, FY '25 in terms of steady state EBITDA margins that we can comfortably look at? C. Ramachandra Rao It is very difficult to make any prediction as of now. It is like astrologer making predictions. So because it is a natural law, the fish catches depend u pon the overall climatic conditions and how particularly ocean conditions for, the growth of the fish and fish catches and all these things. Same thing happens for all other 2 raw materials like soybean meal and also this wheat flour. So it's very difficult to predict 1 year in advance. It is, we can only say that today because we are sitting in May end, so we can say next 6 months it is likely to be good. It's what we have been always emphasizing next 2 quarters. So beyond that, what's going to happen is very difficult for us as of now. Gunit Singh All right, sir. So on the new plant that got commissioned the new capacity, so what kind of incremental revenues can we expect from that in FY '25? C. Ramachandra Rao You are asking feeds or frozen shrimp? Gunit Singh Sir, whatever extra capacity that has been commissioned, you mentioned about 7,000 metric tons, right? C. Ramachandra Rao We made a shrimp processing. We have commenced the new factory. And we are focusing more on value added products. Gunit Singh Yes, sir. So what kind of additional revenue can we expect from that, plant in FY '25? C. Ramachandra Rao I think we'll be able to give you in the next quarter, because we have just started that where it's all, because we are focusing more on value added products. And we hope, the next quarter will have more clarity on that how much demand. See as I told you, our CMD and ED, Mr. Nikhilesh, both of them are in fact on tour, to the market. So we'll have to wait and see how the so far has been very good. - 21- Response has been very good for our value added products and we expect that more supports will come and more orders from the other markets also will come. So, I think your question can be answered more precisely maybe by end of next quarter. We will be having clarity in July, August, September. In that quarter, we'll be able to come with a clear picture as to future and what we have been able to succeed with the other markets, but one thing we can say that as of now the whatever products that we are now making has got very good response in the global market. Moderator Thank you, sir. That was the last question for the day. Now I hand over the floor to the management for closing comments. C. Ramachandra Rao Yes. Thank you, ladies and gentlemen, for your active participation. And it gives us more encouragement to answer your questions and work better and see that the value of the investors really increases and we are very confident with all expansion of Avanti Processing division and also new Avanti Pet Care in days to come in the domestic market also, very positive about the future of the domestic market. But it will take some time. Even fish feed also, we are working very seriously on that. With all this, we hope that by end of this year, maybe early next year, we'll have more clarity on the way in which these projects are going. And also the pet care is an interesting one which we are working very hard on that. To see that it's placed on a premium position in the Indian market, and we get a lot of customer response for those pet care products also. I think with all that, I would like to conclude. And thank you for your participation. Thank you very much. Moderator Thank you, sir. Ladies and gentlemen, this concludes your conference for today. 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 ยท earnings call
Avanti Feeds Limited analyst Q&A
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