Avanti Feeds

Some highlights from Q1 FY24 earnings call

Input cost outlook
The raw material costs are still high. It is expected to be high in Q2 and possibly rest of FY24.
The freight costs have come down, which helps a bit.

Revenue growth prospects
Management commented that the outlook of shrimp culture industry is a bit bleak. The import of brood stock fell by as much as 40% in Dec-Mar 2023. This means that the demand will be severely impacted.

Demand outlook
Previous year demand was dampened due to inflation. China is also suffering from economic woes resulting in drop in demand.
The company is trying to diversify into different market and into value added products. Though the demand is expected to recover, it is still very early to say when it will happen. The management did mention that things are not playing out as what they had predicted earlier.

Margin sustainability and Profitability
The industry is suffering from high cost and an oversupply issue that puts pressure on margins.

CapEx items
The additional shrimp processing facility will be online in Mar 2024. Besides that, they are also investing on fish feed plant to venture into the fish industry which will be in collaboration with Thai Union. However, the capacity utilization will still be low in next 2 years.

Cyclicality
It looks like there will be a bit more downside in FY23. Yet to reach cyclical bottom as the worst is still to come. Nikhilesh mentioned that the shrimp price is probably at lowest point and we might witness some consolidation in next 16 to 24 months. But, the management lacks confidence in foreseeing any improvements in FY24.
Meanwhile, the company has invested on capex, which would provide it enough flexibility in capitalising recovery when the cycle turns.

Outlook
The company for sure will be under continuing tremendous pressure in FY24. However, they have enough gun powder to navigate this cycle and are still profitable.

Some core hypothesis

• Input cost would gradually decrease going ahead
• Demand will start to pick up from Christmas season.
• Shrimp price will increase slowly as we are probably at lowest point (Q3 onwards)
• CapEx would help to slingshot during cyclical recovery from FY25 onwards

Disc: Invested and having a SIP to accumulate