Avanti Feeds Research Report By Religare

Robust performance likely to continue…

Avanti Feeds reported Q4FY17’s results much ahead of our expectations. Revenue and Net profit surged by 50.3% and 168.5% respectively on YoY basis led by strong domestic demand. The operational and Net profit margins improved led by higher shrimp prices, lower material cost and lower other expenses. Avanti remains a preferred pick in the aquaculture industry. Thus we reiterate a Buy on the stock with an upgraded target of Rs. 1,390.

Q4FY17 Result Update:

– Total income increased by 50.3% to Rs. 704.4 cr compared to Rs. 468.8 cr on YoY basis mainly due to strong demand for shrimp feeds. Domestic sales surged 55.5% to Rs. 639.1 cr, wherein Avanti supplies shrimp feeds to domestic market. Exports increased by 14% to Rs. 60.2 cr which includes processed shrimps exported to US, Europe, Japan, Australia and Middle East countries.

– Operational profit for the quarter jumped 177.3% to Rs. 128.1 cr against Rs. 46.2 cr in Q4FY16. Lower material cost (up 35.4% YoY) and other expenses (up 35.4% YoY) boosted operating margins from 9.9% in Q4FY16 to 18.2% in Q4FY17. Also higher shrimp prices globally in Q4FY17 aided in margin expansion.

– As a result of higher revenue growth and lower total expenditure, Net profit more than doubled from Rs. 31.2 cr in Q4FY16 to Rs. 83.9 cr in Q4FY17. Net profit margin improved substantially to 11.9% in the last quarter of FY17 compared to 6.7% on YoY basis.

Outlook & Valuation

The future outlook for the Indian shrimp industry looks promising. India with its vast coastline, increasing shrimp culture activities and better prevention measures to overcome diseases, is likely to emerge as a major beneficiary and could become the largest shrimp exporter in the world in the coming few years. Avanti Feeds is setting up hatchery (backward integration) and expanding capacities of processed shrimps and shrimp feeds. We remain positive on the aquaculture industry and Avanti Feeds remains our preferred pick in the sector with robust financials (return ratios > 35%), experienced management, capacity expansion plans and bright future outlook. We reiterate a Buy on the stock with an upgraded target of Rs. 1,390.