Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gross income for Q1 FY25 increased by 16.7% compared to Q4 FY24.
- PBT for Q1 FY25 increased by 19.2% compared to Q4 FY24.
- Feed sales volume increased significantly in Q1 FY25 compared to Q4 FY24.
- India's seafood exports reached an all-time high in volume during FY24.
- The company is expanding into the pet food market with a new joint venture.
Negative Points
- Gross income for Q1 FY25 decreased by 2.84% compared to Q1 FY24.
- Shrimp processing and export division saw a decrease in gross income by 18% compared to Q4 FY24.
- Raw material prices, such as fish meal and wheat flour, are highly volatile and impact margins.
- Floods and disease outbreaks negatively affected shrimp culture in Q1 FY25.
- The company faces challenges from potential competition due to reduced customs duties on shrimp feed imports.
Q & A Highlights
Q: What is your outlook for feed volumes picking up in the subsequent quarters?
A: We lost around 6,916 MT compared to the previous year, but gained 36,300 MT compared to the previous quarter. The feed consumption depends on the aquaculture situation. Despite challenges like floods and disease outbreaks, farmers have started stocking again. Assuming favorable climatic conditions and stable global shrimp prices, we expect a successful second crop in the coming months.
Q: Is there any scope for price increases or cuts given the fluctuating raw material prices and potential subsidies for farmers?
A: The government is yet to frame rules for electricity tariffs. Raw material prices, such as wheat flour, fish meal, and soybean meal, are highly uncertain and fluctuate frequently. Currently, we are absorbing the additional costs without increasing prices. There is no immediate plan for price cuts even if raw material prices decrease.
Q: Does the government include Avanti Feeds in policy framing for the shrimp industry, and are there any new policies announced recently?
A: The government consults stakeholders like the Seafood Exporter's Association and MPEDA before framing policies. Recent budget announcements include support for shrimp farming and export financing through NABARD. However, detailed procedures and regulations for these schemes are still awaited.
Q: Why did shrimp processing production increase year-on-year, but sales did not?
A: Increased production but lower sales were due to longer transit times and unavailability of containers. The Red Sea crisis and high demand for containers by Chinese companies have caused delays. We expect sales to catch up in the coming quarters.
Q: What is the impact of the removal of duties on fish meal on margins, and what is the raw material mix for shrimp feed?
A: The reduction in customs duty on shrimp feed is not advantageous for domestic manufacturers as it increases competition from imports. The raw material mix includes fish meal, soybean meal, and wheat flour, but specific formulations are confidential. Raw material prices fluctuate significantly, making it difficult to predict margins accurately.
Q: What is the investment and scale for the new pet food business, and is it for the domestic or export market?
A: The pet food business is primarily for the domestic market, with an investment of INR130-150 crores. We have already invested in land and initial expenditures. The product launch is planned before March 31, 2024. If successful, we may consider exporting in the future.
Q: How does the company handle potential losses or write-offs when farmers have a bad crop?
A: Farmers buy feed as per their requirement and return any excess to dealers, who then sell it to other farmers. The company does not directly incur losses from bad crops. Recent floods and diseases have affected crops, but the situation has stabilized, and farmers are restocking.
Q: What factors contribute to EBITDA margin expansion besides raw material prices?
A: Major contributing factors are raw material prices and transportation costs, especially ocean freight. The Red Sea issue and container shortages have increased freight costs significantly. Fixed expenses like labor and overheads also impact EBITDA margins.
Q: What is the demand outlook for shrimp processing in various geographies, and how does competition from Ecuador affect Avanti Feeds?
A: Ecuador is the largest shrimp producer but focuses on whole shrimp and commoditized products, while India focuses on value-added products. Demand in the US and Europe remains stable. The company maintains strong quality standards and aims to expand in all markets.
Q: Can you share details about the PLI incentive and the investment in the fish feed business?
A: The company is eligible for incentives under the Production Linked Incentive (PLI) scheme. For the fish feed business, we are conducting market surveys and trials with imported feed. The investment is expected to be around INR100 crores, focusing on high-protein, high-nutrition fish species.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
