Is Avanti Feeds good enough for investment?

Avanti Feeds Stock Analysis

Hi, guys, my name is Shantanu and today I’m gonna be talking about another very interesting stock. The stocks name is Avanti Feeds.

Let’s start with the history of the stock and why this is so interesting.

So Avanti feeds started in 1993 and during that time they were not at all a thriving business. The shrimp industry was never considered to be a hugely profitable business apparently.

I’ll talk about the business model in detail but for now, just know that Avanti primary business was or is to produce feed for shrimps.

Now, the shrimp industry in India back in the ’90s was competing with the Chinese, Thai and Vietnamese.

Now you should know that Avanti feeds earned their profit when the farmers would buy huge quantities of feed for their shrimps.

Call it luck or chance, in 2009 a disease is known as Early mortality syndrome (EMS) ruined all of 

the shrimp industry of China, Thailand and Vietnam. In the same year, the Indian government allowed the Indian farmers to cultivate a variant of shrimp which consumed less feed, and more importantly, these were absolutely unaffected by the EMS disease.

The outcome, the Indian shrimp industry thrived like anything. Farmers now became more interested in cultivating shrimps and transporting them to the Chinese, Thai and Vietnamese as the supply chain there was severely affected. The stock price of Avanti feeds also rocketed as would have guessed.

In 2012 another wave of EMS hit the Vietnamese market, ruining their supply chain while the demand was huge. Well, Indian farmers came to their rescue and this time also, Avanti feeds rallied and hit record highs.

And like another other business, this business was and isn’t failproof. You see that shrimps are ultimately biological creatures that can get affected by some disease or another. Moreover, the quality of the shrimp also matters.

Hence, Between 2012 and 2018 you would any significant rise in the growth of the numbers of the stock.

In 2018, luck hit again and this time it was not the disease but the sharp reduction in raw materials that Avanti used to produce feed and the shrimps trading at record high prices.

This meant that Avanti feeds were producing for cheap and selling it for high prices.

This reflected in the stock as well and 2018 is considered to be their luckiest year.

Soon are came to normal that is when the supply from China, Thai, Vietnam were able to cope up with the demand and prices of raw materials back to normal, Avanti feeds stock price started to decline.

Now let’s talk about the Business Model

Like I said earlier, the primary business model is to produce feed for shrimps. The company also has a shrimp processing business where it takes the shrimp and adds flavours, mixes it with other ingredients, cooks it and so on and then sells it. The profit margin, in this case, is pretty decent as compared to the shrimp feed business.

The company also has 4 windmills located in Karnataka. It sells the power generated from these windmills to  Karnataka Power Transmission Corporation Limited.

So this is from where they majorly earn their revenues and now let’s talk about the financials.

So Surprisingly in terms of Financials, Avanti feeds is doing pretty well.

It’s profit after tax was increased to ` 28,597.67 Lakhs as against a Profit of ` 22,349.48 Lakhs during the previous financial year.

And this is mainly because the shrimp feed manufacturing and processing business is considered to be a part of the essential services hence the lockdown didn’t make much of impact although the labour and transportation got affected.

The management says that since the lockdown has been lifted, and the operations being returning to their normal state, the numbers would soon jump up.

Regarding debt – 

Long term debt or borrowings or non -current liabilities have been reducing which is a very good sign, however, short term or current liabilities are increasing on a year on year basis.

Personal Opinion

So Avanti Feeds is a very good example of cyclic stocks. Cyclic stocks are those which can be a multibagger for a certain time period whereas at other times they generally don’t perform. 

The company is very good and has a strong balance sheet and the management is also quite strong in terms of decision making. I’ve also read that they are planning to open a hatchery so that will be interesting.

Overall, a good company but highly cyclic in nature. 

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