19th June, 2019

Q4FY19 RESULT UPDATE

Retail Equity Research

Avanti Feeds Ltd Buy
Aquaculture 12M Investment Period Rating as per Small Cap

BSE CODE : 512573 NSE CODE: AVANTIFEED CMP Rs352 TARGET Rs427 RETURN 21 %
(Closing: 18-06-19)
BLOOMBERG CODE: AVNT:IN SENSEX : 39,046

KEY CHANGES: TARGET RATING EARNINGS

Drop in shrimp production impacted feed volumes... Company Data

Avanti Feeds Ltd (AFL), is a leading manufacturer of Shrimp Feeds with Market Cap (cr) Rs.4,837
a capacity of 6,00,000 MT, and Shrimp Processor & Exporter with a ca- Enterprise Value (cr) Rs.4,456
pacity of 22,000 MT. AFL has a tie-up with Thai Union Group, Thailand. Outstanding Shares (cr) 13.6
 Q4FY19 revenue grew mere 2.8%YoY mainly due to drop in Free Float 30%
shrimp feed volumes (-2%YoY) and feed realization (-7%YoY).
Dividend Yield 0.7%
 However, shrimp processing revenue growth was strong at 79%
52 week high Rs.638
YoY. Processing capacity utilization improved to 52% (29%YoY).
52 week low Rs.306
 Shrimp prices which had witnessed a declining trend since Q3FY18
due to demand-supply mismatch in US, has now stabilised since 6m average volume (cr) 0.01
Q3FY19. Beta 0.83
 Farm-gate price started witnessing improvement from April which Face value Rs1
will encourage farmers, provide better outlook for the industry. Shareholding (%) Q2FY19 Q3FY19 Q4FY19
 Despite lowering volume assumption in feed segment to factor de-
Promoters 43.76 43.76 43.76
cline in the quarter we expect revenue/PAT to grow at 14%/20%
FII’s 28.78 29.27 28.86
CAGR over FY19-21E.
MFs/Insti 1.21 2.12 2.92
 We roll forward to FY21, continue to value at 15x considering
Public 26.17 24.85 24.35
healthy growth & RoE and no debt, maintain target of Rs427 with
Buy rating. Total 100.0 100.0 100.0
Price Performance 3 month 6 Month 1 Year
Drop in feed volumes impacted top-line growth Absolute Return -14.5% -2.0% -42.7%
For Q4FY19, revenue de-grew by 2.8% YoY mainly on account of de-growth in Absolute Sensex 4.3% 10.2% 11.4%
feed revenue (8.7%YoY) which was impacted by 2% YoY decline in volumes and Relative Return* -18.8% -12.3% -54.0%
7% decline in realisation. Currently, Feed segment contributes ~74% of total
revenue. Feed volume impact was due to the drop in shrimp culture in the in-
dustry (15%-20% in Q4FY19) on account of delay in stocking in February &
March of 2019 due to decline in farm-gate prices. Now the farm-gate prices
started witnessing improvement from April (30-40% for large size, 18-20% for
medium size, 5-10% for small size) which will encourage farmers and hence the
feed volumes. The company expects flat growth in industry feed volumes consid-
ering the recent drop in shrimp culture but expects market share gains
(increased to 49% in FY19 from 43% in FY18) due to consistent product quality
and performance. We have lowered our feed volume assumption to factor the
recent drop in shrimp culture.
Consolidated (cr) FY19A FY20E FY21E
Strong growth in processing segment...
In the Processing segment, AFL reported a strong revenue growth of 79%YoY. Sales 3,488 3,908 4,566
Processing volume was up by 81%YoY due to ramp up in new capacity Growth (%) 2.8 12.1 16.8
(15,000MT added in Q3FY18). Total capacity utilisation improved to 50% from 407 493 589
EBITDA
41% YoY. AFL’s focus on value added products (32% in Q4FY19 Vs 21% in
Q3FY19) and further improvement in capacity utilisation aided by penetration EBITDA Margin(%) 11.7 12.6 12.9
to non-US markets will support revenue growth. We expect total revenue to PAT Adj. 268.3 325.8 388.2
grow at 14% CAGR over FY19-21E.
Growth (%) (40.0) 21.4 19.1
EBITDA Margin declines… Adj.EPS 20.1 23.9 28.5
EBITDA margin declined by 320bps YoY in the quarter. In feed segment, EBITDA Growth (%) (40.0) 21.4 19.1
margin contracted by 310bps due to surge in raw material prices and lower real-
P/E 18.0 14.8 12.5
isation. In processing segment, the decline was 40bps YoY. We expect stable
realisation for feed segment while factoring improvement in shrimp export pric- P/B 4.0 3.2 2.6
es considering ~8-10% increase witnessed in April (for large size shrimps). Ad- EV/EBITDA 10.2 7.9 6z.0
ditionally, company’s focus on value added products and improvement in capac- ROE (%) 24.0 24.1 23.2
ity utilisation will support margins going forward. We lower our EBITDA margin
D/E 0.0 0.0 0.0
assumptions to 12.6% for FY20 (earlier 13.2%), but expect EBITDA growth of
20% CAGR over FY19-21E.

Valuations & outlook… Vincent Andrews

The recent improvement witnessed in farm-gate and export prices provides Research Analyst
better outlook for both Feed & Processing segments. We roll forward to FY21E,
continue to value at 15x considering healthy growth & RoE and no debt, main-
tain Target of Rs427 with Buy rating.

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Quarterly Financials (Consolidated)

Profit & Loss

YoY QoQ YoY
Rs (cr) Q4FY19 Q3FY18 Growth % Q3FY19 Growth % FY19 FY18 Growth %
Sales 858 834 2.8% 835 2.7% 3488 3393 2.8%
EBITDA 93 117 -20.5% 110 -14.8% 407 683 -40.4%
EBITDA margins 10.9% 14.1% (320bps) 13.1% (220bps) 11.7% 20.1% (840bps)
Depreciation 9 8 16.9% 9 0.2% 36 24 50.9%
EBIT 84 110 -23.1% 101 -16.2% 371 659 -43.7%
Interest 1 0 435.7% 1 104.5% 3 3 -11.4%
Other Income 19 15 28.9% 14 39.3% 54 48 11.6%
Exceptional Items 0 -1 0 5 -1
PBT 103 124 -17.6% 114 -10.2% 428 703 -39.2%
Tax 26 38 -31.5% 29 -8.8% 121 238 -49.0%
Share of profit from Associate 0 0 NA 0 NA 0 1 -77.0%
Minority Interest 8 3 167.5% 12 -30.1% 33 20 65.1%
Reported PAT 68 83 -18.0% 74 -7.6% 274 447 -38.7%
Adjustments 0 0 0 5 -1
Adj PAT 68 83 -18.0% 74 -7.6% 268 447 -40.0%
No. of Shares 13.6 13.6 0.0% 13.6 0.0% 13.6 13.6 0.0%
EPS (Rs) 5.0 6.1 -18.0% 5.4 -7.6% 19.7 32.8 -40.0%

Change in Estimates

Old estimates New estimates Change %

Year / Rs cr FY20E FY21E FY20E FY21E FY20E FY21E
Revenue 4,108 NA 3908 4566 -4.9% NA
EBITDA 541 NA 493 589 -8.8% NA
Margins (%) 13.2% NA 12.6% 12.9% (70bps) NA
Adj. PAT 387.8 NA 326 388 -16.0% NA
EPS 28.5 NA 24 28 -16.1% NA

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 27th December 2018
Consolidated Financials

PROFIT & LOSS BALANCE SHEET

Y.E March (Rs Cr) FY17A FY18A FY19A FY20E FY21E Y.E March (Rs Cr) FY17A FY18A FY19E FY20E FY21E

Sales 2616 3393 3488 3908 4566 Cash 41 7 58 131 281

% change 35.2 29.7 2.8 12.1 16.8 Accounts Receivable 23 50 49 57 66
EBITDA 329.7 682.6 407.1 493.4 588.6 Inventories 356 525 379 542 630
% change 43.5 107.0 -40.4 21.2 19.3 Other Cur. Assets 20 28 163 162 168
Depreciation 13.7 23.8 35.8 37.0 38.3 Investments 360 584 630 830 1,030
EBIT 316.0 658.9 371.3 456.4 550.3 Gross Fixed Assets 228 349 365 390 415
Interest 2.7 3.0 2.6 2.9 3.4 Net Fixed Assets 160 312 292 280 267
Other Income 21.8 48.2 53.8 58.6 68.5 CWIP 94 2 9 2 2
PBT 335.2 703.4 427.7 512.1 615.5 Intangible Assets 0 0 0 0 0
% change 40.7 109.8 -39.2 19.8 20.2 Def. Tax (Net) - 9 23 23 23
Tax 108.4 238.0 121.4 143.4 172.3 Other Assets 15 10 12 14 15
Tax Rate (%) 0.3 0.3 0.3 0.3 0.3 Total Assets 1,069 1,526 1,615 2,041 2,483
Reported PAT 214.4 446.5 273.5 325.8 388.2 Current Liabilities 289 323 213 299 326
Adj.* 0.0 -0.8 5.2 0.0 0.0 Provisions 16 18 15 17 18
Adj. PAT 214.4 447.3 268.3 325.8 388.2 Debt Funds 13 5 8 9 11
% change 36.1 108.7 -40.0 21.4 19.1 Other Liabilities 115 148 173 217 274
No. of shares (cr) 13.6 13.6 13.6 13.6 13.6 Equity Capital 9 9 14 14 14
Adj EPS (Rs) 15.7 32.8 20.1 23.9 28.5 Reserves & Surplus 626 1,022 1,192 1,485 1,841
% change 36.1 108.7 -40.0 21.4 19.1 Shareholder’s Fund 635 1,031 1,206 1,499 1,854
DPS (Rs) 3.6 2.4 2.4 2.4 2.4 Total Liabilities 1,069 1,526 1,615 2,041 2,483
BVPS 140 227 88 110 136

CASH FLOW RATIOS

Y.E March (Rs Cr) FY17A FY18A FY19E FY20E FY21E Y.E March FY17A FY18A FY19E FY20E FY21E

Net inc. + Depn. 226.8 470.3 309.3 362.8 426.4 Profitab & Return
Non-cash adj. 119.6 250.4 140.1 187.7 228.9 EBITDA margin (%) 12.6 20.1 11.7 12.6 12.9
Other adjustments 2.7 3.0 2.6 2.9 3.4 EBIT margin (%) 12.1 19.4 10.6 11.7 12.1
Changes in W.C 67.4 -166.7 -102.6 -84.2 -76.8 Net profit mgn.(%) 8.2 13.2 7.7 8.3 8.5
C.F. Operation 291.7 280.9 228.0 325.9 409.5 ROE (%) 40.6 53.7 24.0 24.1 23.2
Capital exp. -107.1 -79.5 -23.3 -18.0 -25.0 ROCE (%) 27.7 36.2 17.2 17.4 16.7
Change in inv. -323.0 -201.8 -45.7 -200.0 -200.0 W.C & Liquidity
Other invest.CF 3.8 12.0 0.0 0.0 0.0
Receivables (days) 4.1 4.0 5.2 4.9 4.9
C.F - Investment -426.3 -269.3 -69.0 -218.0 -225.0
Inventory (days) 44.7 47.4 47.3 43.0 46.9
Issue of equity 0.0 0.0 4.5 0.0 0.0
Payables (days) 34.6 40.6 31.1 26.5 28.1
Issue/repay debt 6.1 -11.1 -8.8 -1.7 -1.6
Current ratio (x) 2.5 3.4 5.1 5.0 5.9
Dividends paid -38.3 -49.2 -32.8 -32.8 -32.8
Quick ratio (x) 0.2 0.2 0.5 0.6 1.0
Other finance.CF 94.1 13.6 0.0 0.0 0.0
C.F - Finance 107.1 -45.5 -37.0 -34.5 -34.4 Turnover &Leverage
Chg. in cash -29.5 -33.8 122.0 73.4 150.1 Gross asset T.O (x) 13.5 11.8 9.8 10.3 11.3
Closing cash 40.6 6.9 58.1 131.4 281.5 Total asset T.O (x) 3.1 2.6 2.2 2.1 2.0
Int. covge. ratio (x) 116.5 222.3 141.3 156.4 163.8
Adj. debt/equity (x) 0.0 0.0 0.0 0.0 0.0
Valuation
EV/Sales (x) 1.7 1.3 1.2 1.0 0.8
EV/EBITDA (x) 13.5 6.2 10.2 7.9 6.0
P/E (x) 22.6 10.8 18.0 14.8 12.5
P/BV (x) 2.5 1.6 4.0 3.2 2.6

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 27th December 2018

Recommendation Summary (Last 3 years)

Dates Rating Target
31st January 2019 Buy 427
19th June 2019 Buy 427

Source: Bloomberg, Geojit Research.

Investment Criteria
Large Cap Stocks; Mid Cap and Small Cap;
Buy - Upside is above 10%. Buy - Upside is above 15%.
Hold - Upside is between 0% - 10%. Accumulate - Upside is between 10% - 15%.
Reduce - Downside is more than 0%. Hold - Upside is between 0% - 10%.
Neutral - Not Applicable Reduce/Sell - Downside is more than 0%.
Neutral - Not Applicable

To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and ‘Reduce’ as Sell.

The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return
basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of
valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being up-
graded to BUY or downgraded to a HOLD, REDUCE or SELL.
Neutral- The analyst has no investment opinion on the stock under review

General Disclosures and Disclaimers

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subject issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit.
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 27th December
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VINCENT K A
Digitally signed by VINCENT K A
DN: c=IN, o=GEOJIT FINANCIAL SERVICES LTD, postalCode=682024, st=Kerala,
2.5.4.20=6ae30d083d523630c71071368f2205dd22201d69f332e9d96db4686de0cf567b,
serialNumber=874131dc5fc2c023112b26d04b056739706b8f5e3aeeea25111eceeada5d2
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Date: 2019.06.19 10:29:35 +05'30'
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