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Higher shrimp feed sales augur well for shrimp exports

Takeaways from Q4FY21:

(1) Likely reduction in shrimp off-take by HoReCa sector in key market of USA impacted Processed shrimp segment. It reported revenue decline of 22.8% YoY,

(2) Shrimp feed reported 15.2% revenue growth indicating strong cultivation of shrimps which augurs well for FY22. We believe Avanti is well poised to gain market shares in shrimp feed from smaller exporters and

(3) with higher input prices, there will be pressure on near term margins but we model Avanti to pass on additional costs via price hikes with a lag effect. We model Avanti to report PAT CAGR of 20.2% over FY21-23 and maintain ADD rating with target price of Rs650 (17x FY23E; Earlier TP-Rs560).

Q4FY21 results:

Avanti reported revenue growth of 6.1% YoY. Shrimp feed revenues were up 15.2% but Processed shrimp segment reported revenue decline of 22.8%. We believe the shrimp exports sales declined due to: (1) there is likely reduction in consumption in USA due to repeated lockdowns, and (2) due to lower export benefits (post closure of MEIS scheme). EBITDA margin was down 430bps. PAT declined by 20.1%, YoY.

Lower demand from HoReCa in USA may impact Avanti in near term:

The company exports c.85% of shrimps to USA. Post lockdown in USA, there is reduction in demand from HoReCa. As HoReCa accounts for ~50% of shrimp consumption in USA, we believe there will be impact on Avanti’s revenues too. However, we model Avanti to gain share from smaller exporters.

Sales to other countries:

Avanti is also in process to reduce the dependence on USA and has started exports to other countries such as China and Europe. While the demand is impacted in USA, recovery in other markets such as China will help to improve volume off-take. Non-USA exports are c.14% of total shrimp exports.

Near term margins likely to be impacted:

Avanti’s EBITDA margins average ~11% over FY12-21. We believe increase in commodity prices is likely to impact margins in near term. However, we expect Avanti to pass on additional costs with a lag effect to end consumers. Re-commencement of export benefit schemes will benefit margins.

Maintain BUY:

We model Avanti to report revenue and PAT CAGRs of 13.2% and 20.2% over FY21-FY23 and also expect its RoE to be stable over the same timeframe. We maintain our BUY rating with a DCF-based target price of Rs650 (implied P/E 17x FY23E EPS; Earlier TP-Rs560).

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