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Input prices stabilise, margins to improve. Avanti Feeds Ltd. (AFL) is a leading manufacturer of shrimp feeds with a capacity of 7,75,000 MT and a shrimp processor & exporter with a capacity of 22,000 MT. AFL has a tie-up with Thai Union Group, Thailand. • We upgrade our rating to Accumulate (from HOLD) with a revised target price of Rs.569 considering improvement in volumes. • Revenue grew by ~14% YoY, supported by revenue growth in both feed (+9% YoY) and processing (+31%) segments. EBITDA grew by ~20% YoY due to better utilisation and EBITDA margin improved by 40bps YoY to 7.7%, aided by stabilization in raw material prices. • Shrimp production is expected to increase by 10-15% YoY in 2024, which will support feed volume growth. • AFL has formed a subsidiary, Avanti Pet Care (P) Ltd with the aim of diversifying into the production and trading of pet food and pet care products (expects to complete in two years). Furthermore, the company is also exploring opportunities to enter fish feed segment. • AFL has recently added a new capacity of 1.75 lakh MT in feed and is adding 7,000MT in the processing segment by the end of FY24. Revenue/PAT is expected to grow at 12%/22% CAGR over FY24-26E. We roll forward to FY26E EPS and value AFL at 15x P/E (3Yr avg=15).

Growth in export volumes supported revenue growth. For Q3FY24, consolidated revenue grew by 14%YoY, mainly aided by volume growth in processing segment (+39%YoY), while feed volumes improved by 9%YoY. However, realisation declined in both export (-6%YoY) and feed (-1%YoY) segments. Shrimp production had witnessed a slowdown in last year. However, the first crop in shrimp culture in 2024 is showing ~10-15% growth, which will aid future feed volumes. At the same time, export market is expected to witness an ease in the current excess inventory situations, which will support export volume and realisation. AFL has added feed capacity of 1.75 lakhs MT in FY23 last year and is also adding 7,000MT in processing segment by FY24 end. We expect a revenue CAGR of ~12% over FY24-26E.

Margins to improve supported by stability in input prices. EBITDA improved by 20%YoY, aided by better utilization and stabilization of raw material prices, while EBITDA margin improvement was flat YoY at 7.7%. Prices of soybean, wheat and fishmeal have come down by ~36%/14%/8%, respectively, from their peaks, but fishmeal prices are still highly volatile (+18% YoY) due to a significant demand-supply gap on account of a spurt in export demand from China, Taiwan and Vietnam and shortage of fishmeal in Chile and Peru. We expect the recent stability in raw material prices, along with volume improvements, will support margins

Foray into pet food & pet care products business AFL has started a subsidiary (51% stake), Avanti Pet Care Private Limited in July 2023, to diversify into manufacturing and trading of pet food and pet care products (expect to complete in two years). Currently, the pet care market for cats & dogs is ~ 70,000 metric tons in India and it is growing at a rate of 20% YoY. Most of the brands in the market are imported except like Pedigree and Drools and the company expects opportunity in the segment. AFL also has plans to enter into fish feed segment.

Valuation & Outlook The shrimp production outlook has improved and the excess supply situation in the export markets is expected to correct going forward. The GoI also has a strong focus to support the industry and targets to double exports to Rs. 1 lakh crore. We roll forward to FY26E EPS and value AFL at 15x P/E (3Yr avg=15x) to arrive at a target price of Rs. 569, upgrade to Accumulate rating.

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