18,824% return in 10 years: This stock turned Rs 55,000 to over Rs 1 crore

Avanti Feeds has underperformed the benchmark equity index since the announcement of nationwide lockdown in March 2020. Where the shrimp feed manufacturer and exporter has gained 57% since March 24, 2020, the BSE Sensex has soared 84% during the same period.

Despite the recent performance, the company has delivered a humungous return to investors in the long run. Shares of the company have soared 18,824% to an adjusted price of Rs 425 in the last 10 years. In simple terms, the growth shows that an investment of Rs 55,000 in Avanti Feeds in 2011 would have now become over Rs 1.04 crore. Meanwhile, shares of the company got split in 2015 and 2018.

In the period starting from 2011, Avanti Feeds is one of the best performing companies among all firms listed on the BSE. In contrast, the benchmark Sensex index has risen 160% in 10 years. Market watchers believe that the company is a key beneficiary of the shrimp aquaculture wave that started in India post 2009. India’s shrimp industry changed after the government allowed the cultivation of non-native Pacific white shrimp or King Prawn also known as P Vannamei species, whose global prices were much lower than the Black Tiger variety.

Financials
The consolidated net profit of the company has grown at a CAGR of 46% during the past 10 years. The figure jumped to Rs 4,115 crore in FY20 from Rs 91.54 crore in FY10. However, the figure has grown by over 30% in the last seven years. On the other hand, it reported a consolidated net profit of around Rs 385 crore for the financial year ended March 31, 2020 against a consolidated loss of Rs 1.20 crore in FY10. Bottom line of the company has grown at a CAGR of over 40% since FY13.

ICICI Securities believes that Avanti Feeds to report revenue and PAT CAGR of 8% and 13.5% over FY20-23 and expect RoE to move to 22.6% in FY23 from 26.3% in FY20

Of late, the company reported subdued numbers in Q3 due to lower sales volumes in its shrimp feeds and shrimp processing business. Way2Wealth Brokers said, “We believe, the
company’s growth to be driven by both business segments, along with government’s thrust on fisheries, improvement in export prices, regional diversification.”

Management has guided that industry shrimp production is expected to drop by 15-20% in FY21 due to Covid-19 led disruption but to bounce back in FY22E.

Avanti Feeds’ consolidated net profit jumped 46.47% to Rs 86.20 crore on a 0.78% decline in revenue from operations at Rs 915.43 crore in Q3FY21 over Q3FY20.

What’s next?
ICICI Securities recently upgraded Avanti Feeds to buy with a price target of Rs 560. The brokerage thinks that the revival in shrimp prices in its key market, the USA augurs well for shrimp processing or feed business. Higher shrimp prices result in better profitability for all players in the shrimp value chain.

Post outbreak of covid, the shrimp prices declined in the USA from $14/Kg in March 2020 to $11.35/Kg in October 2020. However, it has seen a steady revival in shrimp prices post October 2020 and the prices were at $11.93/Kg in February 2021.

Analysts believe that Avani will continue to gain market share in shrimp feed as well as shrimp processing due to its strong balance sheet (Net cash is expected to be around Rs 1,000 crore as of March 21).

“The increase in customs duty on shrimp feed from 5% to 15% in Budget in February 21 will benefit domestic feed manufacturers and due to steep volatility in shrimp prices and profitability, strong players such as Avanti are expected to gain market share from smaller players who are affected more,” ICICI Securities said.

The company is also steadily reducing its dependence on the USA and non-USA market accounts for around 14% of its exports. The stock also trades near its at mean price-to-earnings (P/E) of 1SD providing a margin of safety at current valuations.