Avanti Feeds - Higher input prices hurt margins - ICICI Securities

Takeaways from Q1FY22 result: (1) It reported revenue growth of 47.5% YoY, driven by strong growth of 59% in its feed business, (2) its processed shrimp business declined 5.2% YoY, due to lower volume off-take and (3) Inflationary pressures in input prices impacted profitability. We expect some impact on profitability as the company announced recall of some products due to potential contamination. While HoReCa segment remained impacted during the quarter, we believe it to return to normalcy with economy opening up and large vaccination drives. We believe Avanti will be a net beneficiary of RoDTEP scheme and model Avanti to report PAT CAGR of 16.1% over FY21-23 and maintain BUY rating with target price of Rs639 (18x FY23E; Earlier TP-Rs650).

- Q1FY22 results: Avanti reported revenue growth of 47.5% YoY (two year CAGR: 13.5%). However, EBITDA and PAT declined 26.6% and 28% YoY, respectively. Inflationary pressures in input prices led to 771bps decline in Gross margin. It reported EBITDA and PAT margin of 6.7% and 5.7%, respectively.

- Segment Performance: While Shrimp feed registered strong growth of 59%, processed shrimp business declined 5.2% YoY, in Q1FY22. It reported Rs40.5mn revenues in its new Shrimp Hatchery segment. Operating margins contracted 600bps and 960bps YoY in shrimp feed and processed shrimp, respectively. Its power business grew 13% YoY.

- RoDTEP benefits: Avanti's profitability was impacted due to closure of MeIS scheme. Recommencement of exports benefits, under RoDTEP will reduce pressure on margins. RoDTEP benefits are 2.5% (subject to a cap Rs16 per kg) and lower than MeIS benefits. The company believes the shortfall will be redistributed in shrimp value chain (farmers, feed manufacturers, exporters) over a period of time.

- Sales to other countries: USA contributed 75% of total shrimp exports in Q1FY22, against 88% in Q4FY21. We believe this will de-risk company's operations and add more volume growth opportunities for Avanti.

- Maintain BUY: We model Avanti to report revenue and PAT CAGRs of 13.5% and 16.1% over FY21-FY23 and also expect its RoE to be over >20% in the same timeframe. We maintain BUY rating with a DCF-based target price of Rs639 (implied P/E 18x FY23E EPS; Earlier TP-Rs650). Key risk: Higher than expected input inflation and lower than expected off-take of products.

Shares of Avanti Feeds ltd. was last trading in BSE at Rs. 538.9 as compared to the previous close of Rs. 528.55. The total number of shares traded during the day was 14479 in over 1211 trades.

The stock hit an intraday high of Rs. 547 and intraday low of 525.6. The net turnover during the day was Rs. 7778460.

Source : Equity Bulls

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