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Home >Markets >Mark To Market >Avanti Feeds’ margins taken a beating in Q1; stock is languishing

Avanti Feeds Ltd's June quarter (Q1FY22) results disappointed on profitability. Earnings before interest, tax, depreciation and amortisation (Ebitda) margins contracted both sequentially as well as on a year-on-year basis. Ebitda margins dropped 680 basis points from a year ago to 6.7%. One basis point is one-hundredth of a percentage point. Sequentially, margins fell 110 basis points.

Blame inflationary pressures in raw material costs for margin pressure. Primarily, an increase in raw material cost in the shrimp feed division hit the profitability of the company last quarter. The upshot: Avanti Feeds’ Ebitda declined nearly 27% year-on-year at a time when revenues rose 47.5% to Rs1,408 crore.

Revenue growth was helped by a nearly 60% rise in revenues from the shrimp feed segment. The shrimp feeds segment performed well on account of increase in farming area and conversion of farmers from other feeds. On the other hand, performance of the processed shrimp segment was lacklustre with revenues declining by 5.2% mainly due to lower sales volume.

Note that overall Q1 revenues were 28% higher than the March quarter, which is not bad at all.

In fiscal 2021, shrimp feed consumption in India declined compared to the previous year. “However due to gradual increase in global demand and stable farm gate prices, shrimp culture is expected to come back to the levels of pre-pandemic period," said the company in its earnings presentation. Further, Avanti Feeds is expected to maintain its market share of 48-50% in FY22.

Meanwhile, shares of Avanti Feeds have sharply underperformed the Nifty 500 index in the last one year. The stock is around 27% lower than its pre-covid highs seen in January 2020.

“We expect some impact on profitability as the company announced a recall of some products due to potential contamination. While HoReCa segment remained impacted during the quarter, we believe it to return to normalcy with the economy opening up and large vaccination drives," said analysts from ICICI Securities Ltd in a report on 23 August. HoReCa is short for hotels, restaurants and cafes.

The broker also added, “We model Avanti to report revenue and profit after tax CAGRs of 13.5% and 16.1% over FY21-FY23 and also expect its return on equity to be over >20% in the same timeframe." CAGR is the compound annual growth rate.

 

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