This Small Cap Aquaculture Sector Stock Rated Accumulate With Rs 548 Target Price

The brokerage firm Geojit has rated Accumulate to Avanti Feeds Ltd (AFL), a small-cap Aquaculture sector stock, with a target price of Rs 548 apiece. According to the brokerage's estimated target price, the stock of the company bought at the Current Market Price could lead to a potential gain of 16%.

Avanti Feeds Ltd (AFL) is a leading manufacturer of shrimp feeds with a capacity of 6,00,000 MT and a shrimp processor & exporter with a capacity of 22,000 MT. AFL has a tie-up with Thai Union Group, Thailand. It has a market capitalization of Rs 6,475.75 crore.

Stock Outlook

The Current Market Price (CMP) of AFL on NSE is Rs 475.30 apiece. The stock's 52-week low is Rs 384.20 apiece recorded on 12 May 2022, and the 52-week high is Rs 638.80 apiece recorded on 25 January 2022, respectively.
 

Returns on Investment

The stock has given mixed returns over the past 5 years. In a week, the stock surged 2.16%, whereas, in the past 1 and 3 months, it gave a 7.29% negative return and 12.28% positive return, respectively. Over the past 1 year, it has given a return of 14.87%. Over the 3 years, the stock gave a positive return of 34.49%, whereas, in the past 5 years, it has given a negative return of 24.7%.

 

Strong growth in Processing segment

For Q1FY22, consolidated revenue grew by 11% YoY aided by strong growth in Processing segment. Shrimp exports volume grew by 33%YoY while feed segment volume declined by 7%YoY due to a high base. Disruption in marine logistics and recall of certain products sold in USA had impacted exports last year. As restaurants & malls have re-opened, export demand is picking up. Better farm-gate prices are encouraging farmers and AFL's increasing market share in the feed segment (48%-50%) will support feed volumes. AFL has completed a new feed capacity expansion of 1.75 lakhs MT (commercial production by Sept 2022) and is also adding new processing capacity of 7,000MT by FY24. We expect a revenue CAGR of ~14% over FY22E-24E.

Status of Recall of certain products sold in US

Last year, the company had to recall some of the consignments of cooked shrimp products, found to be contaminated with Salmonella by USFDA and CDC (in June & Aug 21). Avanti has sufficient product liability insurance coverage in the event of any claim. Total provision has been made for Rs.32.8cr related to return & destroyed value of the products out of which Rs17.55cr paid towards claims settled. In May 2022, after satisfied with several preventive measures taken by AFL USFDA communicated the termination of the recall of the products. AFL's petition for removal of 'import alert' on cooked shrimps is currently under process with USFDA.

Input prices at elevated levels, price hike reduces margin pressure

EBITDA margin declined by 10bps YoY to 6.6% (8.8% QoQ) due to a sharp surge in raw material (RM) prices. To compensate for feed cost inflation, AFL has raised prices (~Rs.13.4/ kg in FY22). Soyabean prices have come down by 20% from its peak, but wheat & fishmeal prices are still at higher levels. Any additional price increases or correction in input prices will be positive for margins.

Valuation & Outlook

Demand outlook has improved given the re-opening of hotels & malls in export markets along with better export & farm gate prices. AFL is prepared for the next stage of growth with new capacity. "We value AFL at 15x FY24EP/E (3Yr avg=20x) to arrive at a Target of Rs. 548, but downgrade to Accumulate rating due to margin pressure and limited upside from current price," the brokerage said.

Disclaimer

The stock has been picked from the brokerage report of Geojit. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.