Morning ladies and gentlemen. I'm Belshia, the moderator for the conference call. Welcome to Avanti Feeds Limited Q4 FY 2024 earnings conference call. We have with us today Mr. C. Ramachandra Rao, Joint Managing Director, Mr. A. Venkata Sanjeev, Executive Director, Mrs. C. Santhi Latha, GM Finance and Accounts, Mr. G. Lakshmi Sharma, Senior Manager, Corporate Affairs, Mr. D.V. S. Satyanarayana, CFO, Avanti Frozen Foods Private Limited. As a reminder, all participants will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Start and then zero on your touch-tone telephone. Please note this conference is recorded. I would now like to hand over the floor to Mr. C. Ramachandra Rao, Joint Managing Director. Thank you, and over to you, sir.
Thank you for working with me. Yeah. Okay. Good morning, ladies and gentlemen. We are very much pleased to extend a warm welcome to all of you for this investors' conference call to review the audited financial results for the Q4 FY 2024. Along with me here are Mr. A. Venkata Sanjeev, Executive Director, Avanti Feeds; Mrs . Santhi Latha, GM Finance and Accounts; Mr. D.V.S. Satyanarayana, CFO of Avanti Frozen; and Mr. Narendra Sharma, Mr. Narendra Sharma, Company Secretary. Lakshmi is out for some work. Yeah. So, you said in the introduction that she will also be joining. She's not here. She's gone on some work. Yeah.
To begin with, Mrs . Santhi Latha, GM Finance and Accounts, Avanti Feeds will present highlights of financial results of Q4 FY 2024 and year-ended 31st March 2024 of Feed Division and also consolidated financials of the company for the same period.
Thereafter, Mr. D.V.S. Satyanarayana, CFO, Avanti Frozen, will present the financial highlights of Shrimp Processing and Export Division. After the presentation by both of them, we'll have just a quick review of the latest situation, and then we'll go on to question-and-answer session. Now I request Santhi Latha to take over.
Thank you, sir. Good morning, everyone. Now I'll take you through the consolidated and Feed Division financial performance highlights for the quarter and year-ended 31st March 2024. Consolidated financial results for the quarter Q4 FY 2024. The comparative performance of Q4 FY 2024 with that of Q3 2024 and Q4 FY 2023 has been given in the presentation already circulated. Gross income in Q4 FY 2024 is INR 1,320 crore as compared to INR 1,287 crore in the previous quarter, Q3 FY 2024, an increase of INR 33 crore. That is 2.5%. Compared with Q4 FY 2023, gross income of INR 1,117 crore, there is an increase of INR 203 crore by approximately 18.2%. The PBT is INR 151 crore in Q4 FY 2024 as compared to INR 116 crore in Q3 FY 2024, an increase of 30%, about INR 35 crore.
Compared to Q4 FY 2023, PBT of INR 144 crore, there is an increase of INR 7 crore by 4.86%. The comparison of the performance of the year 2023-2024 with 2022-2023. In FY 2024, the total income increased to INR 5,505 crore from INR 5,179 crore in FY 2023. The PBT in FY 2024 increased to INR 537 crore from INR 427 crore in the corresponding period of previous year. That is an increase of INR 110 crore. This is mainly due to increase in revenue, decrease in raw material costs, and better overhead absorption because of increase in the quantity sold. The consolidated results indicate net impact of several factors such as increase or decrease in income, expenditure, exceptional items relating to both Feed Frozen Divisions, which will be discussed in the divisional performance of these units individually. Standalone financial results of Feed Division.
For the quarter-ended Q4 FY 2024, the gross income for the Q4 FY 2024 is INR 1,022 crore as compared to INR 958 crore in the previous quarter of Q3 FY 2024, an increase of INR 64 crore mainly due to increase in the quantity of feed sold by 5,960 metric tons. The gross income in Q4 FY 2024 increased to INR 1,022 crore from INR 875 crore in the corresponding quarter of Q4 FY 2023, an increase by INR 147 crore representing 16.8% due to increase in quantity sold by 18,902 metric tons.
The PBT for the quarter, the standalone PBT for the Q4 FY 2024, is INR 119 crore as compared to INR 76 crore in Q3 FY 2024, an increase of INR 43 crore by 56% mainly due to increase in sales volume and better overhead absorption. The feed sales increased to 122,278 metric tons in Q4 FY 2024 as compared to 116,318 metric tons in Q3 FY 2024.
The PBT in Q4 FY 2024 has increased by INR 12 crore from INR 107 crore in Q4 FY 2023, representing 11.2%. As you know, the cost of raw materials constitutes a major share of the cost of feed production, particularly fish soybean meal, and wheat flour. The percentage of average raw material cost was 79% on feed sale price in Q4 FY 2024 as compared to 82.6% in the preceding quarter, Q3 FY 2024, registering a decrease of 4.35%. However, the raw material percentage was on par with the corresponding quarter of the previous year. That is Q4 FY 2023, which was 78.3%. To summarize, the prices of major raw materials have shown a decreasing trend during the Q4 FY 2024 compared to the previous quarter, nearing almost the same levels as in the corresponding quarter of the previous year.
The average cost takes into consideration the volatility of the feed like fish meal, soybean meal, and wheat flour during the year. soybean meal and wheat flour prices did not undergo much volatility during the year 2023-2024, the fish meal did undergo high volatility due to drastic falls in fish catches in Chile and Peru, leading to fishing bans resulting in an increasing demand throughout Indian fish meal in Southeast Asian countries, causing an unprecedented hike in the fish meal prices both in the domestic and overseas market. During the current quarter, financial fish meal price has come down marginally due to good catch in Chile and Peru and the release of Peruvian quota during the season. However, soybean meal price and wheat flour prices remained more or less stable, which are marginally lower than the previous year.
To sum up, I would like to share with you that the prices of these major raw materials, along with related products like fish oil, soy lecithin, etc., keep changing from time to time depending upon the seasonality, production, global trends, etc., which has a direct impact on the raw material cost of the feed, which is beyond the company's control. Comparison of performance for the year-ended 31st March 2024 with that of 31st March 2023. This is standalone performance. In FY 2024, the total income increased to INR 4,396 crore from INR 4,104 crore in FY 2023 due to an increase in feed sales and other income. The PBT in FY 2024 increased to INR 407 crore from INR 307 crore in the corresponding period of the previous year, mainly due to an increase in sales, other income, and a decrease in raw material costs and better overhead absorption.
Coming to the future, the shrimp production and feed consumption in FY 2023 and company plans for FY 2024. Shrimp feed consumption. On the basis of estimated shrimp production of about 800,000 metric tons in 2023, the overall industry feed consumption is estimated to be around 1,050,000-1,100,000 metric tons. The company feed sales during the year 2023—this is calendar year—was about 513,000 metric tons as compared to 526,000 metric tons in 2022, a decrease of 13,000 metric tons. Coming to shrimp processing and exports. The country's shrimp exports in terms of value declined in FY 2023 compared to FY 2022 by 8.11% from $5,234 million to $4,809 million. The country's overall export of frozen shrimp in quantitative terms for FY 2023 was 711,099 metric tons as compared to 728,123 metric tons in FY 2022, a decline of 17,024 metric tons representing 2.34%.
However, the company's shrimp exports during FY 2024 were about 13,443 metric tons as compared to 12,497 metric tons in FY 2023, an increase by 946 metric tons. It is estimated that the exports during FY 2025 would be around 16,000 metric tons. Now I hand over to Mr. D.V.S. Satyanarayana, CFO Avanti Frozen Foods, to present highlights of Shrimp Processing and Export Division.
Thank you, Madam. Good morning, everyone. Now I would like to take you through the financial highlights of Shrimp Processing and Export Division. Q4 FY 2024 results. The gross income for Q4 FY 2024 is INR 297 crore as compared to INR 329 crore in Q3 FY 2024, a decrease by INR 32 crore representing 10% mainly due to a decrease in sales quantity by 144 metric tons representing 4%. The gross income in Q4 FY 2024 increased to INR 297 crore from INR 244 crore during Q4 FY 2023, an increase of INR 53 crore representing 21% year-on-year.
The sales volume during Q4 FY 2024 increased to 3,846 metric tons from 2,880 metric tons in Q4 FY 2023, an increase of 966 metric tons. The PBT before exceptional items for Q4 FY 2024 is INR 32 crore as compared to INR 40 crore in Q3 FY 2024. It is decreased by INR 8 crore.
The PBT is decreased mainly due to a decrease in sales quantity by 144 metric tons and also a decrease in average sales price realization during Q4 FY 2024. The PBT in Q4 FY 2024 is INR 32 crore, decreased from INR 38 crore in the corresponding quarter, that is Q4 FY 2023, as there is a decrease in average sales price realization. Comparison of performance for the year-ended 31 March 2024 with the year-ended 31 March 2023. The gross income for FY 2024 was INR 1,117 crore as compared to INR 1,083 crore in the corresponding previous year, that is FY 2023. The increase of INR 34 crore in the gross income for the year-ended FY 2024 is mainly due to an increase in sales quantity by 946 metric tons and a share of value-added products by 1,948 metric tons.
Total income of FY 2024 includes the PLI incentive of INR 6.85 crore.
The PBT in FY 2024 is INR 136 crore as compared to INR 137 crore in FY 2023. A decrease in PBT by INR 1 crore is mainly due to an increase in manufacturing expenses and also depreciation. Provision for recall expenses in the financial statements. The company has not made any additional provision for recall expenses in Q4 FY2 024. Status of product recall is as follows. Value of claims received and charged to P&L, including recall-related expenses, is INR 35.62 crore. Amount of claims settled up to 31st December 2023 is INR 34.63 crore. Balance claims provision in the books of accounts as of 31st December 2023 is INR 0.99 crore. Provision reversal during Q4 FY 2024 is INR 0.99 crore, so balance as of 31st March 2024 is zero.
As regards to product liability claims for bodily injury caused by consuming company's contaminated products under the recall, the company has received an insurance claim in full from United India Insurance Company on 21st March 2024, and no further liability for the company on this account. Update on the new shrimp processing plant at Krishnapuram. The new processing plant with a capacity of 7,000 metric tons per annum has been in operation since 21st March 2024. As you know, the company has been evaluating the following two incentive schemes from the Government of India: Sales-Based Incentives under the Production Linked Incentive Scheme and Granting Aid under the Operation Greens Long-Term Intervention Scheme. Production Linked Incentive Scheme.
The company is eligible for an incentive of 6% in case of raw products and value-added products, 10%, on incremental sales over a period of six years from FY 2021-2022 to 2026-2027, subject to a maximum incentive of INR 79.44 crore with a minimum of 5% CAGR in sales. The company has received an incentive of INR 9.92 crore pertaining to financial year 2023. Operation Greens Scheme. Approval from the Government of India for granting aid for the proposed investment in the new shrimp processing plant at Krishnapuram is received in December 2022. The maximum granting aid under the scheme is INR 10 crore. The first installment of one-third of the total granting aid is due from the ministry. The company has submitted all the relevant documents in this regard. Now I hand over to JMD sir for sharing the future outlook of the industry.
Thank you, Satyanarayana. Have you reviewed the financials of Q4 FY 2024 and the comparison of 2023-2024 with that of 2022-2023 financial performance? Now I would like to share with you some of the developments that have taken place in the industry and the present status and outlook of the aquaculture industry for this year, 2024. You may remember, recollect, that we had informed you that 2024 will be a challenging year for the aquaculture industry, though we anticipate a marginal improvement in overall industrial performance. In line with the global forecast of moderate recovery of the fishery sector in 2024 over 2023, the stockings of seed for the first crop of shrimp culture in India commence during the second half of January 2024 with an increase of about 10%-15% over the corresponding period of the previous year, with a positive outlook for a successful first crop season.
However, unfortunately, due to uncertain and unfavorable climatic conditions, White Spot Disease affecting the culture in some of the areas, and fluctuations in farm yield prices, the culture did not progress as expected, and they were forced to harvest in some of the areas, impacting the overall production of shrimp for the first quarter. However, with the climatic conditions being more stable now after a severe summer, the farmers are looking forward to coming fresh stockings from the first week of June 2024. Hopefully, this crop survives the full season of 90-120 days, and the farmers will be able to make it a profitable season for a profitable quarter. The company will also be in a position to increase feed sales in the ensuing two quarters.
The Processing and Export Shrimp Division is also expected to increase exports to about 16,000 metric tons for the current year, considering the commencement of commercial production by the new processing plant at Krishnapuram. The company is focusing on increasing the processing and exports of value-added products during the financial year 2025. As mentioned before, the company's value-added product exports have gone up by 142% in FY 2024 compared to the previous year. The company, while centralizing the exports to the U.S. and Canada market, is also exploring other markets like Japan and Korea, which are more potential markets for shrimp exports. At this stage, sir, I would like to share with you a couple of important events that have an impact on aquaculture.
The first one, the levy of countervailing duty at 4.36% on the export of shrimp by the U.S. Department of Commerce, is effective from April 1, 2024. The U.S. Department of Commerce has made a preliminary determination of the CVD rate on the basis of the complaint launched by the U.S. domestic shrimp industry against imports from India and also the preliminary data that was gathered by the department. In the next step, the U.S. DOC will determine the final rate based on the objections raised by the Seafood Exporters Association of India, the Association of India, the Government of India, and other agencies on the basis of data provided by them. The final determination is scheduled to be announced on October 6, 2024. In the meantime, the exporters are required to deposit CVD at 4.36%, which affects from 1/4/2024, subject to adjustment after the final determination.
Along with India, other countries like Ecuador, Vietnam, and Indonesia have also been levied CVD at different rates. The Seafood Exporters Association, MPEDA, EIA, and the Government of India are making efforts to get the CVD withdrawn at the time of the final determination on October 2024 by furnishing all the required data and justifying the withdrawal of the CVD. Secondly, there were reports in the U.S. and international media alleging that shrimp exports from India are processed under unhygienic conditions and Indian processors do not adhere to labor regulations, etc. And these allegations were aimed at a few processors from India. In view of the generalized such observations in the media, the company has further strengthened its internal checks and controls to ensure strict compliance of all the regulations.
Coming to the industry, considers these upheavals are part and parcel of the business activity, and they do not hinder the sustainable growth of the industry. The Government of India has been focusing on and encouraging the aquaculture sector by extending promotional schemes like the PLI scheme, Operation Green, et cetera, which the company is availing. It is heartening to note that in the budget for 2024-2025 presented by the Honorable Finance Minister on 1st February 2024, it announced that the Pradhan Mantri Matsya Sampada Yojana, PMMSY, is being stepped up to enhance aquaculture productivity from existing 3 to 5 tons per hectare, doubling exports to INR 1 lakh crore and generating INR 55 lakh crore employment opportunities, along with big infrastructure changes of establishing five integrated aqua parks.
Further details of the scheme are expected to be notified after the general elections while presenting the regular budget, which is expected somewhere maybe at the end of June or July. To consider, the stakeholders of the industry look forward to a bright future. The stakeholders of the industry look forward to a bright future for the aquaculture industry in 2024 and more in 2025, and thereafter, unless any unforeseen developments in the climatic conditions or changes in the global market scenario impact the industry. Diversification of the company's plans into Pet Food and Pet Care products. You may be aware that the company has diversified into Pet Care products business through its subsidiary, Avanti Pet Care Private Limited, as a special purpose vehicle for the manufacture of Pet Food, mainly dogs and cats, and other Pet Care products for catering to the domestic market.
The required technical know-how is being provided by Bluefalo Company Limited, Thailand, a reputed Pet Food and Pet Care products manufacturer in Thailand. A memorandum of understanding, transfer of technical know-how agreement, and joint venture agreement has been entered into with them. The company has identified suitable land for the construction of the factory and is in the process of scrutiny of legal documents and acquisition of the land. On the basis of an independent survey on competing products in the market, the company has identified the product range both for cat as well as dog food. Presently, the company is in the process of developing formulations and producing trial products in collaboration with Bluefalo, Thailand, to undertake trials in India before finalizing their products. It is anticipated that this process would take about six to eight months before the launch of the products in India.
Coming to the Fish Feed, as reported earlier, the preliminary survey on supply versus demand of Fish Feed in the domestic market has been completed, and the survey has revealed potential demand for certain types of Fish Feed for high-value fishes like Murrel, Sea Bass, and Rainbow Trout. The company is considering various options such as importing Fish Feed of required species initially, conducting trials under Indian conditions, and setting up a manufacturing facility based on the results. With this, I thank you all, and now we will take up the questions from you, gentlemen.
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question, please press star and one on your telephone keypad and wait for your turn to ask the question. If you would like to withdraw your request, you may do so by pressing star and one again. Ladies and gentlemen, if you have any question, please press star and one on your telephone keypad. The first question comes from Atharva from Purnartha Investment Advisers. Please go ahead.
Hello. Yeah, actually, I have two questions. One is.
I'm sorry to interrupt you, sir. Could you please speak a bit louder, sir?
Hello. Can you hear me?
Yes, sir. Please go ahead.
Yes, yes. We can hear you now. Yeah.
Yeah. So I have two questions. One was on the EBITDA point of view. Last quarter, we reached 10%, so what are the plans to reach 12%-13% of EBITDA? Because over the last 10 years, we have had a GP margin of around 20%, and we have already reached that. So how do we plan to increase our EBITDA margins to 12%-13%?
Yeah. See, basically, the EBITDA or gross margins depend on the raw material cost for this industry, as we have been almost discussing on every investor's call, because our major raw materials are fish meal, soybean meal, and Wheat Flour. So these products, the prices keep changing. Yeah. Let me complete. Your question was that what are the plans for increasing the EBITDA and the gross margins? That is what your question is. Am I right?
Yeah. So basically, we have already reached a 20% GP margin because raw material costs have come down. So if they remain the same, how do we plan to increase our EBITDA margins?
Yeah. See, that's what I was about to explain. See, this year, the prices have just stabilized, particularly in 2023. We have seen that compared to 2022, 2023 was more stable, all the prices except the fish meal, which went very high because of the overseas demand. And now that was also the reason because of very low production in Chile and Peru. So that has caused the international market price of fish meal because India was the supplier of fish meal to all the Southeast Asian countries, which were hitherto getting from Chile and Peru. So this year, there is a very good crop that is fish catches are very good in Chile and Peru, and they have resumed the production of fish meal and supply. So the prices have come down from it was like INR 125 per kilogram. It went up to even INR 135 also.
Now it has come down to about INR 98, INR 99 now. We expect that it will be stable between INR 95-INR 98. It may not come down further, but certainly, it will be around definitely much lesser than INR 124-INR 125 levels. For the rest of the year, we hope this will be continued. Similarly, the IMD has predicted a good rainfall this season also, this year also. So though you get just as we got very good crop last year, both soya as well as wheat flour, wheat. So this year also, we are expecting that the soyabean production and wheat production would be the same level, if not more, in the current year also because the sowings will start sometime in June, July, the soya, and September, October, we get the first crop. Similarly, this one, the wheat harvesting will be in March 2025.
So we see that the March variance is not going to take place for these two products. And fish meal, again, is a very, what do you call, dicey situation because there is a shortage of fish catches in the West Coast in India. So there has been the impact of all the factories of suspended production, and they may have a ban from 1st July or so, the fishing ban. So with all these figures taken into consideration, we see that if it can be less than 100, that will be a very good sign. We should be able to keep up the margins in a comfortable level, both EBIT and EBITDA and also the gross margins. And as far as the productivity is concerned, we have ideally good production, good yields are coming, and we have sufficient production capacity also.
Again, it depends on how the culture takes its way in the coming months in 2024. As I just explained, the farmers, when they started with the enthusiasm in January, February, the enthusiasm did not last long because of the climatic conditions and the white spot and all. They had to do some early harvesting. So they are now looking for stocking it again from June. If from June, it should be good because there it is, the two extreme. It's not an extreme climate. It's an ideal climate. Through June, July, August, we'll have a good season. So we are expecting that the farmers would be able to take out good production during the next four months or so, say, 60-90 days, we should be able to do. As we expect it happens, it will be good production.
Whatever is we have lost in the first quarter, we'll make it up in the second and third quarters. So that way, we look forward to a stable performance for the 2024-25 year also.
Okay. Another question was, could you explain why the cash flow from operations have reduced from INR 451 crore to INR 263 crore this year, even though our EPG has?
Cash flow from operations has reduced. Cash flow. Cash flow question, any working capital? Check any investments. Just we look into the numbers and come back to you, Mr.
Okay.
I think it's going to only working capital limits.
Working capital, but an increase in debt also of increased containers. In the frozen, we have more raw.
See, it is mostly because we do more working capital. We are using it for working capital. It will be more utilization for that side. That's why the cash flow statement, just go to.
There. The cash flow statement is there. But if you see, because of working capital changes, there is a reduction in the cash flow. Otherwise, from the operations, if you see profit before tax and the adjustments, there is an increase from INR 274 crore to INR 341 crore. But the adjustments in the working capital, because there is an increase in the inventory, if you can see, and also, there is an increase in the debt also. So that is what has made it like the operations, it is INR 288 crore versus INR 177 crore. I think you have the.
No. Yeah, yeah. I have the numbers. I just wanted to understand the inventory part of it. What is the reason for the increase? Because I think last quarter, it was said that we will stock up inventory for value-added products. So I just wanted to understand if that was the case.
No. This.
Inventory all.
Is on frozen?
Frozen or feed?
Frozen.
No, it is a consolidated.
We consolidated the cash flow statement. See, we have consolidated and standalone of feed.
Yeah, yeah. So actually, last quarter, you had just said that we are going to stock up inventory. So I just wanted to understand if that is the reason why inventory has gone up.
Yes.
See, what happens is, for accounting purposes, what we do is, though it is dispatched, but it has not reached the destination. As for accounting standards, we are taking it as inventory only, as a stock in transit that we are taking. So compared to that, it will be more in the end of the year, the more shipments have taken place, so it is more now. Inventory is more. After 45 days, it will come down. On 31st March, it will be more because all the shipments that have taken place in the second half of March, which is much higher this year, that would not have reflected in the form of a sale. It will come in as an export sale only after it reaches the destination.
Okay. Okay. Thank you.
Thank you. I request the participants to restrict with one question in the initial round and join back the queue for more questions. Next question comes from Amit Agarwal from Leeway Investments. Please go ahead.
Good afternoon. My question is regarding a domestic market. Sir, the domestic market is huge for prawn market, but surprisingly, your presentation showed that you don't sell anything in the domestic market. Any particular reason for this?
No. I think we have started domestic market sales, and we did a lot of studying on what type of products are required. We have already appointed some, of course, market development, sales development team have been appointed, one senior.
One DGM?
Two RMs and one DGM. One DGM and two RMs are working on that. We have identified the areas, and we have, in fact, some dealers also have been appointed. And see, the most important thing is that this is, again, a credit market. We have to be very careful because when we are trying to only focus on the cash sales, I mean, cash in the sense immediate daily address payment. So it will take some time, but we are very confident that in time to come next, maybe by end of this year, we should be able to increase our domestic sales significantly. We have appointed dealers, but everybody wants credit, so they don't pay. That is a big risk.
If you supply material and go after them for money, that is a very big headache, which we do not want to take it up for the domestic sale. If we are giving credit, everybody will come and take it.
What is the size of the market, and who are the big players in the market right now in the domestic market?
Yeah. Domestic.
Who is the big player?
Yeah. I think I don't have ready inflight lead. I think we will can you send a mail? We will get back to you because we will discuss with marketing and come back to your survey reports.
Just last question regarding the same thing. Sir, is this a low-margin business, or is it a profitable margin?
I'll clarify that point because this market, there is no statistics readily available. It is only our marketing staff or any company's marketing staff. They go around the market and find out and give the reports, but they do not have any published reports as far as the market survey on this. That is one issue which we have to whatever the figures that we are giving is only the data collected by our marketing team. Yeah. Please go ahead with your next question.
My last question is regarding, sir. I'm a vegetarian, so I just don't know much about it. So, is prawns and shrimps are the same thing, or we are specializing in shrimps only and not in prawns?
I think my colleague, Mr. Venkata Sanjeev, will.
It's the same thing in the Indian market. There's no difference between prawn and shrimps in the Indian market. We just use different names for it.
Same as in the export market, is it also the same? Shrimps and prawns, the same thing? In the export market, U.S.A. market?
Market also is similar. Actually, there's not a big difference.
They call it frozen shrimp. In the export market, they call it as frozen shrimp.
Okay. In the domestic market, we call it prawn market, right?
Yes. Locally we call it prawn fish.
Okay. Okay. Thank you.
Okay. Thank you.
Thank you. Next question comes from Kaustav Bubna from BMSPL Capital. Please go ahead.
Yeah. Hi. Thank you for taking my question. How is the pricing of Indian processed shrimp compared to Ecuador and Indonesia post the addition of duties by the United States on all three of these nations? So could you please give the pricing of processed shrimp into the United States for India, Ecuador, and Indonesia pre and post imposition of countervailing and anti-dumping duties?
See, yeah. See, as you said, that Ecuador, normally, the pricing depends upon the production, supply, and demand. So, Ecuador, having large production capacity, they are in a position to slightly lesser in cost perspective. And they are being nearer to U.S. They try to capture U.S. market. And China is also one of the big markets that they diverted. Last year, there was some problem with China. They were not exporting much to China. Now, they focused on Ecuador. But of course, India and Southeast Asian countries, more or less, the same cost of production will work out. And we stand in a better footing for the reason that our quality of the value-added products or the traditional products is more compared to others. So we have more exports to U.S. compared to others.
I think in the U.S., it is one of the largest exporters to U.S. from India.
Yes. But.
Pricing always varies. Pricing also varies, and it depends upon the international market price. It keeps on fluctuating. Almost every day, there is a new price. It depends upon what we work is we take into our cost of production and conversion cost and see the margin. It is not necessary that always you make a big margin out of it. It all depends upon the demand and supply. Another thing is the inventory situation in the U.S. and other countries, Europe. As far as our company's concern, we are very happy to say that we have been able to make good inroad into the Japanese market. In fact, CMD and also Mr. Nikhilesh , he did both of them are working very seriously on that. We are very confident that many importers from Japan are showing more interest towards our products.
So I think we should be more spread in the global market, not only U.S., but we'll have Europe as well as the Japanese market also with you. We have from Vietnam also. We got it.
Korea.
Korea. I'm sorry. Korea, not Vietnam. Korea. Yeah.
No. But sir, I mean, countries would put import duties onto other nations if they were promoting domestic production, right? So how is the domestic production growing in the U.S., and how do you see that as a risk to exports in general to the U.S.? And also, Ecuador is really close to the U.S. So how do you view a nation who's so close to the U.S. taking market share from India?
Yeah. See, the method of levying the dumping duty or CVD depends on the cost of production. And the basic dumping duty comes from the concept that these countries are dumping the products in the U.S. market less than what their cost of production is. That is the concept that comes. And the U.S. is very meticulous and particular about this aspect. And they go into it almost like every year, there is an exercise going on for determination of the rates that are being charged for these products because almost every country definitely resists this country. They go with an appeal with figures that, "What you have arrived at, the rate is not correct. It is not that there are so much subsidies or something. We are not getting it.
Our cost of production is equally high." The exporters are giving details to them and trying to convince them to reduce the duty. However, the U.S. has its own methodology and its own criteria for determining the rates. They do come to countries, and they take the figures, work out what is the cost of production. They take into consideration what are all the subsidies, support that's being given to these exporters from the government side. They take all these things into consideration, and they arrive at what is the dumping duty. Or even the CVD is nothing but what the taxes that we are giving release. The government is giving relief on taxes paid on export products. They consider it as a subsidy, so they add it in CVD. Like that, these are the things. In fact, it's not the contention.
India is now, the government of India as well as these export associations are fighting very tough, saying that these are all not actually the subsidies, but it was only the reimbursement of duties and taxes paid by the exporters for the export. Even every country has this provision that any export is made from their country, whatever taxes paid locally is refunded. The same thing, this is the stand which the Indian exporters are taking in their, what you call, briefing, which when you submit objections to the preliminary determination of 4.36 CVD, these are the things which we are going to present to the Department of Commerce in justifying that these are all not every country will have this, and so it should not be charged as CVD.
So these are all the things which are always continuously being engaged with the lawyers and experts on this with the Department of Commerce. So by October, we will know exactly what is the final determination. Is it going to be less than 4.36? That's what all of our efforts are towards that. Similarly, dumping also. See, we cannot specifically say it is a criteria is that what is the cost that the local exporting countries incur to make this product? Are they selling it in the U.S. lesser than that cost? That is the basic criteria for dumping duty. The difference is treated as a dumping duty, and they are charging the anti-dumping duty.
Okay, sir. Thank you.
Thank you. I request the participants to restrict with one question in the initial round and join back the queue for more questions. Next question comes from Nitin Awasthi from InCred Equities. Please go ahead.
Hello, sir. Just wanted to understand how the booking of the CVD will be done. Given that the rates are out, but they're not final as of now. The final rates will be out on October 6th, like you mentioned. So from Q1, will we already start expensing it out and booking it when we report our first and second quarter numbers? And finally, when the final rate is out, will we make an adjustment post that, or will we keep it separately on the balance sheet till the time the final rate is out?
So, no. The practice is that we will take it as the product expenditure only. We add on. And even that is taken into consideration while we are working for the cost of the product also. As and when they make the determination, and when they refund it, only we take it as an income.
Understood, sir. Understood.
Yeah. Because it is only preliminary. Preliminary, we are depositing, but from their point of view, it is a deposit. But from our point of view, it is an expenditure. So because CVD is an expenditure, we have to add to the cost of the product like any taxes. So we take it as and when the final determination is made. If it is less than 4.36, the difference is refunded. If it is more than that, we have to pay it. The difference also, we have to pay from the day. So that adjustment will be made as and when the final determination is announced on 6th of October.
Understood, sir. So you supplied shrimps directly to a related party, which is Thai Union, which goes ahead and also supplies shrimps to a related party of Thai Union, which is Red Lobster, which has filed for bankruptcy. So are we directly exposed to any payments or any receivables from Red Lobster?
No, no. No, no. See, as of now, we are not supplying anything to Red Lobster directly. It is only the Thai Union's company, Chicken of the Sea, which is the company of Thai Union. Through them, it's being exported to Red Lobster. So through them, if there is, of course, there are so many developments that are taking place in the whole scenario in the U.S. market. But so far, we have been only doing through Chicken of the Sea.
Understood, sir. So last question, capital outlay for the Pet Food business?
See, we have initially estimated INR 100 crore. INR 100 crore, and we'll have to see, we are in the process of land costs. You know how it is going up and all. See, we are now working practically what is going to be the actual cost nearer to the reality because whatever the plant and machinery cost or land cost or any other civil constructions like factory, the other buildings, and all, we have taken on an estimated basis because full information was not available at the time of estimating the project cost. We have taken on the basis of the information that is provided by Bluefalo, for instance, the area of the factory or other administrative buildings and also the machinery imported, then local domestically acquired purchase machinery and all.
But it looks maybe about the next six months, we should be able to come to the reality, come to the real cost of total project, which may be about we are expecting about 20%-25% increase by the time we complete the project. That's what our expectation. But as of now, the cost is estimated at INR 100 crore, and the entire thing is being funded through equity. We are not going for any borrowing as of now.
Understood, sir. Bluefalo has any shareholding in the JV?
Bluefalo has got their owner. MD is also having a share in that. Bluefalo has got.
No, no. So the JV that we have made for the Pet Food Division, how much is owned by Avanti Feeds? How much is owned by others including Bluefalo?
Yeah. Capital structure is 51% is held by Avanti Feeds and 17% by the promoters, another 17% by Bluefalo, and then 16% by some private investors.
Understood, sir. Thank you.
Thank you. Next question comes from Gunit Singh from Counter Cyclical Investments PMS. Please go ahead.
Hi, sir. In one of the replies to our previous participants, you said that whatever laws or whatever conditions we are seeing in the first quarter, they would be made up in the coming quarters looking at the season and the cultivation. So I would like to understand, since we are two months into Q1, what are the current conditions in the market? What kind of sales and what kind of, I mean, margins are we looking at as of now? Is it below expectations? I want to understand your views on that.
Yeah. I told that in the first quarter, that is till June, 30th June, 2024. That is the first quarter, which is rather lesser than what our expectations were. In the normal course, you may see that May, June, are the peak months in the normal course. But this year, it was slightly different because the first crop was not, I mean, continued for a period which is normally should have. But there was premature, at least, harvesting. So that's why there was a gap. And now they are stocking again in June, first week they are stocking. It means that June month, it will be less only because they will not be stocking all the ponds at a time. They gradually go on stocking it. So what I said was the second quarter means that is July, August, September, October, November, December.
See, like that, stage-wise, you get better yields because we are presuming that on one side, the culture will be very good, and also so that gives opportunity for increasing our feed production and sales that we make. And the raw material costs are also likely to be more or less stable in the next couple of next half year or so, two, three months. So there have been two quarters. So I think all these things put together, subject to the conditions, all this worked out favorably. We should be able to do pickup, I mean, makeover whatever the loss of sales that was there in the first quarter can be made good in the second quarter and third quarter.
Well, sir, so I mean, Q1 is normally our heaviest quarter in terms of sales. So I mean, we would not be able to maintain the Q1 sales that we made in Q1 last year. Is that a fair assumption?
No. I think we are not expecting any drop in the margins or in the quantities sold in the Q1. The market is not doing well.
Yeah. I think we should have bought more. That's what we are trying to.
You want to increase our.
We expected more, but it did not happen. But nevertheless, the overall situation will be that make up the shortfall in the first quarter will be in the second and third quarters because there is a delayed drop this year.
We expect the market's rate to go up because the overall market is down. Overall market has not reached its peak in the first quarter as expected. We are talking about the overall market, not only about Avanti Feeds. Generally.
What about that?
April, May, June.
June, we are expecting it to be good stockings in June and July, and which will result in a good crop. Already started some places, but we are expecting that it will pick up momentum in June, and it will be somewhere around September, October, August, September, October. We'll be able to get good results. The crop will come, and it will be phased manner. It will not be at a one-time, but we will see the results, the performance in the second and third quarters.
All right, sir. Got it. So despite the slower market, I mean, Avanti sales and margins in Q1 would not be, I mean, anywhere lower than last year?
Yeah.
Start of year as well?
Yeah. Still, June is there. We are expecting that June will give some relief for us. So we hope so. We'll have to wait for that because still, we have got full month. June, entire month, it's not yet started. So we'll have full month of June. I think it will have a real impact on the performance if the June month, we get more sales and all, we get good prices. The raw material prices are also stable. We get good performance in the first quarter if June goes on well.
All right, sir. And you mentioned that raw material prices have mostly softened down, and even fish meal prices have come down from INR 135 to about INR 98 levels. So what are our outlooks for FY25 in terms of steady-state EBITDA margins that we can consider?
It is very difficult to make any prediction as of now. It is like astrologer making predictions. So because it is a natural low, the fish catches depend upon the overall climatic conditions and particularly ocean conditions for the growth of the fish and fish catches and all these things. Same thing happens for all other two raw materials soybean meal and also this wheat flour. So it is very difficult to predict one year in advance. We can only say that today because we are sitting in May end. So we can say next six months, it is likely to be good. It's what we have been always emphasizing, next two quarters. So beyond that, what's going to happen is very difficult as of now.
All right, sir. Sir, on the new plant that got commissioned, the new capacity, so what kind of incremental revenues can we expect from that in FY 2025?
You are asking feed or frozen shrimp?
Sir, whatever extra capacity that has been commissioned. You mentioned about 7,000.
Actually, we made shrimp processing. We have commenced the new factory. I mean, we are focusing more on value-added products.
Yes, sir. So what kind of additional revenue can we expect from that plant in FY 2025?
I think we'll be able to give in the next quarter because we have started that. It's all because we are focusing more on value-added products, and we hope the next quarter will have more clarity on that, how much demand. See, as I told you, CMD and ED, Mr. Nikhilesh, both of them are, in fact, on tour into the market. So we'll have to wait and see how the so far has been very good. Response has been very good for our value-added products, and we expect that more supports will come and more orders from the other markets also will come. So I think your question can be answered more precisely maybe by the end of next quarter. Maybe we will have till July, August, September.
In that quarter, we'll be able to come with a clear picture as to future and what we have been able to succeed with the other markets. But one thing we can say that as of now, the water products that we are now making, that has got very good response in the global market. Okay?
Thank you, sir. That was the last question for the day. Now, I hand over the call to management for closing comments.
Yeah. Thank you, ladies and gentlemen, for your active participation. It gives us more encouragement to answer your questions and work better and see that the value of the investors really increases and this thing. We are very confident with all expansion of Avanti Processing Division and also Avanti Pet Care in days to come in the domestic market also. We are very positive about the future of the domestic market, but it will take some time. Even fish feed also, we are working very seriously on that. With all this, we hope that by end of this year, maybe early next year, we'll have more clarity on the way in which these projects are going.
Also, the Pet Care is an interesting which we are working very hard on that to see that it plays on a premium position in the Indian market, and we get a lot of customer response for those Pet Care products also. I think with all that, I would like to conclude, and thank you for your participation. Thank you very much.
Thank you, sir. Ladies and gentlemen, this concludes the conference for today. Thank you for your participation and for using Doorsabha's conference call service. You may disconnect your lines now. Thank you and have a good day.