Good evening, ladies and gentlemen. I am Soumya, moderator for the conference call. Welcome to Avanti Feeds Limited Q3 and September FY 2024 Earnings Conference Call. We have with us today Mr. C. Ramachandra Rao, Joint Managing Director, Mr. A. Venkat Sanjeev, Executive Director, Mr. Alluri Nikhilesh, Executive Director of Avanti Frozen Foods Private Limited, Mrs. C. Santhilatha, GM of Finance and Accounts, Ms. Lakshmi Sharma, Senior Manager, and Mr. D.V.S. Satyanarayana, CFO of 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 star and then zero on your touchtone 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, Soumya. Good evening, ladies and gentlemen. I am pleased to extend a warm welcome to all of you for this investors call, conference call, to review the unaudited financial results for the Q3 FY 2024. Along with me here are Mr. A. Venkat Sanjeev, Executive Director, Avanti Feeds, and Mr. Alluri Nikhilesh, Executive Director, is joining through VC, and Mrs. C. Santhilatha, GM, Finance and Accounts, and Mr. D.V.S. Satyanarayana, CFO of Avanti Frozen, and Lakshmi Sharma.
To begin with, Mrs. C. Santhilatha, GM, Finance and Accounts, Avanti Feeds, will present highlights of the financial results of the Q3 FY 2024 and September ended 31 December 2023 of Feed division, and also consolidated financials of the company for the same period. Thereafter, Mr. D.V.S. Satyanarayana will present the financial highlights of shrimp processing and exportation. After presentation by both of them, we will take up questions-and-answers. Okay, so I now, I request Santhilatha to take over.
Thank you, sir. I will take you through the financial performance highlights of Feed division. Q3 FY 2024 Consolidated Results. The comparative performance of Q3 FY 2024 with that of Q2 FY 2024 and Q3 FY 2023 have been given in the presentation already circulated. Gross income in Q3 FY 2024 is INR 1,287 crores, as compared to INR 1,312 crores in the previous quarter, Q2 FY 2024, a decrease of INR 25 crores, marginal decrease by 1.9%. Compared to Q3 FY 2023, gross income of INR 1,132 crores, there is an increase of INR 155 crores by 13.7%. The PBT is INR 116 crores in current quarter, that is Q3 FY 2024, as compared to INR 113 crores in Q2 FY 2024, an increase of INR 3 crores.
Compared to Q3 FY 2023, PBT of INR 96 crore, there is an increase of INR 20 crore by 21%. Comparison of performance for September ended 31 December 2023, with 31 December 2022. In September FY 2024, the total income increased to INR 4,185 crore from INR 4,062 crore in September FY 2023. The PBT increased to INR 386 crore from INR 286 crore in the corresponding period of the previous year. Almost an INR 99 crore increase, mainly due to increase in revenue and decrease in raw material costs and better overhead absorption. The consolidated results indicate net impact of several factors of both frozen and feeds, especially increase or decrease in income, expenditures, and any other exceptional items. Now I'll present to you the standalone financial results of Feed division. Feed division Q3 FY 2024.
The gross income for the Q3 FY 2024 is INR 958 crore, as compared to INR 1,064 crore in the previous quarter, a decrease of INR 106 crore, mainly due to decrease in quantity of feed sales due to seasonal changes. The gross income of Q3 FY 2024 increased to INR 958 crore from INR 878 crore in the corresponding quarter, an increase by INR 80 crore, representing 9%, due to increase in sales quantity by 9,968 MT. The PBT for the Q3 FY 2024 is INR 76 crore, as compared to INR 86 crore in Q2 FY 2024, a decrease of INR 10 crore, mainly due to decrease in sales volume due to seasonal changes. The feed sales decreased to 116,318 metric tons from 127,864 metric tons in Q2 FY 2024.
The PBT in Q3 FY 2024 has increased by INR 6 crore from INR 70 crore in Q3 FY 2023, representing 9%. As you know, the cost of raw material constitutes major share of cost of feed production, particularly three raw materials, which are fish meal, soybean meal, and wheat flour. The average raw material cost in terms of percentage over feed sale price was 84.83% in Q3 FY 2024, as compared to 85.53% in Q2 FY 2024, and 83.6% in Q3 FY 2023. Increase or decrease in raw material consumption is mainly because of the prices. The prices stabilized in the current quarter when compared with Q2 FY 2024, but are in a higher side when compared with Q3 FY 2023.
The average cost takes into consideration volatility of the major raw materials like fish meal, soya bean meal, and wheat flour. Sometimes they increase and sometimes decrease during the respective quarters. The Q3 FY 2024 rates of fish meal, soya bean meal, and wheat flour are INR 129 per kg, INR 53 per kg, and INR 30 per kg, respectively. The present market prices of fish meal is around INR 125 per kg, soya bean meal is INR 52 per kg, and wheat flour is around INR 30 per kg. The fish meal price continues to be on higher side due to export demand. The soya bean price has come down marginally due to arrival of fresh soya, and is expected to remain stable at least in the next few months. So the average soya bean meal price has come down to about INR 52 per kg.
In the case of wheat flour, the price has come down due to arrival of good crop in 2023, with the price being INR 30 per kg from INR 32.3 per kg in earlier 2023. To sum up, I would like to share with you that the prices of these raw materials, along with related products like fish oil, soya lecithin, et cetera, keep changing from time to time, depending upon the seasonality, production, global trends, et cetera, which have direct impact on the raw material cost of the feed, which is beyond the control of the company. Comparison of performance for September ended 31 December with nine-month period, 31 December 2022. Standalone performance. In September, FY 2024, the total income of feed division increased to INR 3,373 crore, from INR 3,229 crore in the previous year.
The increase is due to increase in feed sales and other income. The PBT September FY 2024 increased to INR 288 crores, from INR 200 crores in the corresponding period of the previous year, mainly due to increase in sales, other income, and decrease in raw material costs, and also better overhead absorption. The future outlook for the shrimp production and feed consumption in FY 2022, and company plans for FY 2024. So on the basis of estimated shrimp production in 2023 calendar year, the estimated feed consumption is about 10.5-11 lakh metric tons. The company's feed sales during the previous financial year is about 473,000 metric tons, as compared to 525,000 tons we are expecting in FY 2024.
The consumption of shrimp feed in the calendar year 2023 is about 5.13 lakh metric tons, a decrease of 2% when compared with previous year. When the total Indian feed consumption is down by 15%, the company's revenue is down by only 2% when compared with that. The shrimp processing and export division. The company's Vannamei 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 shrimps in quantitative terms for FY 2023 were 7 lakh 11,099 metric tons, as compared to 7 lakh 28,123 metric tons in FY 2022, a decline of 17,024 MTs, representing 2.34%. The company's exports during FY 2023 was about 12,497 metric tons, as compared to 12,836 metric tons in FY 2022, a decrease by 339 metric tons. It is estimated that the exports during FY 2024 would be around 12,500 metric tons. Now, I would like to hand over to Mr. D.V.S. Satyanarayana to present highlights of shrimp processing and export division.
Thank you, madam. Now, I would like to take you through the financial highlights of shrimp processing and export division. Q3 FY 2024 financial results, the gross income for Q3 FY 2024 is INR 329 crore, as compared to INR 253 crore in Q2 FY 2024, an increase by INR 76 crore, which is representing 30%, mainly due to increase in sales quantity by 35%. The gross income in Q3 FY 2024 increased to INR 329 crore from INR 255 crore during Q3 FY 2023, an increase of INR 74 crore, representing 29% year-on-year growth. The sales volume during Q3 FY 2024 increased to 3,090 metric tons from 2,865 metric tons in Q3 FY 2023, an increase by 1,125 metric tons.
The PBT before exceptional item for the Q3 FY 2024 is INR 40 crores, as compared to INR 32 crores in Q2 FY 2024, increased by INR 8 crores. The PBT is increased mainly due to increase in sales quantity by 1,040 metric tons during Q3 FY 2024. The PBT in Q3 FY 2024 is INR 40 crores, increased from INR 30 crores in the corresponding quarter, that is Q3 FY 2023, as there is an increase in sales quantity by 1,125 metric tons. Comparison of performance for September ended 31 December 2023, with September ended 31 December 2022. The gross income for September during FY 2024 was INR 820 crores, as compared to INR 838 crores in the corresponding September period of previous year, that is FY 2023.
The decrease of INR 18 crores in the gross income during nine months FY 2024 is mainly due to decrease in average sales price realization. The PBT in nine months FY 2024 is 104 crores, as compared to 98 crores in nine months FY 2023. An increase in PBT by INR 6 crores is mainly due to decrease in purchase price rates during the current period. Provision for recall expenses in the financial statements. The company has not made any additional provision for recall expenses in Q3 FY 2024, since full provision has been made in the financial statements till 31st December 2022, against the total claims received from the buyers. So the current status of product recall is as follows: Value of claims received and charged to P&L, INR 35.62 crores.
Amount of claims settled up to 31st March 2023, INR 32.57 crores. Amount of claims settled during Q1 FY 2024, INR 2.06 crores. Balance claims provision in the books of accounts as at 31st December 2023 is INR 0.99 crores. As regards the product liability claims for bodily injury caused by consuming company's contaminated products under the recall, the surveyor has submitted the final survey report to insurance company, and it is under review by insurance company. As for information provided by broking firm, the claim is settled in early March 2024. Since the liability has been covered under the Commercial General Liability insurance policy, there is no need of provision, and hence, we have not made any provision in the financial statements. So here, I will just update on the new shrimp processing plant.
New processing plant and cold storage unit in Krishnapuram, Kakinada District, with a capacity of 7,000 metric tons per annum. Plant and machinery installations are completed. Commissioning will start from 2024. Trial production is underway and commercial production scheduled to commence from March 2024. As you are aware, the company has been selected under two incentive schemes of Government of India. First one, sales-based incentives under Production-Linked Incentive Scheme, and second one, grant-in-aid under Operation Green Long-Term Intervention. Production-Linked Incentive Scheme, company is eligible for incentive of 6% on raw products and 10% for value-added products on incremental sales over a period of six years from 2021-22 to 2026-27 financial years, subject to a maximum incentive of INR 79.44 crore, with minimum CAGR of 5% in sales.
The company has received an incentive of INR 6.85 crore pertaining to financial year 2020-2022. Incentive claim application for the FY 2023 was filed in December 2023. Operation Green Scheme, approval from Government of India for grant-in-aid for the proposed investment in new shrimp processing plant at Krishnapuram is received in December 2022. Maximum grant-in-aid under the scheme is INR 10 crore. The first installment of grant-in-aid is due from the ministry. The company has submitted all the relevant documents in this regard. Now, I request JMD sir for sharing future outlook of the industry.
Thank you, Satyanarayana. Having reviewed the financials of Q3 FY 2024 and comparison of September performance ending 31 December 2023, I would like to share with you the present status and outlook for the year 2024 of this aquaculture industry. In line with global forecast of moderate recovery of fishery sectors in 2024, over 2023, the stocking of seed for first crop of shrimp culture in India commenced during the second half of January 2024, with an increase of about 10%-15% over the corresponding period of the previous year. As the shrimp farmers are confident of stable farm gate prices during this year, the same trend of increased stocking is expected during the rest of the first crop period.
Considering the present trend, an increase of 10%-15% over 2023 in feed consumption seem to be certain to increase to about 12.5 to 13 lakh metric tons in the current year. Our company plans, targets to achieve about 6 lakh metric ton feeds, sales in the year. The processing and export for shrimp division is also expected to increase exports to about 15,000 metric tons during the current year, considering the commencement of commercial production by the new processing plant at Krishnapuram in Andhra Pradesh before 31st March 2024. The company is focusing on increasing the processing and export of value-added products during the current year.
The company, while strengthening the exports U.S. and Canada markets, also exploring other markets like Japan and Korea, where the company is receiving very positive response from them. The government of India has also been focusing and encouraging aquaculture sector by extending promotional schemes like PLI scheme, Operation Greens, etc., which the company is availing. It is heartening to note that in budget for 2024-2025, presented by the Honorable Finance Minister on first February 2024, announced Pradhan Mantri Matsya Sampada Yojana, PMMSY, is being stepped up to enhance aquaculture productivity from existing 3-5 ton per hectare, doubling the exports to INR 100,000 crore and generate 5,500,000 employment opportunities, along with big infrastructural changes of establishing 5 integrated aqua parks. Further details of the scheme expected to be notified after the general elections, while presenting the regular Union Budget.
To conclude, the stakeholders of the industry look forward for a bright future for the aquaculture industry in 2024 and thereafter, unless any unforeseen developments in climatic conditions or changes in the global market scenario impacts the industry. Coming to the diversification of company's plans into pet food and pet care products. You may be aware that the company has incorporated a subsidiary company with the name Avanti Pet Care Private Limited, as a special purpose vehicle for 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 agreements have been entered into with the joint venture partners.
An agency has been appointed for undertaking market research and survey for demand and supply of pet food and pet care products to evaluate and decide on specific products in demand in India. Further details of the project will be reported to you in due course. The fish feed, as reported earlier, a senior executive has been appointed to survey and evaluate the demand and supply of fish feed of various species in India, with the objective to set up fish feed manufacturing facility by the company. Now, the survey is in progress, and the report is being expected in a couple of months.
For frozen shrimps in this domestic market, the company has made the strategic decision to venture into domestic market, a move that the management believes will enhance our business prospects and create new opportunities for value creation within the country. The company is in the process of structuring the marketing strategy by taking on board taking on senior marketing professionals, and it is expected that the sales in the domestic market may be grounded in a couple of months. I think with this, I conclude the introduction part, the brief, the future for the aquaculture industry, and now, we will take up questions-and-answers from you. Thank you, ladies and 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 questions, please press star and one on your telephone keypad. Our first question comes from Gunit Singh, from Counter Cyclical Investments. Please go ahead, sir.
In terms of exports of seafood. So, I mean, can you share more light on that? And how can we capitalize on this opportunity?
Yeah, Nikhilesh?
Hi, could you repeat your question?
So recently there have been reports of, I mean, some difficulty or problems that the seafood industry, seafood exports from Ecuador are facing. So, I mean, I want to hear your thoughts on that and how the company can capitalize on this. Because, in the recent past, we've seen that Ecuador has taken up some market share of Indian exports to the U.S. So, I mean, how does the outlook look going forward and currently for us in the U.S. market?
Thank you. So right now there is a lot of political, and social instability in Ecuador. So that could be a short-term problem for the country because simply, like, a lot of buyers can't even go to the country right now. I know several of them who have canceled their trips to Ecuador in light of the situation. So that may, there's some we might benefit out of in the short term, but long term, I think, India is still a good, in a good area for exports, mainly because we focus more on higher value products compared to Ecuador. Ecuador's population is about 17-18 million, compared to 1.4 billion. So they're not able to process as much as India can in the value-added space. That way it's healthy for us in the U.S. market in the long term. I hope that answers your question.
Yeah, that does. So basically, in the value-added segment, we have an edge, but I mean, in the non-value-added segment, is there a number that you can give in terms of the landed cost of, say, exports from Ecuador versus from India?
So Ecuador does very low value items, like the lowest that you can go to. It's like just the plain shrimp or the shrimp without the head. So they're much more competitive than us over there because they don't have any other overhead, like you know, like a grading high-end grading machines or even like like cookers, et cetera. So there's no landed cost as such, but I would say those products, just to provide raw material, they would be about like 10% lower than what India can provide.
I may add to it
Also add to it that we, Avanti as such, doesn't focus on that, on those products. They account to less than 5% of our total sales, or even like 2% of our total sales. The product that Ecuador does, we don't overlap with them.
I may add to what, sir, Nikhil said, that, see, we are focusing more on the value-added products, export of value-added products, which will have, as stated, it is leverage. And, more and more, we want to go for value-added, and the new factory is equipped with advanced equipment to make value-added products. And that is the area where, really the company's, the profitability or the volumes and, where exactly the lies. So we are going on that. In that perspective, Ecuador may not be that big competitor for us on that.
Okay, got it. I want to understand this in the perspective of, I mean, the shrimp feed consumption, because, I mean, if our exports of even low value exports to the U.S., they lose in competition to Ecuador, then the shrimp feed consumption may also go down. I was coming from that sheet, but I got it. I want to understand what percentage of our raw material costs is in wheat, fish, and soya, I mean, in terms of percentage.
Mr. Venkat Sanjeev Soya
Yeah. Which can totally it would be 85%, the all three together.
And breakdown of individually?
Sorry.
In an individual breakdown of wheat, soya, and fish.
See, I can just add to what Mr. Venkat Sanjeev just said. See, this is a formula depending upon the kind of feed we are making, whether it is starter or grower or finisher. The combination changes between the raw materials like the fish meal, soya bean meal, and the wheat flour. Moreover, the pricing also will have an impact, so we make an adjustment in the overall the raw material composition of each variety of product. So it is very difficult and not possible to give the individual breakup of soya bean meal, fish meal and wheat flour. So I think it's overall, we say that this is about 85% of the total 62. It depends upon the product. So it may range from 70%-85%, it may range with these three products.
All right, sir. Got it. And my last question would be, I mean, what is the outlook for FY 2025 in terms of, top line and bottom line? And what kind of ready state margins are we looking at in FY 2025, considering the push by government and, situation getting better?
Now, as I told in my earlier, you know, I think, presentation, that 2024 as such appears to be still a challenging year for the sector, aquaculture sector, but still the compared to 2023, we expect that 2024 would be a better year. So in the sense that there is a marginal increase in the exports as well as the feed consumption, culture itself by about 10%-15%. So this is still a beginning of the season, so it started the mid of January, and it continues, and the first crop goes on till almost July, August, it goes on. So as we go forward, we expect that the production will go up.
As a result, the production, the consumption of feed also goes up, and, of course, exports also do go up. So, for 2024 it is fine, and in 2025, as I said, the impact of the government schemes, what we, I told you earlier, like, Pradhan Mantri Matsya Sampada Yojana, etc. See, the governments have to come. We have to have the we are going to have the general elections, after the new government comes, and they formulate the procedures, where we stand, how we take advantage of this, the government schemes for increasing the aquaculture, the exports of this seafood. It all depends, because 2024 year, once we cross it comfortably, which we expect that it will be on more or less on the 2022 year.
2023 had actually decreased the performance in 2023, and we hope to get back to 2022 level, and if possible, even to cross that. That is what we are looking at this point of time. So as we go, maybe in time, next week, next quarter, we'll be able to give you the exact, the progress of the industry.
All right, sir. Got it. That's all from my side. Thank you. All, all the best.
Thank you. Thank you.
Thank you. Ladies and gentlemen, if you have any questions, please press star and one on your telephone keypad. I request the participants to restrict with one question in the initial round and join back the queue for more questions. Our next question comes from Apurva Mehta from Purnartha Investment Advisers. Please go ahead.
Yes, and thank you for giving me the opportunity. So, in quarter three, I have seen that the EBITDA margins have not gone up, even though in this quarter, the shrimp processing has been higher and there has been stable raw material prices. So have we increased the discount that is given to the dealers? And could you just give a breakdown of per ton, what would be the discount this quarter and the last two quarters?
Yeah, I see. The discount structure, it depends upon the market and the dealers also. We start with the general discount to incremental discount, to turnover discount, to the different, you know, the single feed discoun t. There are varieties of discounts which we give depending upon the performance of the dealer. But generally, the TOD is the standard one, which gives once the dealer achieves a slab in which he falls, that percentage is given. It may be 1.5%, 2.5%, like that b etween t hat is the one discount that we give it. The second discount is the incremental discount, that we take the previous year's performance and we fix the current year's performance.
For increments, we have a slab, and we give the, as they achieve the incremental, the volumes, they- we get a certain additional discount. The third one is the single feed discount. We give the single feed discount to such of the dealers who deal with our feed, Avanti feed exclusively. For them, we give 1% discount. Like that, there's a new area discount. Supposing the areas which were not there earlier, we are going to come for the first time, that is a one-time discount we give it. Like that, the discounts vary from different, the dealers and different parts of the country and the performance of the dealer. So it is very difficult to say, generalize the discount. So maybe the 7%-8% in an average, we may give a discount for the total. It ranges between 6%-8%.
Okay. And just the, like, first part of the question is, why EBITDA margins have not gone up, like, could you give an insight? Because shrimp processing revenue has gone up this quarter and raw material prices haven't fluctuated that much.
Yeah. See, I think the question has two parts. One is about the feed and one is about the processing and exports. Just to briefly about the feeds, we have been actual every investor call, we are seeing that the raw material prices are continuously increasing. There has never been a case where we have a decrease in raw materials, in spite of decrease in raw materials, in spite of the new crops, good crops, whatever it may be, it starts coming. One of the reasons could be because main, like wheat, soya, there is MSP, minimum support price, the government announces.
The government keeps announcing very often, particularly when the elections are around, then they invariably announce support to the farmers. So that way, the prices have not been coming down at all. So, on the other hand, we cannot increase the price of the feed also because too much increase in the feed price will make the will discourage the farmers to undertake the shrimp culture. So that again is a very limited scope that we have to increase, we have to increase the price of the feed.
So therefore, the feed prices for profitability does not increase suddenly. It only keeps around if we can do around 6%-8%, we can keep stable at 6%-8%. Because really, the prices of raw material comes, it may go up to 9%-10%. I think that is what we have been seeing for the past almost five to six years. That has been the trend of the feed. As far as the processing is concerned, I think, Nikhilesh, you can explain this?
Hi. The processing, I think there's been a good recovery in the volume. But, as you said, it's pretty much flat because of weaker market conditions in the U.S., primarily, and I would say also the rest of the world also is being primarily weak market conditions. We are, however, trying to push up the EBITDA margins this financial year towards because it's certain what we're spending now start going into the next financial year. So, by adding more value-added strategies, also trying to push up the price to the customers. Thank you.
Okay.
Could you also explain what has happened to the-
So sorry to interrupt you, Apurva sir. Could you please come back in the queue for further questions, sir?
Okay.
Thank you, sir. Our next question comes from Nitin Awasthi from InCred Equities. Please go ahead.
Hello, sir. My question was around the fish meal part. So I just missed the figures exactly. I was very confused when I heard it. What was the fish meal cost during the quarter, and what is it currently? I believe you gave those figures in the opening statement. However, there was some mix-up, so I couldn't understand the correct prices.
Yeah, just please hold on, Nitin, price.
The price in the quarter was INR 129, and right now it is around the same, INR 125-INR 127. It is in the same range.
Okay.
See, the fish meal price, just to give explanation, the fish meal price keeps fluctuating depending upon the catches, fish catches, and also to the export demand. See the, as we are seeing for the last almost three to four years, there has been a big demand for Indian fish meal, the, in countries like, Taiwan, Thailand, the Indonesia, Korea and all, they are importing fish meal from India because that is found to be, cheaper than the, fish meal, imported from Chile and Peru. So the quality and all is good, but that is, making a big difference for the fish meal, what it was earlier and now.
So, if there is not much of orders, export orders, the fish meal manufacturers are preferring to supply in the domestic market at a marginally lesser price. So it is ranging between $120 and $130. We expect that if the good, the catches happen in the next year, maybe it could be around $115-$120. But as it stands today, it is only $125. We I don't think in the near future it will go, come down unless we get good catches and there are no export orders.
Understood, sir. But just wanted to clarify one thing. As per my understanding in the export market front for fish meal, prices seem to have crossed INR 150, which is probably all-time high, which an Indian fish meal exporter was getting, because of the total collapse in Peru exports and, you know, demand even from China now happening to be fulfilled from India. Do you see those circumstances actually, you know, playing about? Have you made forward contracts or anything of that sort? Like, you know, quantities guaranteed at around INR 130, anything of that sort, or we'll be going to the market every month or so?
See, actually, our SOP for purchase of fish meal is that we have vendors evaluated, and we have about 14, 13 to 14 suppliers. But among them, there are only five, four or five big export suppliers. But all of them prefer export market because they are not only getting the dollar conversion advantage, and also they are getting. On that, they are getting duty drawback. On that, they are getting RoDTEP. So these are the incentives given by the government that makes that, you know, that very attractive for them than to supply for India. It is, on the other hand, in India, we have to pay GST. So these are the disadvantages we are having.
Coming to the, your, answer your question regarding the forward contracts, you know, the, this, trade, this business doesn't have the practice of forward contract. It is because even to get, supposing we want to buy, let's say, 2,000 tons of fish meal at a time, it is very difficult to get it. They only give 500 tons or 200 tons like that. 1,000 tons and above, it's very difficult to book, on the spot deal also.
Even if you use forward contracts, none of them is prepared to take that kind of a b ecause no one knows how much catches they are going to get, what is going to be the, export order. So they are all, very shrewd, businessmen, so they will not enter into any forward contract. That happens only when there's a big fluctuation, only they take some positions for forward contracts, but in this state, it is not happening like that. They are getting advantage on exports, so they would not like to take any forward contract commitments with the Indian buyers.
Understood, sir. Thank you.
Thank you, sir. Our next question comes from Pratik Jain, from Solidarity Investment Managers. Please go ahead, sir.
Hey. Hi. Thanks for the opportunity. So my question is more on the long-term perspective. You know, if you see, sometimes it's Ecuador, sometimes it's India, in this shrimp industry, who is leading the position, right? So how do you see India over the next 10 years in this industry, and what is the fair growth rate you think that Indian shrimp industry can do over a, you know, over a decade?
Yeah. See, the 10 years seem to be a quite long period, Mr. Pratik Jain. So what we can only see, at the most, we can see for next couple of years. So beyond that, looking at the aquaculture sector today, because it is very difficult to predict for next 10 years. Let me tell you the components of this trade. One is the raw materials, which are mostly only dependent on nature, like soybean meal or wheat flour or the fish meal. All these products, they keep fluctuating, the prices are fluctuating. We cannot take any decision or planning for this in future.
Number two, the export prices of the shrimps are also, it's very, very difficult to plan for more than couple of years. But two years itself is very difficult in this industry to forecast. So, in spite of all that-
Sure.
In spite of all that, in spite of all that, then definitely we have a plan, as the government of India is also looking at INR 100,000 crore exports through aquaculture industry. And we do have our plans, how we go about the feed. And, the other thing is the, feed consumption increases as the area of the culture increases or, by the more farmers to take up this. They can take up only when there is a profitable, culture, and again, they should get a good farm gate price. And from again, the exporter will do it only, he can buy at a higher price only if he gets a, higher, export price. So these are all the, chain, that is, supply chain that is operating.
So with all that, we reasonably expect, if you can get a 5%-10% growth in the next couple of years, we consider that it is a really good improvement, and we'll have to see, because so many raw materials are becoming scarce day by day. Year after year, we are finding it very difficult to get the raw material sources, so there's a need for a lot of R&D to take place. To find substitutes for raw materials so that while keeping the composition, the protein content, et cetera, the quality of the feed intact and reducing the cost of inputs. Similarly, the aquaculture also is becoming expensive. How we can do it?
There are so many methods that we are thinking of the doing the aquaculture and the export process, like what we are discussing about value-added products, which gives the most, more, more benefit advantage for us. So overall, I would say that, it would be around two years, what it could be—I mean, that could be done. I think, Nikhilesh, do you want to add anything to this?
Yeah. I just want to add to this. So talking about a food product, right? Which has almost become like a staple item now, stable and as the disposable incomes increase, the affordability of this protein, which is considered a premium protein, will become higher. There's a lot of effort in the industry also to promote shrimp, pretty much like avocado or, eggs, that, you know, like, promote to eat it because of its health benefits, sustainability, et cetera. Countries like India are opening up to the, China is now the largest importer of shrimp in the world. As people can afford this more, the demand will increase.
As for India, compared to Ecuador or any other country, like you had said, like, it's a cycle, but India has been consistently producing a good amount of shrimp for the past 20, 30 years, so there is no short-term disruption that-
... it can be seen, but even in the long term, like, like Mr. Rao said, like, 10 years is a long time, but like on the macro side, the demand of the shrimp is growing slowly, and so it should be there in Avanti as a whole. Thank you.
That I understand, sir. My question is more on what is the-
Pratik, sir, so sorry to interrupt you, sir. Could you please join back the queue for more questions, sir?
Sure, sure.
Thank you. Thank you so much, sir. Dear participants, I kindly request you to restrict with one question in the initial round and join back the queue for more questions. Our next question comes from Varun Arora from Safe Enterprises. Please go ahead, sir. Varun, sir, please go ahead.
Hi, thanks for the opportunity. Yeah, I may be repeating the question, so sorry for that. You know, my question is regarding the environment that you are seeing, you know, with respect to passing of, you know, the raw material prices. So if you could explain for both the, you know, the feed business and processed shrimps, how is the environment in terms of passing the raw material prices?
Yeah. Let me first explain the feed, then Mr. Nikhilesh will explain about the processing and export. See, the raw materials, as we said, like fish meal, soybean meal, and wheat flour, are the major raw materials that I consume for manufacture of the feed. See, the cost of production of these products and the is increasing day by day. The soybean meal, again, depends upon the natural, the climatic conditions. One year you get a good crop where you, then you can see, you know, the prices not going much, but in the next year there will be either drought or no rains and all, then there will be prices will shoot up because of the shortage in production.
So, and also depends on the soybean production in other countries, where if other countries it affects the production of soybean meal there, so then naturally, the prices, if there is a shortage, the prices goes up. So this is one thing which makes these raw materials continuously going up. Coming to the production, naturally, the raw material cost component is about 70%-85%. So naturally, the cost of production of feed also goes up, invariably. This, the question that you made was, whether it can be passed on to the farmer. See, the farmer situation, we are in a position to see that the farmer also sustainable culture year after year.
If we increase the price and it works out, it doesn't work out profitable to the farmer, the farmer will not undertake shrimp culture. Rather, he would go to fish or any other product. They will not do this shrimp culture. So we have to keep in mind the cost of manufacturing, producing the shrimp also, so that he will make some, you know, margins, in while the farm gate prices are kept, you know, in a reasonably good rate so that he makes some money, so makes profit out of this activity. So these are the reasons that we cannot straightaway pass on the increase in the price of the feed to the farmer.
Moreover, we have the government regulations in states like Andhra Pradesh, where it is in the interest of the farmers, the governments are also working. They say that they come on the feed manufacturers to reduce the price, because the farmers are not able to make any benefit out of this activity. So this is one area where the feed price cannot be hundred percent passed on to the farmer. Nevertheless, what we do is we take all aspects into consideration, and we make a moderate increase whenever there is a raw material price increase, and make some share is taken by the company and some is passed on to the farmer.
As far as the processing is concerned, I think I'll request Nikhilesh to explain the operation of the processing unit. So currently, the price, the price puts, or the price recovery of the increased expenses from the customers is very tough, because we're actually facing, the industry is facing an oversupply situation, right? So right now it's very difficult, but usually, because all our contracts are not very long term, right? They're usually spot buys, or the maximum is two contracts we enter in the long-term contract.
So usually if not one year, the second year, we're able to pass on the prices, because as the processor, which is pretty much taking the farm gate prices, adding our overhead and giving it to the customer. But right now, with the oversupply situation, it's a little bit difficult, but I think stabilized, it should be fairly good. So just to follow up on the process, changes, would you say that given the situation in Ecuador, you know, you see better prospects than what you saw in last 12 months in terms of taking the, you know, realization increase?
I would say yes, in the short term, because I don't know, like the several reports of, like, you know, instability, inefficient farmers, threats to the factories. So in the short term, definitely there is, kind-- I wouldn't say advantage, but I think a preference towards buyers sourcing from, more stable supply chains, just because, it's easier for them to navigate with. In the short term, yes, but in the long term, we need to see. I mean, the hope is the country does stabilize at very quickly, right?
Sure. Thanks a lot. Thank you.
Thank you, sir. That's the last question for the day. Now, I hand over the floor to the management for closing comments.
Yeah. Thank you, Soumya. Thank you, ladies and gentlemen, for spending your valuable time for having discussion with us on the interesting questions, because every investor will have this kind of a, you know, the questions that they would like to know about the industry. One thing we can assure you from the management part of it, we take every effort to see that the operations are profitable and investors are benefited by this. At the same time, the most important thing is the reputation of the company is maintained, and in fact, it should grow year on year. So that's what our objective is. This, I thank you for your participation in the conference call. Thank you.
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