Target: ₹535

CMP: ₹432.50

Avanti Feeds Ltd (AFL) is a leading manufacturer of Shrimp Feeds with a capacity of 6,00,000 MT, and Shrimp Processor & Exporter with a capacity of 22,000 MT. AFL has a tie-up with Thai Union Group, Thailand.

We revised down our target to ₹535 (earlier ₹620) but upgrade to Buy (from Accumulate) factoring positive demand outlook and attractive valuation. Q3-FY22 revenue grew by 17 per cent y-o-y aided by growth in both Feed (18 per cent y-o-y) & Processing segments (12 per cent y-o-y).

EBITDA de-grew by 27 per cent y-o-y due to decline in EBITDA margin by 380 bps YoY to 6.3 per cent (3.5 per cent in Q2-FY22) on account of sharp surge in Feed raw material (RM) prices. Gross margin declined to 17 per cent Vs 22.1 per cent y-o-y.

AFL has announced capacity expansion of 1.75 lakhs MT with a capex of Rs 125 crore by Q1-FY23. Expect revenue CAGR of about 13 per cent over FY22-24.

AFL has taken price hike Feed to reduce the impact of steep input price inflation. RM prices likely to ease when the supply issues normalise. Demand outlook has improved given better shrimp culture conditions, better farm-gate & export prices and re-opening of export markets.

Revenue/PAT to grow at 11 per cent/32 per cent CAGR over FY22E-24. We lower valuation to 16x (3 year avg=20) on FY24 EPS to factor margin pressure.

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