Equirus

Apex Frozen Foods (Buy)

CMP: ₹378.65

Target: ₹630

Apex expects bigger players to occupy a larger pie of the US market once their new capacities come on board.

Indian players are trying to move out of the commodity space and eyeing the value-added US market.

Key takeaways: a) Current shrimp prices have recovered to $ 9-9.5/kg (versus recent lows of $ 8.2/kg); farmgate prices stand at ₹380-400/kg (40 count shrimps) as of now.

b) Apart from India, Indonesia and Ecuador are the only countries with efficient aquaculture.

c) The government has set a target of 10 lakh mt exports for 2020; management believes India should be able to achieve this target in 2022.

d) Amid subdued demand and delays in setting up the new plant, management has guided for flattish volumes for full year FY19.

e) Of 20,000 mtpa additional capacity, 5,000 mtpa is dedicated for cooked shrimps.

f) Management has guided to full utilisation of cooked capacity and 70 per cent utilisation of the remaining capacity.

g) The company pays around ₹16 crore to Royal Marines annually, and would save ₹6 crore from next year once the new capacity comes on stream.

h) Cooked (ready-to-eat) shrimps fetch excess EBITDA of ₹20-30/kg.

i) Export incentives are around 7 per cent of revenues on FOB basis. MEIS accounting policy has changed from cash to accrual basis.

j) Apex sources RM from about 3,000 farmers; procurement is driven by market prices. The company pays farmers in less than 10 days through direct account transfer.

k) Own farming takes care of 18-20 per cent of RM requirements. The company is doing some trials for feed as well.

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