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Your Questions April 2018

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By IE&M Research

I bought 2000 shares of Avanti Feeds, a year back @783/- on a friend’s suggestion after coming back from Qatar where I spent 10 years. I’ve absolutely no idea about the company and in fact, to tell you the truth, about share market at all. Though I don’t need the money right now, but I find that the share jumped to Rs3000 and now it is down sharply. Please guide me what should I do in the present scenario. – P. Jayakumar, Palakkad 

BSE Code/ NSE: 512573/AVANTI; Face Value: Rs2; CMP: 2192; 52 Week H/L: 3000/700; HOLD

Avanti Feeds is a leading manufacturer and exporter of shrimp feeds and shrimp processor. The company also operates a windmill with an installed capacity of 3.2 megawatts in Karnataka. It derived 82% revenue from shrimp feeds and 18% revenue from processed shrimp during 9MFY18. The recent good news is that the company has started commercial production of the additional capacity of 1,75,000 MT of shrimp feed plant at Bandapuram in Andhra Pradesh from March 19. The company is rapidly expanding shrimp processing business intending to clock Rs1,200 crore in revenue in 2018-19 and improve margin due to the focus on cooked and higher value products.

The US is the largest market for Indian seafood exporters so obviously there was much noise after the US Department of Commerce suggested to increase the import duty to 2.34% from 0.84%. The sharp fall in the share price can be largely attributed to this reason. India’s share of exports to US is over 60%. However, experts suggest that even if it happens, it will not have a major impact on India’s shrimp exports due to the rising demand and better operating profitability of companies. In 2017 also the US had initially proposed 1.07% duty on Indian shrimps, but subsequently reduced it to 0.84%. Typically shrimp exporters earn 10-12% operating margin so a small basis point increase in duties therefore may be absorbed within the chain. The industry is expected to continue to grow at 10-15% for many years as beside the demand there are enough infrastructure and idle land available which is suitable for shrimp culture in India. There is a huge domestic and export demand to be met which is backed by FY18-19 Union Budget allocation of Rs10,000 crore for aquaculture and fishery industry. On a consolidated basis, Avanti Feeds’ net profit jumped 128.31% to Rs 105.07 crore on 33.82% rise in total income to Rs 722.61 crore in Q3 December 2017 over Q3 December 2016. We expect revenue at CAGR of 25% over FY18-20E. Also, the management is aiming to increase its market share to 50-55% from current 46% over FY17-20E. After the completion of commissioning of the new capacity EBITDA is expected to stabilize at 18% in FY20E and PAT at CAGR of 17% over FY18-20E. It is virtually a debt free company which lends financial stability. The stock has increased by three times over the past 12 months. The stock had hit a record high of Rs 3,000 on 13 November 2017 and a 52-week low of Rs 700 on 27 March 2017. The mid-cap company has equity capital of Rs 9.08 crore. Face value per share is Rs 2. Our suggestion is you should keep your investment intact, however, since you have made a substantial profit, you should sell 800 shares to recover your capital whenever the market is up and enjoy the benefit of one of your best decisions. But hold the rest in your portfolio.

I bought Websol Energy Systems Ltd. @Rs108/- six months back. It had moved up and drastically came down in last three four months. The stock seemed too volatile and even could not hold when the market was up. I want to know more about this company and whether I should remain invested? – Jyotirmoy Chattopadhyay, Asansol, West Bengal 

BSE Code/ NSE: 517498/WEBELSOLAR; Face Value: Rs10; CMP: 87; 52 Week H/L: 176.75/51.20; EXIT

You’re right. From a market cap of about Rs330 crore it has come to Rs235 crore. The company is a leading manufacturer of photovoltaic monocrystalline solar cells and modules and the profitability is entirely dependent on the scale of operations and utilization of the available capacity. It supplies Solar Panels and Modules. The company is in the process of increasing its capacity to 300MW. The installed capacity of solar power is expected to reach 100GW by 2022 from the present capacity of 12GW and the central government is giving it top priority to ensure the installed capacity reaches the desired target. There has never been a demand problem, but the manufacturers were hurt because of Chinese dumping. Websol Energy System Limited delivered an ROE of 101.46% over the past 12 months, which is an impressive feat relative to its industry average of 1.88% during the same period. Websol Energy System’s cost of equity is 18.49%. Given a positive discrepancy of 82.97% between return and cost, this indicates that Websol Energy System pays less for its capital than what it generates in return, which is a sign of capital efficiency. However, companies operating in the semiconductor industry, even ones that are profitable, are more likely to be higher risk. You should sell and buy more attractive stock, but don’t be in a hurry. Don’t book loss as the markets will shortly give you a chance to recover your price.

I have purchased 1000 shares of VRL Logistics Ltd. at Rs368. Should I hold or sell those shares? Anonymous, 

BSE Code/ NSE: 539118/VRLLOG; Face Value: Rs10; CMP: 384; 52 Week H/L: 492/297.10; HOLD

It is estimated that the Indian logistics industry will continue to show robust growth of 10-15% annually. Last year in November the government awarded infrastructure status to the sector, including those in cold chain and warehousing facilities. After this announcement all the logistics companies are moving from a traditional setup to the integration of the technology and IT into their operations. This step was necessary to meet the service demands as well as to reduce the costs. The government has initiated several reforms that will give a boost to many sectors that will expand demand for the logistics sector. Unlike the olden days now the industry provides end-to-end supply chain solutions to the companies. VRL Logistics Ltd. is in expansion mode with an established brand name in goods transportation network across the country. The company is in the process of getting 1200 customized trucks from Ashok Leyland which will substantially increase its fleet. Fleet addition is expected to commence by April 2019 and would conclude by December 2019. The company had placed the order in January at a cost of around Rs 4 billion. The company as on December 31, 2017 had 3,989 trucks under the Goods Transportation business segment. After implementation of GST and removal of the inter-state check-posts the company has experienced lower turnaround time and an improvement in utility of trucks. This will certainly aid the margins of the company going forward. The company is expected to record good result this financial year. However, when the fleet acquisition will complete its effect will be spectacular. The company has a debt-to-equity ratio of only 0.34 and has been rewarding its shareholders a healthy dividend payout of 43.75 percent. You are advised to hold these shares for at least two years to gain handsomely.

I have 1500 shares of Cords Cable Industries Ltd., bought @Rs124. Immediately after that the stock came to two digits and remain so. I’m a long term investor and have the appetite to hold it for another two years and more. Can you throw some light what is cooking and when I can see it moving to three digits? Secondly, I don’t find volume and that is again a worry. – Vipin Shekhawat, Udaipur, Rajasthan 

BSE Code/ NSE: 532941/CORDSCABLE; Face Value: Rs10; CMP: 80; 52 Week H/L: 153.50/74.15; HOLD

Cords Cable Industries (CCI) is one of the largest manufacturers of Control and Instrumentation Cables in India, supplying to various end users, like Capital Goods, Metros, Refineries and Real Estate sectors, Power, Airports, Railways etc. The company’s clientele includes blue chip companies like BHEL, L&T, NTPC, Reliance Energy Ltd. and others. All metro projects throughout India use cables supplied by Cords. Looking at the ongoing projects and government’s increased thrust on new Metro projects in various cities, Cords is in a sweet spot to capitalize on this huge opportunity. To keep up the growth momentum, the company has added control cables and customized instrumentation cables to the product portfolio. With the revival expected in both government and private capex cycle, CCI is in a sweet spot. The company has set up a state of the art manufacturing facility in Alwar, Rajasthan which enables it to diversify the product range. At present the company is focusing on LT cables, control & instrumentation cables and specialty cables. In the proposed expansion project, the company has planned to add HT cables and Rubber cables to the existing product portfolio.

The share of the power sector is expected to come down to 9% in FY18 from around 36% in FY16 resulting in better working cycle. Power sector was typically a low-margin business and with this transition it will record high margin expansion. In FY17 its net profit had almost doubled, which is further expected to go up in coming years. Currently, it is operating at around 55-60% utilization levels, but its break-even level is around 45% of the capacity utilization so the space is not bad. With huge demand coming from various sectors, the utilization levels are expected to improve further. As per a Supreme Court order, oil refiners need to comply with BS-VI by 2020 which represents an opportunity of around Rs300 crore for the company over the next 3-4 years. The share of hydrocarbons sector also is expected to reach 25% in FY18 from 9% in FY16. The company’s topline is expected to grow at a CAGR of 25% for the next 3-4 years and bottomline is expected to grow even further at a CAGR of more than 50%.

About the author: IE&M Team

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