By IE&M Research
I have 134 shares of Avanti Feeds Ltd. bought at Rs1951. The company management has announced stock split coupled with bonus shares. If my calculations are correct, then I’ll have around 400 shares after this. I want to know whether I should be invested or sell the shares. I’m a long term investor and don’t mind holding it for a couple of years.
– Sanatan, Jhansi
I have 600 shares of Avanti Feeds Ltd. bought at Rs1560. Please suggest whether I should average it? – Heerji, Rajkot, Gujarat
(Similar questions by Govind R Wankhede, Pune and Ramanathan VR, Vijaywada)
BSE Code/NSE: 512573/ AVANTIFEED; Face Value: Rs1; CMP: Rs566
Market Cap: Rs3670; 52 Weeks H/L: Rs1000/ 411 HOLD
Avanti Feeds is India’s leading shrimp export company. It has tied up with Thai Union Frozen Products PCL which is the world’s biggest seafood processor. The firm has a manufacturing unit of prawns and fish in Andhra Pradesh and Gujarat, which has a capacity of 400,000 MT per year. Shrimp processing unit is located in Andhra Pradesh. The company is exporting to USA, Europe, Japan, Australia and Middle East countries. Promoters are holding a 43.78% stake in the company while the Thai Union Frozen Products holds 24.85% stake.
The company’s financial performance has been good. The revenue in FY14 was at Rs1112.61 crore, which has grown to Rs3392.9 crore with steady improvements in profitability. Its net profit has increased from Rs70.41 crore in FY14 to Rs466.48 crore in FY18. During this period, the company’s reserve rose to Rs1097.86 crore from mere Rs170.49 crore. Thus, in the last four years, the company’s revenue increased 32% and net profit increased by 60% CAGR. Recently the company split the stock from Rs 2 to Re 1 and also declared a bonus share of 1 with 2 shares held. Currently, the stock is trading at 33x which is quite reasonable looking at the past performance.
Now let’s look at the share price. The share price was around Rs 100 in July 2015. In January 2017, the share price was around Rs 160 which increased to Rs 980 in November 2017. Giving returns of 6 times in just 11 months from January 2017 to November 2017! Market’s sentiment deteriorated since the beginning of 2018 and not only Avanti but many overvalued stocks witnessed correction of 60% to 30%. The stock has declined 58% from its high and it is quoting at 45% below from its peak price.
In a recent interview, Mr A Indra Kumar, CMD, Avanti Feeds said that in the beginning of the year, in January, there was a slow demand from the US and other parts because of the climatic conditions and now consumption has gone up and the demand has picked up. However, the pricing has not picked up.
Mr A Indra Kumar also said that “compared to 2016-2017, 2017-2018 was a very good year because the raw material prices were low. Now again the raw material prices have risen and even soya prices have risen. Now it will be on par with 2016-2017. We have to take 2016-2017 as the base year.” Considering this opinion, investors should be prepared to see the stock not moving as fast as it had been in the past.
In our opinion the company is doing very well. The stock has corrected just because of a change in market sentiments. We believe the stock has seen enough correction and it will get consolidated at this price. We believe better earnings in Q1FY19 will bring down some high PE multiples and valuation will get reasonable at some point. Investors who bought at higher levels are advised to hold it as the company’s financial performance will keep improving and growth trajectory is intact. We are recommending to do an average at the price around Rs. 400-450.