Avanti Feeds Ltd
NSE:AVANTIFEED
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Avanti Feeds Ltd
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Good evening, ladies and gentlemen. I'm Pritika, moderator for the conference call. Welcome to Avanti Feeds Limited Q1 FY '23 Results Conference Call hosted by KFin Technologies Limited. We have with us today from the management, Mr. C. Ramachandra Rao, Joint Managing Director; Mr. Alluri Nikhilesh, Executive Director; Mrs. Santhi Latha, GM, Finance and Accounts; and Ms. Lakshmi Sharma , Manager, Corporate Affairs. [Operator Instructions]. Please note, this conference is recorded.
I would now like to hand over the floor to the management. Thank you, and over to you.
Thank you, Pritika. Good evening, ladies and gentlemen. We extend a warm welcome for this investors conference call to give you the unaudited financial results of Q1 FY '23. Nikhilesh Chowdary, Executive Director, is joining from online. He is along with the other key members. The results of Q1 FY '23, along with the presentation of highlights circulated already with you for some time now, and we are sure that you would have gone through them. However, I would like to share with you some of the key indicators relevant for our discussion today.
Q1 FY '23 results, let me just give a review of that. The company -- the comparative performance of Q1 FY '23 with that of Q4 FY '22 and Q1 FY '22 have been given in the presentation already circulated. Gross income in Q1 FY '23 is INR 1,582 crores as compared to INR 1,348 crores in the previous quarter -- Q4 FY '22, an increase of INR 234 crores, which is by 17%.
Compared to Q1 FY '21, gross income of INR 1,430 crores, there is increase of INR 152 crores by 11%. The PBT is INR 100 crores in Q1 FY '23 as compared to INR 121 crores in Q4 FY '22, a decrease of INR 21 crores by 17% and compared to Q1 FY '22, PBT of INR 99 crores. There is a marginal increase of INR 1 crore.
The consolidated results indicate net impact of some of the factors such as increase/decrease in income, expenditure and exceptional items, et cetera, in relation to Feed and Frozen divisions which have been discussed in the following divisional performance of these units.
Let me take up the stand-alone financial results of each division for Q1 FY '23. The gross income for Q1 FY '23 is INR 1,311 crores as compared to INR 1,050 crores in the previous quarter of Q4 FY '22, increased by INR 261 crores by 25%, mainly increase in feed sale price during '21, '22. The gross income in Q1 FY '23 increased to INR 1,311 from INR 1,257 crores in the corresponding quarter of Q1 FY '22, which increased by INR 54 crores by 50%, mainly due to increase in sale price.
The PBT for FY '23 is INR 77 crores as compared to INR 102 crores in Q4 FY '22, a decrease of INR 25 crores and 25%. The PBT in Q1 FY '23 has decreased to INR 77 crores from INR 93 in the corresponding quarter, particularly by 17%. The decrease in PBT is due to increase in raw material prices.
As you know, there are 3 major raw materials: the fish meal, soya bean meal and wheat flour, which significantly impact the raw material cost of feed. During Q1 FY '23, the fish meal average price was INR 111 per kg, went up from INR 90 per kg in Q1 FY '22. The main reason appears to be ban on fish catch during May to July every year, pushing the prices upward.
The average soya bean meal price is INR 66 per kg during Q1 [ FY ] '23 as compared to INR 65 in Q1 FY '22 and INR 63 in Q4 FY '22. Average wheat flour price also increased to INR 26 from INR 21 per kg during Q1 FY '23 compared to Q1 FY '22. However, average feed prices have been going up steeply due to Ukraine war, creating global shortage of wheat, an increase in export demand for Indian wheat.
The prices of wheat flour raised up to INR 29 per kg, prompting the government to ban export of wheat from 13th May 2022. Presently, the price of wheat remains at INR 31 per kg. With -- even though the export ban has been imposed, still, the prices are going up. The information is that there is a lot of stock available in the -- with the traders, the -- some sort of a hoarding is taking place. It's -- where the traders are, like, pushing the prices up.
We don't foresee much decrease in the prices, the next -- till the next crop, which will come only 31st March -- after March next year. So we cannot comment -- we don't foresee much fall in this price. It may hover around INR 29 to INR 31 per kg.
Increase in sales price of feed. In spite of increase in the feed price rate, INR 13 particularly in FY '22, 4x increase INR 3.15 per day, INR 4.25 per day, and INR 4. Due to a steep increase in the raw material prices, the raw material costs increased by INR 15.10 per kg, leaving a difference of INR 1.65 [ that is ] unabsorbed.
However, in course of time, the year -- the prices of fishmeal, soya bean meal, and wheat flour are expected to stabilize with a marginal decrease due to the actions initiated by the government with regards to the [ prices ] of soya bean meal and wheat.
Coming to the shrimp processing, Q1 FY '23 results. The gross income for Q1 FY '23 is INR 273 crores as compared to INR 300 crores in Q4 FY '22, a decrease by INR 27 crores or 9%, mainly due to RoDTEP income of INR 16.29 crores pertaining to 15-month period recognized in Q4 FY '22 and decrease in sales volume by 8%. In Q1 FY '23, RoDTEP income pertaining to the quarter was recognized as compared to RoDTEP income of 15 months in January to March '22 -- from January '21 to March '22, .The pickup was during Q4 FY '22. The gross income in Q1 FY '23 increased to INR 273 crores from INR 175 crores compared to corresponding quarter Q1 FY '22, an increase by 56%, mainly due to increase in sales volume by 33% and recognition of RoDTEP income of INR 7 crores for the quarter April '22, 3 months.
The PBT before exceptional items for the Q1 FY '23 is INR 30 crores as compared to the INR 21 crores in Q4 FY '22, an increase by INR 9 crores, represents 43%, mainly due to decrease in raw material costs. The PBT in Q1 FY '23 is INR 30 crores, increase from INR 12 crores in the corresponding quarter Q1 FY '22. The PBT in -- from Q1 '23 of almost INR 30 crores is inclusive of INR 7 crores of RoDTEP.
The status of recalled products by Frozen division. As you are aware, the company had to recall some of the consignments of cold shrimp products in June '21 initial, and August '21 expanded once we -- it's Salmonella contamination. But USFDA and CDC then recalled products. The recalled products are not allowed to go back to India, and they have to be destroyed in the U.S. itself.
As a result, the company is liable to compensate U.S. customers for recalled products and related expenses of destruction charges, et cetera, to the extent of the products return and destroyed. The company is also liable for reimbursement of medical and related expenses to the consumers who felt sick and have received a treatment after consuming just the recalled products. The present status of the determination recalls and reinstating green status is seen. I'm happy to share with you that the USFDA has communicated the termination of recall on 25th May 2022, leading the way of focusing on value-added products and enhancing the share of cooked products exported to the U.S. The company has fight, petitioned with USFDA for renewal of the import of productions, products of the company as recalls have been terminated. The company's petition is under process with FDA.
I would like to assure the shareholders, stakeholders that your company gives utmost importance to food safety and complies with global regulatory requirements, and leaves no stone unturned to achieve this objective.
Insurance coverage. The company's product liability insurance covering the medical and related expenditures mentioned above. However, there is no insurance coverage with respect of the products returned and destroyed. And also, other related product restrictions fall in the storage expenses, et cetera. These kinds of cost has been paid by the company.
The company has made provision in the financial statements in respect of the liability for the returned products. In Q1 FY '23 accounts, the provision has been made by the sum of INR 5.30 crores as an exceptional item towards the value for returned and destroyed products, and other related expenses on an actual basis, and it is INR 4.10 crores during Q1 FY '22. The status of provisions made in the financial statement so far on this liability and payments made against the liability as of 22nd is a total -- or generate, including that of INR 5.30 crores is INR 22.80 crores, less claims settled and paid INR 17.55 crores, balance outstanding in the provision made is INR 15.55 crores.
The above provisions in financial statement that's been made on the basis of information received from the overseas customers from time to time, subject-specific -- verification of the specific claims by the company. The payment is being made as and when the specific claims are received from the customers and after verification by the company.
Since 1 year has last since the recall was made in June and August '21 -- 2021, the company presumes that certain claims may not be received and may not be dealt in a significant manner, and the total average will be below only about INR 33 crores, for which the provision has already remained.
The product liability claims. As just claims for body injury caused by consuming company's contaminated product under the recall, the company's insurer, New India Assurance Company, has appointed surveyor for processing of the claims. So far, the company has received 13 claims towards bodily injury, which have been forwarded to the insurance surveyor for processing. The total claim from 13 claimants is about $1,53,261, out of which $17,523 has been directly settled by the company, and the claims have been made by the reimbursement -- made from the reimbursement from the insurance company. The balance placed on and the scrutiny by the surveyor, insurance company and also the audit team of the company, since the liability has been covered by the commercial general liability insurance policy, no provision has been made in the financial statement for this product liability claims.
Industry overdue. Future outlook, this -- the recovery from the impact of COVID, which affected the global economy during the past years has significantly improved, which is perceivable in growth of the global economy. We noticed that the performance of January 2021 was much better than the January 2020, and it is expected to be still better in January 2022.
As we shared with you in the previous Q4 FY '22 review, had stated that the company is initiating significant improved performance in calendar year '22 as the past decision have resumed such that the topic was highly encouraging environment and departments have then stocked in early February and March '22 in a big way compared to the previous years or season. But at the end of Q1 FY '23 in June, the production of the shrimp during the quarter was not as was anticipated due to excessive rains, diseases in some areas, and not so encouraging farm gate prices for bigger-sized upgraded spawned shrimps resulting in farmers resorting to heavily harvesting. The company estimates that India would be able to produce about 8,00,000 metric tons to 8,50,000 metric tons of shrimps, with an estimated consumption of about 12,50,000 to 13,00,000 metric tons of shrimp feed.
So the shrimp production and feed consumption in FY '22 and company plan for FY '23 shrimp feed consumption in India increased to 1,20,000 tons in FY '22 as compared to 10,50,000 metric tons in FY '21. It's expected that the consumption would further increase during FY '23. The company's filled [ breaches ] during FY '22. It was about 5,40,000 metric tons as compared to 4,73,000 metric tons in FY '21. It is expected for FY '22 -- expected that FY '23 would be around 5,70,000 metric tons, an increase of about 6%. The company expects to maintain its market share of 48% to 50%.
As the demand for shrimp feed is continuing to increase, the company has completed setting up of new the shrimp feed manufacturing facility in Bandapuram with annual installed capacity of 1,75,000 metric tons with a CapEx of INR 125 crores. The -- frankly, waiting in all aspects -- awaiting certain governmental directives. The new facility is scheduled to commence commercial production in September '22.
On shrimp processing. ,The shrimp production and export from India increased to 7,50,000 metric tons in FY '22 as compared to 6,50,000 metric tons in FY '21. It is expected that shrimp production would further increase to 8,00,000 metric tons to 8,50,000 metric tons in FY '23, an increase of about 13%. The company's shrimp export during the financial year '22 was about 12,836 metric tons as compared to 11,518 metric tons in FY '21, which is expected to -- expecting for higher price, but it will be around 14,500, an increase of 13%.
Avanti Frozen is in the process of expanding preprocessing, main processing and cold storage, as detailed below. Preprocessing facility in Gopalapuram, an existing processing plant, completed and awaiting final approval to start preprocessing CapEx -- with a CapEx of INR 11.43 crores. A new cold storage at Yerravaram processing plant with 2,000 metric tons capacity. Work is in progress, and the estimated cost is about INR 17.60 crores. As well with our new processing plants and cold storage in Krishnapuram, East Godavari District with 7,000 metric tons per annum capacity, land acquired, civil works to be commenced. Estimated cost is about INR 50 crores.
With this, I would like to conclude with a positive note that the aquaculture industry is poised for a relatively improved performance in 2022 compared to '21. With this, I now would like to take a break. I would like to take a break [ with a ] question and answer session.
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] First question comes from Mr. Aditya from Purnartha. Mr. Aditya has returned the question, so I'm moving on to the next question. Next question comes from Trilok Agarwal from Dymon Asia.
I could not understand the reasoning for not so strong growth in the shrimp feed business in the quarter gone by. And could you also talk about any inventory -- sort of high cost inventory that you guys had? And did that have an impact on the margin for the Q1?
See, the -- as I explained while giving the performance review, that the expectation was very high, in fact, for the -- for this quarter. Because the April, May and June, they're normally the rain season. And the beginning -- at the beginning, the climatic conditions and the price and everything was very good, and that -- it was started in a big way. But somehow, from May onwards, there was excessive rains. So it was something like early monsoon, and a lot of floods and all were there. And some parts had the diseases also.
And also the other thing was, see, what happened, the prices of the big-sized shrimps did not went up -- they did not go up as expected. While the small-sized shrimp's price were very good. So some of these -- most of these farmers started to early harvesting so that they get a better price margins. Because as you grow bigger size, the prices were not attractive, so they started for their early harvesting. All this put together, the -- though it started well, our expectations were high. The actual -- the sale of feed was less the -- by maybe 10% to 15% than what we expected.
So however, the positive again is that now the prices are very good, the -- now, these farmers are very enthusiastic to start. So those who have started to early harvest, those who have already started staffing. Staffing is going on well. The indicator is that we are -- our starters are moving very fast, going -- now that -- and we expect that this second season, normally, it will be lesser than the first season. But if the conditions are put in the second season, that is now at the August, September, October. By October, we should be able to make a good crop to be better than corresponding quarter of the last year, that is Q3, and it will be very good. That's what we are expecting. Q2, Q3, it should be a better production compared to the previous year.
Overall, see, the one thing is very clear that because of the early season, there were some shortage in the total production and the consumption. That will be made up to some extent in the second season. Overall, we expect that last year, we did about INR 4,00,000, INR 5,00,000 and INR 40,000 around that. We expect that it will be around INR 5,70,000 or INR 5,80,000 which we thought that we'll be able to go up to INR 6,00,000. That's what we had estimated.
But it may not be possible now because the rest of the year, next 6 -- next 4, 5 months, we are -- whatever condition taking into account, we should end up somewhere around INR 5,70,000, INR 5,80,000. That would be a reasonable estimate for the rest of the year. That's what it is. That is the reason.
Okay. And just, your comments on the margins about the inventory that you had. Ordinarily, was there any sort of high-cost inventory you're carrying for the soya meal and the wheat and stuff?
See, the soya bean meal -- I -- just share with you, the percent -- the fish meal price is around INR 102. See, it came down a little, it went up, but so the -- now, because from harvest September, we are expecting that we should be able to have more catches, fish catches, so it will stabilize.
I don't -- in any case, we don't foresee much fall. It will be around INR 96, INR 97. It's less than INR 100, put it. That would be a reasonable estimate of the fish meal price for the rest of the year. That's what we are expecting, around INR 96, INR 97, should be the stable price for the rest of the year.
Coming to the fish -- I mean, soya bean meal. It is around INR 62, but the GST on 5% again, coming to INR 65. Again, here, see -- as it stands today, the crop is good. The soya crop have been very good in -- I mean, Madhya Pradesh and Maharashtra also, it was good. There should be a good -- the production of soya bean meal as such -- sorry, soya bean.
But however, there a lot of things depend on that. Number one, the policy of the government. Whether they -- how they are going to allow the imports or exports, whatever it is. And even now, there seems to be a lot of hoarding taking place. If you -- if the new crop comes in the month of October. See, normally in September, October -- October, November, you get the new crop after the sowing. So when the new crop comes, the prices should come down. But that is, again, I would say, we have -- fingers crossed, it's $1 million versus how much price would come down. It will be around, see, if it is done around INR 62 -- INR 61, INR 62, that should be a good price, next 3, 4 -- next rest of the year.
And coming to the wheat crop, it is something -- some surprising things are happening in wheat trading and wheat exports, wheat flour, wheat products and all, that the government has been changing its policy often. Once they set low barriers for export of wheat and wheat products, then within -- less than maybe, I think 20, 25 days, they post ban on export of wheat assets. Then, they allow that all wheat can go except certain -- specified wheat like Maida and all should not go. Then again, they said the bran was on that also.
Now, the government has come up with the policy that there is in -- the inter-ministerial committee has been set up, that every export is allowed but subject to claims from this inter-ministerial committee. So they have given the responsibility to that. So like Commerce Department, Agriculture Department or Finance Department, it is consisting of these representatives. So if they decide how much should be exported on a cash-by-cash basis, they decide -- permissions are given. Only address that fluctuation, it is out to be exported.
So the situation is quite fluid, and I see -- and we don't know how things is going to take shape in future. But however, we are seeing that with the restrictions, we hope that the government will not allow much of exports and bring it around INR 30 level. INR 29, INR 30 is the expectation of the price stabilization in the next -- I mean, the rest of this year. I hope that is going to be a resort price.
I think 2 other prices, generally, there are high packaging materials. Everything is going up, but the chances of coming down is very, very, very remote. With all that, we are trying to price matching. We are trying to represent the government, permitting us to -- something like players who are increasing the price.
They already -- the feed manufacturers are discussing with the government. Now, you remember last time, where the price was increased by regulatory sufficient despite the -- had to be rolled back at the instance of the government fund raised. So at that time, they allowed, they permitted us to come for a review. Again, as we have now approached the government for review, the government has to increase the price. We have to wait what's going to happen, how the government decision is to be stated. That, we have to wait and see. That is with regard to wheat.
Fortunately, if we can get the price increase approved, cleared by the government, then I think we should be able to bring back the margins much improved than what we have shown now in the last 1 month -- last quarter. That is the scenario of raw materials and sales price, Mr. Agarwal.
Next question comes from Nitin Awasthi from InCred Equities.
Sir, I have 2 questions. The first question is the inventory that we had during closing of the financial year which is Q4. Has all that inventory being exhausted in the current quarter?
Yes, it is exhausted. Okay. We can actually just -- if you go to the next question, meanwhile, we try to figure out what is the inventory at end of Q1, okay?
Okay, sir. The next question is, you have stated the fish meal prices as of today, so where are the prices today. During the quarter, what was the fish meal prices booked roughly around per kg and soya meal prices?
During the quarter, the average price of fish meal was -- just a minute, 1 second. Q1 '23 was -- wheat flour was INR 26, fish meal price was INR 111, and soya price was INR 66.
Okay, sir. And the next question I have, sir. Right now, wheat prices seem to be a major concern. And are the quality that is there in India is superior, the prices of that is higher. So are we petitioning the government as an industry to allow us to import GMO wheat because that will be available at a much cheaper rate?
See, Mr. Nitin, this is a question -- it's a million dollar question, because India is the second largest producer of wheat in the world. So we are producing a lot of wheat, and in fact, we are in a position to export.
I mean, is it wise? There is a petition already with the government to import. But it has got, I think, a customs duty of 40% on the imported wheat, if I'm not wrong, just -- subject to correction. So, the -- it has to be balanced. The wheat production in India is very good. We are getting sufficient wheat production, not only for the consumption, but also to the stocking levels, but normally the standard of the input, something, about 3 years. We have to store it for that. So we are getting sufficient wheat in the country.
As you rightly said, definitely, GMO seed, much, much better than the non-GMO seed, which is grown in India. But however, if you permit the import, what is going to be the impact of that? So soya bean meal price, when the import was allowed, so we booked the order. And the -- when we booked the order, we thought it will -- because it is in dollar terms, the prices -- when the dollar price was around INR 65, INR 70, we booked. Now the dollar price is INR 80, INR 79, INR 80. So the -- automatically, the prices has gone up. So this is an unknown fact. Of course, we can -- hedging and all is there. But in spite of the that heading, it cannot happen unless we know the exact date of the arrival, maybe plus or minus 1 week.
See, but the thing is that the imported raw materials, whatever it is. Soya bean meal or wheat flour, wheat, it is again subject to so many factors and the policy of the government. The first, initially, we thought that the government will permit import, but there may be customs duty. That was the talk in daily [ convos ], because 40% customs duty will be waived so that it can be imported. That's what they said. So I don't know, is it because -- it is very difficult to guess what is going to be the wheat import policy of the government.
But as of today, the wheat production is good. But for this export, things would have been very good. It was the -- we were getting a INR 23, INR 24, INR 22 also was there. INR 22, INR 23, INR 21 we bought. Suddenly, it has gone to INR 32, INR 10 it has gone up. Why? Because of the policy. Suddenly, the government taking a decision to export the wheat and wheat products. Many big houses have partnered their entire first harvest of wheat and stored it in their warehouses. And there is an artificial -- the shortage is created in the market, shooting of the price.
So such things if we -- if the -- it can be controlled. definitely, I think the prices should be around -- the ideal price of INR 27 crores, INR 28 should be the -- a very comfortable price for Indian wheat. And helping imported wheat -- the imported wheat with this one is not that advantageous as of now because of the currency fluctuations. It is not good, and it takes a lot of time. Price are good -- prices are very high, so that is the reason.
I think the government has a strong power to stabilize this industry by its profit policy and not allowing the -- for that, not more than 1 month stock or something like that. The trader should not roll more than 1 month stock or something like that. Some of the regulations can be brought so this can be stabilized, and we hope that -- presentations are being made and this will be stabilized around INR 20. Okay.
Yes, sir. Got it, sir. Sir, last question from my side on the industry. We are seeing a very disturbing trend in the import-export data, which is India has started to import raw shrimp from Ecuador. And the quantity is very small as of now, for processing, but it's just that it's a very disturbing trend. It -- what's your outlook on that?
Nikhilesh? Nikhilesh?
Can you repeat the question? I wasn't able to hear the last part of this. Can you repeat the last, Nitin?
Yes, of course. So what the import-export data is showing us is that India has started to import, last month, shrimps from Ecuador, raw shrimp for processing. And this can hamper our whole company and the complex of the feed industry? Maybe the processing industry, it's good for that. But for the feed industry, this could be very, very negative. So your thoughts on this? Like, do you see the trend getting stronger? Do you see it getting more and more viable? Because if it happened last month, it was definitely viable. But you know the industry better, hence, what are your views on it?
Exploratory saying, listen, I don't think it's a long-term, this -- because Ecuador's product, as such, a lot of it was going into China, so maybe some of their generic concerns, some came into India. But there's no trend as such to import product from Ecuador and be processed. It's not -- I think, maybe it was just a product that came -- which is related from China and came into India because of a [ program ]. But let's -- I don't think it's a foreseeable risk right now.
Next question comes from Depesh Kashyap from Equirus Capital.
Sir, just to -- wanted to check on the guidance, because I think you said the seed sales in this year will be around 5,70,000 tons. So just wanted to check whether that's a calendar year you're talking about or the financial year '23?
It was calendar year only. With only calendar year.
Okay. Got it. So obviously, for FY '23, the growth can be better because your new capacity is going to come and obviously…
Yes, yes. Right. Yes, yes, yes.
Got it. And sir, also, given the current -- around prices that you talked about and the, I think, INR 2, INR 2.5, the rollback credit that you did in June, July, right, of the feed price. So how are the current margins standing? Are they, like, better than the first quarter or even worse than that?
See, the -- no, I think it is more or less the same, because we thought that INR 225 would take care of the increase that has happened, which has to be rolled back because of the government. So it has gone back to the same -- the margins did not really affect much, because there is some slight decrease in some of the raw materials during the [ thing ] has taken care of that. And more or less, it'll be a 5% to 10% variance only could be there. It will not be more than that.
Okay. So any drive of the industry to increase the prices or the government is not…
Yes, we have -- that's what -- Depesh, we have approached government. Because you know that there is -- actually, the government is taking an active part in deciding these things. So last time when we increased it, immediately, there was a lot of representations from departments and also the government. And the government heard all the chiefs and sectors and discussion, and they requested us to roll back the price with an assurance that they will look into the matter again in August. If the prices don't really come, they will allow some increase or something like -- a discussion went down.
So on that basis, we have gone to approach the government again, the department. So the -- so our -- you know that we -- whatever the government permits to again come back to pre-rollback price, that would be good. That will really help us a lot with this raw material prices stabilizing and all. I think we should be much better in Q3, in Q3 and Q4.
Understood, sir. Sir, and also on the USFDA part like you talked about. So I just wanted to clarify because your voice was breaking, that the normal shipments have started? Or still, you are waiting for some approvals for the value-added products?
Now, I think Nikhilesh will add.
So the recall has been summoned as such, so I think the care -- or the requirement of another recall is eliminated. So that's one point. On the -- on sending the cooked shrimps, we are not banned from shipping cooked products. So we're continuing to ship some products to the U.S., but we have an import alert, which makes the FDA [ troublous ], and that's the product which just -- it is the wrong time. So for right now, we have taken steps to be removed off the export alerts with all the ready documentations, like, supplemented earlier this month. So we're waiting for FDA to review it, and they take their time. If they have questions, they come back for questions and -- on the short-term basis. So we're hoping that in the next month or 2, we are removed of the export alert sellers, so we can scale up shipping to the U.S. Right now, the turnaround time is high for this kind of setback.
Understood. And lastly, Nikhilesh, we know about the supply issues that are happening in India. But any color on the demand? Like, do you see any pressure on demand from U.S. or Europe?
The demand is -- the overall demand, I would say, is mildly towards the weak side, but we need to see how the winter sales, the Christmas and New Year's sales go. But the price is okay. We don't think it's going to drop further. The demand for certain sizes are good. We see it picking up in the third and the fourth quarter.
Next question comes from Ankur Arora from HSBC.
Just 1 question, slightly longer-term basis. Our market share in the feed business has been segmented around 50% for a while. We have been gaining market share right from 2011, '12 all the way to 2018, '19, no? And then segmented at the level of, again, 50%, which is what you are maintaining for this year as well. What's our medium-term outlook on that? I mean, are we -- do we think that probably 50%, 52% is probably the kind of increase you can reach? Or do you think there's scope relating to, say, 50% or something? How do you see that? And are there internal challenges or internal target for that?
Yes, see, the target is always to go up 60%, if -- each year, but we cannot target like that. But the question when we said 40%, 50%, see when the overall market consumption itself, feed consumption is coming down, where the -- our -- if you look at that, it will be more than that. So the 40%, 50% is the standard. That is a minimum. So we always -- wherever installed, we always go for 2%, 3% by conversions.
I -- we don't not want to commit anything on this, because there are conversions going on, so that we expect that it should cross. That's what we are expecting in this year. But because the first crop, it had the expectation being achieved, we would have comfortably crossed 50%. But the second half -- with the second season, if we are able to -- we are hoping to make it up and bring it to above 50%. So the exact -- we have put in a target, another 1% or 2%. 2%, we have put the target. We should be able to achieve it. But that will be known only after Q3.
Sir, the question which I'm trying to understand is the -- that there are certain challenges, which is on the first half and the first season, but they were fairly early on. The portion of it becomes the conversion, how much market share you can move from other people to yourself, right? The overall industry grows, sir. But today, you can't change the industry growth. But how much market share you can capture from the competitor is what is really -- it is in your control to some extent. How are you looking at that? What are the steps which have been taken to take higher market share from the competition?
Mr. Arora, let me tell you. See, there was a situation in the first season when we were unable to supply feed because the expansion plant progress, there was some unexpected delays. So that was the reason why we could not increase it. Apart from the market, this was also one of the reasons. But because we could not meet the demand on a day-to-day basis, we were awaiting. Because there were certain reasons why the project also got delayed because of the shipments. Capital equipment did not come in time, some reason or the other, it got delayed.
Had we completed 1 month before that -- now we were -- September, when the government said we are ready. In August, September, we should be ready, but we are waiting for certain government approvals. In fact, suppose had we completed a couple of months early, then things would have been -- the first season also would have got a good percentage of the market. And we are definitely in the second season. We'll make it up. It'll be definitely more than 50%.
But that was taken in the month -- the second season, you will have that full capacity of 1,75,000 which would have come in. In FY '23, that is -- we have the market share we have. But in next year, you expect to reach a market share, which is significantly higher than the current year number?
As you see, the market share always -- our market has -- keeps increasing. In fact, it's what I'm telling. Maybe I'll be -- we'll be able to more clear on conversions that are taking place just now. We've gotten information that a lot of farmers are coming to our feed now in this fresh season now. It started, second season. So the --when there -- there is -- like, in the industry, what happens is the farmers, they -- supporting the exact -- about 40 farmers will come to our site. There will be 5 or 6 farmers we've now gone to.
See, we have to take net-net. We have to take net-net, so the percentage always keeps varying. So we will know at the end of the season the -- what is the total consumption of the total area and how much was our [indiscernible], then we will be able to determine the exact percentage. So what we are expecting is that it should be more than 50%, maybe 52% by end of the second season. That's what we are expecting.
And the similar momentum will be hopefully maintained in the next year as well, right?
It is always our endeavor. We have always maintained -- that is the reason why we maintain the quality of the feed, we maintain the technical services that we provide to the farmer, and it is always there. But certain things do happen when we -- just as we expected, we should be -- we get the first -- the expanded capacity. Available production will be available in the first season itself, but it was not so.
The first season is over. We could not take that advantage of the first season. There was a demand. See, though there were overall -- that's what I'm saying. So though there is an overall decrease, the product for our -- demand for our product was more is what I'm saying. That's where which -- that's resulted increase in 50%, what we were saying about. 52%, 52% or 53% will happen only if you make up that increase.
Next question comes from Aditya Soni from Purnartha.
Am I audible?
Yes, yes, yes.
So yes, I just wanted your help in modeling the cost structure. So we generally know 80% of our sales are [ COGF ]. So in that, can you just give us the breakup of raw material cost of soya bean, wheat flour and fish meal? Like, what percentage is each of them?
Yes. See, the fish meal price will be around INR 107. I mean, percentage, I cannot give you. That, I cannot give. I can give only the price, but not the percentage in the overall cost.
Please, sir. In your last quarter, you told that 60% of your raw material cost is soya bean and wheat flour. So is my understanding correct about that?
There are 3 raw materials. One is fish meal, other one is soya bean meal, the third is wheat flour. These 3 products constitute significant part of the -- our total cost of production. That is available -- you can look at our financial statements. This information is available.
No, I just wanted to know what percentage is each of them. But, sir, my question…
No, no, no. I cannot reveal that. No, that is a trade -- formulation which we'll defer. And it is a confidential information. We cannot give it -- that breakup.
Sure, sir. I understand. My second question is that, so you are very confident of the feed plant being outtaking at 100% capacity, the new feed plant of 1,75,000 metric tons. Do you still see the same?
See -- yes. Definitely. Yes. See, 1,75,000 metric tons as a full season, you have to take into account it's season-wise. You cannot take 1,75,000 metric tons, the total -- the production every month if you go like that. We have to see overall. So if you take the 1 year production, it may end up in 80%, 80% to 90%. It will not be 100%. Because off season in the month of April, May, June, July, August, September, nobody will have full production. When it comes to November, December, January, February, it will have. So you have to average that. So average annual capacity utilization will be around 80%.
Got it, sir. So sir, if I just calculate 80% for 6 months, so from October to March, so can I reasonably assume that 6,30,000 metric tons of volume will sell, feed, in financial year '23?
Yes, see, definitely, the target is to achieve as expected is what I'm saying. It also depends on the consumption, what is the -- supposing, as I told you in the past season, there was an early harvesting where the smaller-sized shrimps were harvested. So then if the farmer allows the full season and go up to, say, 20 tons, 25 tons, then -- 30 tons, then you get more feed consumption. Supposing he takes and harvests, still, you have at 60-count he takes, he harvests -- naturally, the consumption will come down.
So these are all the dynamics, which will work on the total capacity utilization, consumption, et cetera, and the tonnage, where the entire thing is interdependent. So we hope -- see, again, why it's not going -- it depends on the fact that what is the farm gate price. It is getting a 60-count smaller-sized shrimp, farm gate price is much more attractive than a higher-sized will be 30-count or about. We then -- he sees that, "Why should I wait for 30-count?" Because he has to use a lot of feed consumption, and you are exposing to lots of the climatic risks and all, diseases, et cetera. He says, "I'm getting a good margin now. Let me sell." So he harvests and sells it. So this is what the market is. It all depends on that.
So by and large, we try to make that. Overall, we maintain our feed sales. Targets are maintained whether by their conversions or increasing our share in the market, new farmers coming in, conversions happening. All these things put together, we take an estimate of the [ breaches ].
Yes, sir. Sir, one last question, if you mind -- don't mind me asking. Sir, so fish meal price from Q1 FY '23, which was INR 111 kg. It has now fallen to INR 102 per kg. And so…
INR 102 plus the 5% GST, it is INR 107.
So it was from INR 111, so from INR 111 to INR 107 is where it stands?
Yes, yes. Correct.
Okay. That is the reason why -- so there's no significant decrease there, and our margins will remain the same.
Yes, exactly. Yes, exactly.
Sir, so decrease in -- so you told you've taken a rollback of price increase of INR 2. So will that further affect the margins including…
No, no, no. As of now, won't convert -- we'll have to see. Whatever we are seeing is only that it will not affect further.
Okay. So you are going to maintain margins this quarter?
Yes, we are going to maintain the margins.
Okay, sir. Sir, 1 last question I had to ask. So I was just looking at the -- so earlier, an analyst also asked the question. But if I just look at the growth of your [ cooked ] shrimps, they're growing at a very fast rate. So don't you think eventually you could have -- shrimps will start replacing and then shrimps -- and they take away the market share from us?
Nikhilesh can answer this.
I would like to say that, see, India has been, for the last decade, the most competitive producer of shrimp in the world. Our shrimp sizes are more competitive than countries like Vietnam or Thailand, so I think this could be greater on these countries than India. And yes, because of production is in season. But again, the country is not as big as India. It does not have as much workforce as India. So I could really carve out our own niche, so that has -- not that -- that we can then join together.
Next question from [ Jasdeep Walia ] from [ Clockwise ] Capital.
So I wanted -- my question is on the recent price cap, which has been enforced by the Indian government. Now, sir, does it mean that in future now, if the industry has to take a price increase, it has to get approved by the government? And without that -- without the government approving, the industry cannot take a price increase?
No, no, no. It's not that. It is not a kind of price control mechanism. Absolutely not. It is free. It is. We can take price increase. But we always look into in a holistic approach to the entire -- see, because the government called the seed manufacturers because there was a representation from the farmers. So the farmers -- instead of [ doting ] the interested of the farmers, they called both farmers and the feed manufacturers and made both of them speak and discuss and doing. But there is no control mechanism as such in Andhra Pradesh or anywhere in the country. It is a free, open market. Absolutely there is no -- but in all due respect to the governmental mechanism and what their interest and our own interest, all hoping that we try to accommodate them. It is not mandatory.
Got it, sir. And sir, so you were saying earlier that to take a price increase, the deliberations of the government have to happen in August, right?
Yes. It's already started. The discussions have started. We'll have to wait for some time. Maybe in 1 week, 10 days, we should be able to know the response from the government. But see, the -- yes, because the average prices have gone up definitely. We keep that -- the relationship, the actual -- in the state, the government, the farmers and the feed manufacturers, the processors are all coming under that. See, we are ruled by certain regulations and rules and regulations, and we have to cooperate with the government in their approach to the interest of the farmers, they are asking. So we have to give some value to that and where to go. It is not mandatory or a regulatory mechanism that the government insists on that, okay, you should reduce -- you should put the price only at this. It is not like that. But we cooperate with them because in the interest of larger -- interest of the society and also the government's -- and our -- to help the farmers. This is what we are doing.
And sir, what is your sense on the level of farmer -- shrimp farmer profitability as of now, given the higher feed prices?
Pardon me?
Sorry. [ Jasdeep ], sir, could you please be louder? Your voice is not audible.
Sir, I wanted your view on the level of shrimp farmer profitability as of now versus past. Is it significantly below normalized levels? Or the farmers are making as such from…
Now, it is very, very good profits now. With this price, the prices of smaller shrimps are better. They are getting more profit on smaller shrimp size as of now. So we have to wait for -- because it is also to get better price, so that there is some sort of uniformity. And the farmers, we are more interested in -- we get with --because feed consumption also go up. But at the same time, we have to look at the -- what is the market -- global prices of bigger size and smaller size and demand for them. So as of now, the farmer is making good profit at the present price.
Got it, sir. And sir, my last question sir, given this inability to take price increase in AP, what percentage of industry could be making losses as of now?
I didn't --no, no I cannot answer that question because you asked what our company will answer. But it's all different on so many factors. See, if you ask me about our company, I can answer you, not about the other companies.
Thank you, sir. Ladies and gentlemen, due to the time constraints, we would like to come to the end of this conference.
On behalf of KFin Tech, we would like to thank the entire team of Avanti Feeds for giving us the opportunity to host this call, and we appreciate the interest from the investors and analysts for their participation. Thank you. And if you need any further information, you may connect with Mr. Sahil Shah of KFin Tech at sahil.shah@kfintech.com.
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