Avanti Feeds Ltd
NSE:AVANTIFEED
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Avanti Feeds Ltd
Earnings Call Analysis
Q1-2025 Analysis
Avanti Feeds Ltd
In the first quarter of FY '25, Avanti Feeds faced a mixed performance in its shrimp processing and export division, reporting a gross income of INR 243 crores. This represents an 18% decline from the previous quarter (Q4 FY '24) where gross income was INR 297 crores, primarily driven by a reduction in sales quantity by 1,063 metric tonnes—a significant 28% drop. On a year-over-year basis, however, the gross income shows a slight increase of 2% when compared to INR 238 crores in Q1 FY '24, indicating resilience in the company's revenue generation despite quarter-to-quarter fluctuations.
Contrastingly, the Feed division marked a robust performance with a gross income of INR 1,298 crores in Q1 FY '25, an increase of 16.7% from INR 1,022 crores in Q4 FY '24, spurred mainly by a boost in feed sales volume (up by 36,313 metric tonnes). However, the performance reflects a slight decline of 4% from INR 1,351 crores reported in Q1 FY '24, attributed to a drop in sales quantity coupled with rising raw material costs. Importantly, the profit before tax (PBT) for this division surged by nearly 30% quarter-over-quarter to INR 153 crores, continuing the positive momentum.
Avanti Feeds continues to benefit from government incentive schemes, specifically the Production Linked Incentive (PLI) which provides eligibility for a 6% incentive on raw products and 10% on value-added products. The company has received INR 9.92 crores under this scheme for the quarter ending June 2024, contributing to cumulative incentives of INR 16.77 crores thus far. This support is critical as it bolsters profitability and drives incremental sales growth, targeting a minimum annual growth of 5% over the six-year incentive period.
Avanti’s future performance may be tempered by increasing raw material costs, specifically fish meal, which rose to INR 117 per kg from INR 111 a year earlier. The fluctuation in commodity prices poses a challenge for maintaining consistent margins. The management acknowledged these pressures and highlighted the difficulty of predicting future price trends, which can be influenced by seasonal supply variations and global market dynamics.
Looking forward, Avanti projects shrimp exports for FY '25 to be around 16,000 metric tonnes, up from 13,443 metric tonnes in FY '24—indicating growth in the export framework despite anticipated challenges in production and global demand. The company anticipates that improved climatic conditions and stable global shrimp prices could result in a successful second crop. Meanwhile, management expects that the domestic shrimp industry's performance remains contingent on favorable aquaculture conditions.
In a strategic pivot, Avanti is venturing into the pet food market with an expected investment of INR 130 to 150 crores. This sector is targeted primarily for the domestic market and aims to leverage the company's existing expertise in feed production. The initial investment has already accounted for INR 35 crores, emphasizing management's confidence in consumer trends favoring pet ownership. Launch is planned by March 2024.
Despite a mixed earnings report, Avanti's leadership demonstrated a clear grasp of the current challenges facing the aquaculture industry, including raw material price volatility and environmental factors affecting shrimp farming. The growth prospects in both the feed and emerging pet food sectors depict a company that is actively strategizing for sustainable growth amidst an increasingly competitive and fluctuating market landscape.
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Good evening, ladies and gentlemen. I'm Palshya, moderator for the conference call. Welcome to Avanti Feeds Limited Q1 FY '25 Earnings Conference Call.
We have with us today Mr. A. Indra Kumar, Chairman and MD; Mr. C. Ramachandra Rao, Joint Managing Director; Mr. A. Venkata Sanjeev, Executive Director; Mr. Alluri Nikhilesh, Executive Director, Avanti Frozen Foods Private Limited; Mrs. Santhi Latha, GM Finance and Accounts; Ms. Lakshmi Sharma, Senior Manager, Corporate Office; Mr. D.V.S. Satyanarayana, CFO, Avanti Frozen Foods Private Limited.
[Operator Instructions] Please note that this conference is recorded. I would now like to hand over the floor to management for the opening remarks. Thank you, and over to you.
Thank you, Palshya. Good evening, ladies and gentlemen. I'm pleased to -- I'm C. Ramachandra Rao, Joint Managing Director, Avanti Feeds. I am pleased to extend a warm welcome to all of you by this investor conference call to review the unaudited financial results for Q1 FY '25.
Along with me here are Mr. Nikhilesh, ED; Mrs. Santhi Latha and Ms. Sharma -- Lakshmi Sharma and D.V.S. and Mr. Indra Kumar and Mr. Venkata Sanjeev are joining through VC from the factory at Kovvur.
To begin with, Mrs. Santhi Latha, GM Finance, Avanti Feeds Limited will present highlights of financial results for the period ended 30th June 2024 of Feed division and also consolidated financial of the company for the same period. Thereafter, Mr. D.V.S. Satyanarayana will present the financial highlights of shrimp processing and export division. After the presentation by both of them, we'll take up question and answer session. Over to Mrs. Santhi Latha.
Thank you, sir. Good evening, everyone. Now I will take you through the consolidated and stand-alone financial results of Feed division for the quarter ended 30th June 2024. So Q1 FY '25 results. The comparative performance of Q1 FY '25 with that of Q4 FY '24 and Q1 FY '24 have been given in the presentation already circulated.
Gross income in Q1 FY '25 is INR 1,541 crores, as compared to INR 1,320 crores in the previous quarter, that is Q4 FY '24, an increase of INR 221 crores by 16.7%. Compared to Q1 FY '24, there is a decrease in the gross income of INR 1,586, there is a decrease of INR 45 crores by 2.84%. The PBT is INR 180 crores in Q1 FY '25 as compared to INR 151 crores in Q4 FY '24, an increase of INR 29 crores by 19.2%. And compared to Q1 FY '24, PBT of INR 157 crores, then there is an increase of INR 23 crores, by 14.64%.
The consolidated results indicate net impact of several factors, such as increase or decrease in income, expenditures and any exceptional items relating to both feed and frozen food divisions, which have been discussed in the following divisional performance of these units individually.
First, we will go through the Feed division stand-alone financial results for Q1 FY '25. The gross income of Feed division for Q1 FY '25 is INR 1,298 crores as compared to INR 1,022 crores in the previous quarter of Q4 FY '24, an increase of INR 276 crores, mainly due to increase in quantity of feed sold by 36,313 MT, and this is the main season for the shrimp culture.
The gross income in Q1 FY '24 decreased to INR 1,298 crores from INR 1,351 crores in the corresponding quarter of Q1 FY '24, a decrease by INR 53 crores, representing 4% due to decrease in sales quantity by 6,916 MT. The PBT for Q1 FY '25 is INR 153 crores as compared to INR 118 crores in Q4 FY '24, an increase of INR 35 crores by 29.67%, mainly due to increase in sales volume and better overhead absorption.
The feed sales increased to 158,591 MT in Q1 FY '25 as compared to 122,278 MT in Q4 FY '24. The PBT in Q1 FY '25 has increased by INR 28 crores from INR 125 crores in Q1 FY '24, represented by 24.4%.
As you know, the cost of raw material consumed constitutes the major share of cost of feed production. The major raw materials are fish meal, soya bean meal and wheat flour. The prices of these raw materials keep fluctuating since their production is based on agriculture and fish catches from the ocean.
The prices of fish meal increased in Q1 FY '25 to INR 117 per kg from INR 111 per kg in Q1 FY '24. Whereas there was a marginal decrease from INR 119 per kg in Q4 FY '24 to INR 117 per kg in Q1 FY '25. In case of soya bean meal, there was a marginal decrease to INR 51 per kg in Q1 FY '25 compared to INR 52 per kg, and it was INR 54 in Q1 FY '24. The wheat flour price decreased to INR 28 per kg in Q1 FY '25 from INR 29 in Q4 FY '24 and INR 27 in Q1 FY '24. The present price of wheat flour is INR 32 per kg, which again is a steep hike when compared with Q1 FY '25.
It is pertinent to note that the prices of the raw materials keep continuously fluctuating throughout the year. Sometimes the prices are comparable. While on one hand, the raw material prices are instrumental in determining the margins, on the other hand, the status of aquaculture activity determines the consumption of feed in terms of volume.
In case of successful culture for full crop, the feed consumption will be higher compared to short-end crop period due to unforeseen situations like floods, disease outbreak, et cetera beyond the control of the farmer. For instance, in QY FY '25, the initial period of about 45 days, that is till mid-May, the shrimp culture was going on smoothly. However, from later part of May, June and July, there were floods, outbreak of diseases resulting in loss and premature harvest.
Moreover, the quality of the feed was also not up to the standard, resulting in lower survival of the shrimp. Therefore, in spite of best aquaculture practices adopted by the farmers, these natural calamities do play a vital role in determining the success of shrimp culture. Having faced some challenges during first crop, the farmers have now commenced talking again as the farm gate prices are showing an improvement, with an expectation that the prices remain stable during the rest of the financial year and also, the climatic condition remains favorable.
To sum up, in general, FY '24-'25 is expected to be a challenging year for the aquaculture industry, both in respect of shrimp production as well as global demand for shrimp exports. Now, we will talk about the company plans, shrimp production and feed consumption in FY '24 and FY '25.
So shrimp feed consumption. On the basis of estimated shrimp production of about 10.5 to 11 lakh metric tonnes in 2024, the feed consumption is estimated to be about same levels. The company's feed sales during the year 2024 was about 5.31 lakh metric tonnes as compared to 4.97 lakh metric tonnes in 2023, an increase of 34,900 metric tonnes.
So shrimp processing and export business. India seafood exports touched 17,81,602 MT, an all-time high in volume during the financial year '23-'24. Frozen shrimp remains a major export item in quantity and value, accounting for a share of 40% in quantity and 66% of the total dollar earnings for the country.
The country's shrimp exports in terms of value increased in FY '24 compared to FY '23 by 1.5% from USD 4,809 million to USD 4,881 million. The country's overall export of frozen shrimps in quantitative terms for FY '24 was 716,004 metric tonnes as compared to 711,099 metric tonnes in FY '23, an increase of 4,905 metric tonnes, representing 0.69%.
The company's shrimp exports during FY '24 was 13,443 metric tonnes as compared to 12,497 in FY '23, an increase by 946 metric tonnes. It is estimated that the exports during FY '25 would be around 16,000 metric tonnes.
Now I hand over to Mr. D.V.S. Satyanarayana to present highlights of shrimp processing and export division.
Thank you, madam. Good evening, everyone. Now I would like to take you through the financial highlights of shrimp processing and export division. Q1 FY '25 results. The gross income for Q1 FY '25 is INR 243 crores as compared to INR 297 crores in Q4 FY 2024, a decrease by INR 54 crores representing 18%, mainly due to decrease in sales quantity by 1,063 metric tonnes, representing 28%.
The gross income includes INR 9.92 crore of PLI incentive received during the quarter ended 30th June 2024. The gross income in Q1 FY '25 increased to INR 243 crores from INR 238 crores during Q1 FY 2024, an increase of INR 5 crores, representing 2% year-over-year. The sales volume during Q1 FY '25 increased to 2,783 metric tonnes from 2,658 metric tonnes in Q1 FY '24, a marginal increase by 125 metric tonnes.
The profit before tax before exceptional items for the Q1 FY '25 is INR 27 crores as compared to INR 32 crores in Q4 FY 2024, decreased by INR 5 crores. The PBT is decreased mainly due to the levy of CVD on U.S. imports effective from 1st April 2024 and rise in ocean freight rate. The PBT in Q1 FY '25 is INR 27 crores, decreased from INR 32 crores in the corresponding quarter, that is Q1 FY '24 as CVD impacted the profitability in the current quarter, that is Q1 FY 2025.
So now I would like to run through the government incentive, which Avanti Frozen Foods is availing. As you know, the company has been availing the following 2 incentive schemes from government of India. Sales-based incentives under production linked incentive scheme and grant-in-aid under operations win long-term intervention scheme.
Production-linked incentive scheme. The company is eligible for incentive of 6% on raw products and 10% on value-added products on incremental sales over a period of 6 years from the FY '21-'22 to '26-'27 subject to a maximum incentive of INR 79.44 crores, with a minimum of 5% CAGR in sales.
The company has received an incentive of INR 9.92 crores pertaining to financial year 2023. The total incentive, which is a cumulative incentive received until the quarter ended 30th June 2024 is INR 16.77 crores.
The [indiscernible] team conducted a physical site inspection in June 2024 as part of the investment verification. And the company fulfilled the investment obligation and commenced production before 31st March 2024, as committed to the Ministry of Food Processing of India.
Then next scheme, Operation Green scheme, approval from government of India for grant-in-aid for the proposed investment in new shrimp processing plant at Krishnapuram is received in December 2022. Maximum grant-in-aid under the scheme is INR 10 crores. The first installment of 1/3 of grant-in-aid is viewed from the our ministry.
The company has submitted all the relevant documents in this regard. And recently, as required by the [indiscernible], the company shared the latest update on the project status and [indiscernible] photographs in June 2024.
Now I hand over to JMD sir for sharing the future outlook of the industry.
Thank you, Satyanarayana. Now I'd like to share with you on global economic prospects and also the prospects of aquaculture industry. Have taken some references from World Bank report and also FAO, Food and Agriculture Organization. These international organizations have done some surveys, but the future -- the industry, and they have come out with the report [indiscernible] from them to share with you.
The World Bank's group flagship report on global economic prospects states that this year 2024, the good news is that global growth is holding steady, having slowed down for the past 3 consecutive years. Inflation has been stuck to a 3-year low. The world economy in short appears to be a final approach for a soft landing.
The global growth is projected to stabilize at 2.66% this year despite flaring geopolitical tensions like Ukraine war, Red Sea crisis, et cetera, and high interest rates. Global risks remain tilted to the downside despite the possibility of some upside surprises. Further, the report states, India and Indonesia are 2 additional examples of robust performance apart from the U.S. economy, which have shown impressive adherence.
India's economy has been buoyed by strong domestic demand with a surge in investments and robust service activity. Its projected to grow an average of 6.7% per fiscal year from 2024 to 2026, making the South Asia's, the world's fastest-growing region.
Now I'll go through the global shrimp market versus Indian shrimp industry. Global shrimp market size was valued at USD 68.40 million in 2022 and is poised to grow from USD 72.6 million in 2023 to USD 110.75 billion by 2031, growing at a CAGR of 5% -- 5.5% in the forecast period from 2024 to '31.
In recent years, the global shrimp market has been changing as per consumer preferences and demands due to increasing consumer demand for seafood, a rise in healthy -- health-conscious eating habits and the popularity of shrimp in various cuisines worldwide. The versatile nature of shrimp as a key ingredient in various dishes and it's appeal extends across diverse cultures, leading to the increasing popularity and consumption of seafood choices globally.
Moreover, health-conscious consumers are attracted to low calorie, high-protein food sources option. The state of world fisheries and aquaculture 2024, a blue transformation in action, this is a report published by Food and Agriculture Organization features that activities initiatives led by FAO taken in collaboration with partners and stakeholders shall integrate aquatic food into global food security and sustainability.
This will also enhance quality adequacy, scientific research and capacity building, dissemination of sustainable practices, technological innovations and support for community involvement. These factors ensure sustainable growth prospects for shrimp industry.
The Indian shrimp industry is a source of healthy proteins, offers employment to over 1 million people and contributes inventory to India's foreign exchange. In 2023, Indian export struck an all-time high, but declined by 5.38% in value terms. The major contributing factor being decreased realization due to global shrimp prices coming down.
The [indiscernible] production of shrimps increased significantly, resulting in increase in supply over the demand, particularly to the major list market. In order to address these challenges, especially food industry, such as ensuring sustainability in shrimp culture, promoting higher consumption of shrimps but increase in demand, which is valuing supply and demand and maintain stable prices sustainable market and aquaculture activity.
The government of India has been initiating several measures from time to time for encouraging the increase in productivity in all sectors, including shrimp culture.
Processing and export of shrimps. Apart from the existing institutes of production linked incentive which is called as PLI on increments and onetime grant-in-aid under Operation Green scheme by setting up seafood processing plant, recently announced for '24-'25 under the leadership of honorable Prime Minister.
The honorable finance minister has announced financial support for setting up a network of nucleus breeding centers for shrimp [indiscernible] and financing for shrimp farming, processing and export facilitated through NABARD. Apart from these incentives, the honorable finance minister has also announced incentive schemes for employment generation and skilling in budget for 2024-'25.
The scheme initiated employment linked incentives for 3 categories of employees implementing [indiscernible]. They are incentives for the first time employees, job creating in manufacturing sector and support employees further a new internship scheme and being introduced by top 500 companies.
Your company endeavors to be one of the top private companies to [indiscernible] scheme from the existing ranking of 565 as on 31st March '24 as per the market cap announced by NSE. Further, I would like to share with you about the CVD impact on aquaculture industry that we [indiscernible] at 4.36 on export of shrimps by U.S. Department of Commerce effective from 1st April '24.
The U.S. DOC has made preliminary determination of CVD rate on the basis of complaint lodged by U.S. domestic shrimp industry against imports from India and preliminary data highlights by U.S. DOC.
In the next step, the U.S. DOC will determine the final rate based on the objections raised by seafood export association of India, government of India and other -- on the data -- on the basis of data provided by them. The final determination is scheduled to be announced on 6th October 2024. In the meantime, exporters are required to deposit CVD 4.36 subject to the adjustment of final determination.
However, in this context, I would like to mention that recently, this has been kept on hold for some time. But in any case, the final -- till the final determination comes, we have to take care of this in our pricing. That's very important, subject to the adjustment of final determination.
Along with India, other countries, Ecuador, Vietnam and Indonesia have also been CVD at different rates. The Seafood Exporters Association, MPEDA, EIA and government of India are making efforts to get CVD, which is on at the time of final determination in October '24 by providing all the necessary information reach out to the U.S. DOC.
Now I'd like to just -- make a mention about diversification of company's plans into pet food and pet care products. As you know, the company has tied up with Bluefalo Company Limited, Thailand, a well-known pet food and pet care products manufacturing company in Thailand by setting up a joint venture company in India, along with the transfer technology.
The joint venture company's name is Avanti Pet Care Private Limited, which has been established as a subsidiary of the company. The company has purchased about 30 acres of land to set up the facility. The APCPL, Avanti Pet Care will initially commence trading of pet food products in India and as the Avanti brand name importing from Bluefalo.
After completing the setting up of manufacturing facility in India, the products will be produced and marketed in India. The trading activity is planned to start before 31st March 2025.
As we touch fish meal, as we have reported earlier, the company has undertaken market survey of fish meal for various species of fish and intends to initiate import feed from [indiscernible] company to begin with and conduct trials under the Indian conditions. Once the product performance is proven, the production in India will be taken up for domestic sales.
Thank you. I mean with this, I would like to conclude the general update on the status of the industry. And now I request you to -- we will start the question and answer session.
Thank you, sir. [Operator Instructions] First question comes from Ronak Soni from Equirus Securities.
Sir, what is your outlook for, let's say, feed volumes picking up going ahead in the subsequent quarters?
Outlook for? Please, can you repeat the question?
Yes, the volumes of the feed business. How they're going into, let's say, in the subsequent quarters going ahead? Given that there was some volume loss in this particular quarter, how do you see the volume growth rates coming back for the feed industry and for you in general for the next few quarters?
We can tell you the quarter-wise production and sales...
I think we have lost around INR 6,916 MT when compared with the previous year. But when you are talking about the previous quarter, it is 36,300 MT more.
As explained to you, I may add to what Santhi Latha said, that it depends upon the consumption of the feed, depends upon the aquaculture situation. See what has happened is in the first -- before Q1, they got -- it went well and after that in the April, May, there was a lot of floods and outbreak of disease and all. So then the consumption came down.
In fact, in the normal course, May month and June month are the peak periods for the main crop for the sale. But however, this year, it was not so. But by saying so, I would also like to add that now the farmers have started stocking again. And we expect that if -- assuming that the climatic conditions remain favorable and also, the prices -- global shrimp prices also stable, and definitely, the second crop is likely to be successful, which will run now -- we started just now, say, July, August, September, October, these 3, 4 months, we'll have good crop, as I said, provided we have these 2 favorable situations.
Right. Right, sir. Sir, any scope of taking price increases or let's say, our price cuts, given that now that especially the prices have come down and report that there could be some subsidies coming in, in terms of electricity for the farmers over there. So any scope of pricing pass-through going ahead?
So now this is -- just now, the government has come now and they are yet to frame the rules for all these -- tariff, LCD tariff. And also as I stated -- as I explained, there is -- the raw materials are very uncertain and they keep fluctuating. We never expected that the wheat flour price will come -- go up to INR 32 today. INR 32 and some of the inquiries, they are putting INR 32.80, so the -- which was there around INR 28, INR 29 has come now to INR 32, INR 33.
So -- for no reason. We don't know what is actually happening because it is stable. The condition is nothing -- no calamity has happened as far as the wheat is concerned -- wheat or wheat flour. But it keeps fluctuating. Similarly, fish meal and also the soya bean meal. So the prices of the feed, we could take a long-term view of this and keep stable price is definitely a good procedure.
But nevertheless, it happens, depending upon that we are taking the -- whatever the burden of additional for ourselves as of now. And there's no increase. And coming to your question as to the prices which are raw materials come down, will there be any price cut. That's what I think you're asking for. So the -- that -- we always keep it as fluctuating, but there is no such move as of now.
Right. Right, sir. Right, sir. And sir, any guidance for processing remains unchanged versus last quarter or any changes in terms of volume?
Could you repeat your question again?
So I was saying that you used to give guidance in terms of processing volumes for the full year, which was, I think, anywhere around 1,500 metric tonnes, if I'm not wrong. So does that remain unchanged for the full year or you revise the guidance.
I think in the opening remarks, we said 16,000.
Next question comes from Kunal Ochiramani from Kitara Capital.
Sir, I just wanted to ask regarding the policies. Does government include us in regarding framing the policies with shrimp as we are one of the major exporters from India? Second, if any other policies have been announced recently where in apart from what we are availing today, will we be eligible in future? Has there been any announcement in this budget? That's what I wanted to ask.
See, normally, before framing the policy -- the budgetary policy, the departments -- concerned department will have discussion with the Seafood Exporter's Association, MPEDA and all the major stakeholders in the feed, and they formulate the policies.
And recently, we have -- the budget has proposed certain decrease in -- import of certain ingredients -- feed ingredients and also like the fish feed and also shrimp feed and some of the minerals [indiscernible] and all these things. Because this policy is created on many, many factors, which are taken into consideration before the decision is taken.
They take input from the stakeholders like seafood processing, they take from [indiscernible], they take from the feed industry and they take from the farmers also association. And the overall, the financial situation also they take as far as the industry is concerned, whatever the policy that is made is in tune with the inputs that they got.
Say for instance, recently, they have announced some support for the having [indiscernible] stop getting that and also encouraging the clusters by financing them the export financing and all these things are coming. But all these things are made in the budget speech. But none of these things have really taken place, now they have come in form of a procedure, regulations, how it should be done.
Even for the employment generation, and encouraging the manufacturing units. All these things have been mentioned in the budget but we are all awaiting for the outcome of how their -- NABARD is supposed to be the [indiscernible] agency for extending the financial support. And we are waiting for the procedures and regulations for operating these schemes announced by the honorable finance minister.
So, overall, this is a policy which recently they've announced in budget. I don't think there will be any big announcement as far as the policy is concerned. However, the GST part that has been left to the GST Council. So we'll have to wait for the GST Council's decision, how they monitor the taxes -- GSTs on various products that is going into the manufacture to as far as our sector is concerned, how they are going to make any...
[Operator Instructions] Next question comes from Mithun Aswath from Kivah Advisors.
Yes. Sir, just in terms of your production has gone up for year-on-year for the quarter 1 in terms of the shrimp processing. But the revenues and the sales have kind of come down Y-on-Y on the shrimp processing side.
I just wanted to understand that because the volumes have gone up, but the volumes of sales have not gone up, but the production has increased. So do you see subsequent quarters be ramp up in the sales. That was point one.
The second question I had was on the duties which have been removed on the fish meal, which is one of your raw materials. I just wanted to understand what is the benefit for you on margins? And also, if you could give a mix of what are the raw materials involved in the shrimp feed? What percent is fish meal and the wheat and the soya?
Because I remember in your last call, you had mentioned that the -- because of the situation in Chile, there was this massive rise in the fish meal prices. So if you could just throw some color on that, that would help us to kind of understand what your margin outlook would be for the current year.
Yes. I'll take the first question. So on the production, we've increased the production, like you pointed out. However, sales didn't increase as much mainly because a lot of stock is in transit. Now the transit time has substantially increased due to the Red Sea crisis. So they're taking an alternate route. That's the first part.
The second part is that we have a lot of inventory in the warehouse, which hasn't been shipped because -- I'm sorry, haven't been shipped because of unavailability of containers, reefer containers. So those were the 2 main parts of why the production has increased and sales hasn't, but you'll see that catching up in the coming quarters.
Yes. Coming to the feeds. You raised a couple of questions. Number one, with regards to the impact of the prices, the policy changes that have been made in the recent budget. Practically, as far as the domestic shrimp feed industries are concerned, there is no advantage at all.
Because the first thing is that they have reduced the customs duty on shrimp feed. What happens is that when the prices come down, we'll start getting imports from other countries becoming competitors for us in the domestic industry, which is severe competition from them. And we have already more than what is the annual consumption we have 3x more -- 3x or 4x more than the requirement of feed, the production capacities in India today.
In fact, we have made several representations to the government also because those -- if you keep reducing the shrimp feed customs duty -- basic duty, then it will be disadvantage for the Indian manufacturers, who are giving you a very good quality feed for the aquaculture in the domestic feed -- domestic aquaculture industry. So that is not at all advantage.
But any basic custom duty, now we have all the raw materials available in India. Almost every raw material is available. Earlier, we were importing fish meal from Chile and Peru. We give this reference because the Chile and Peru are one of the major countries producing the fish meal and supplying to the world over.
So that is taken as the general -- the availability of fish meal. They will determine the global prices. So when there is a price -- when there is a good crop in Chile and Peru, the global prices of fish meal comes down. And that indirectly is an advantage to us because our exports also will get reduced, so that is available for the Indian market. That is the advantage view for Chile and Peru references. So that is the reason why we give it.
And as far as we are concerned, we are the -- go by the domestic prices, which again depends upon the 2 factors. One is fish catches. The other one is export demand. These are the 2 basic criteria on which we have -- the local prices are based. So when there is a good crop and also there is a globally availability of fish meal is good, the demand for export is not so much then we get a reasonably good stable price.
If there is an increase in demand, then the prices go up. That is one aspect of it. So the -- similarly, soya bean meal and the wheat flour as I told you earlier as explained, it all depends upon the agricultural crops, which is a year-on-year basis during the season. Now in October, November month, we can see soya bean the fresh seed. So as of now, the crop is good and everything is going on well. So that we expect that price of soya bean meal is stable.
So coming to your question with regard to the proportion of how much you will do -- we say something like a formulation depending upon so many factors and which cannot be determined or disclosed. That can be a confidential information, which the company has and the formulation is made according to the requirement of the particular season and particular areas, that is how it is done. So I think this can be disclosed this information because it is not only 1 formula, which is applied universally, Okay.
Last question. For the next 3 quarters, are the raw materials on a holistic basis lower for you compared to the last 3 quarters of last year? Or are they higher? So as to judge how your margins are going to fare over the next 3 quarters?
Do you mean for the next 3 quarters?
My sense is that right now, are the prices of the raw materials lower than last year for the second quarter? Or are they kind of flat? Just wanted to understand that.
So the -- just explained the reason for giving so much explanation in our -- the presentation initially is that to understand how the raw material prices are fluctuating, and it is not actually stable. Suddenly, it goes up -- the fish meal goes up to INR 121. It comes down to INR 100 and INR 90 sometimes.
So it is very difficult in a quarter, you will find in 3 months in 3 different rates for all these products, either soya bean meal or fish meal or wheat flour. In such a case, it is very difficult to exactly say whether the prices will go up or come down. We do not know. Sometimes in spite of having a good crop, we are finding the prices going up.
For Instance, wheat flour, we don't know why it's going -- the prices are going up. The government policies, for example, government, the procurement by the Food Corporation of India, wheat is more now. So they want to keep it as a food security policy. So the result of so much of wheat flour being -- going into the government godowns, the FCI godowns, the market -- the open market is not available. The prices are going up.
Like similarly, the situation in case of fish meal, if the catches are not good, we don't get -- the prices go up. Similarly, if there is a demand for export, the fish meal producers would like to export rather than to sell in the market. When we approach, they say you give us the export price, we will give you. That's what it happens. So it is very difficult to really come to -- guess where it can be predicted with a reasonable accuracy. It is very difficult. So that's why we keep explaining so much about it.
I understood, sir. At least for the next quarter, do you have a visibility of -- is it better or worse than last year?
Yes, very difficult to say, because...
[indiscernible]. Because now -- right now, they are soft, but it all depends on the international market situation.
Okay. And one more question I had, if I may, on your new venture on the pet food business. Just wanted to understand what is the investment that you're doing, here and what kind of scale can this business do? And is this primarily for the export market? Or would there be a domestic player as well here?
Yes, this pet store is for only domestic market. It is not for export. It is for the domestic market. And the investment is expected to be around INR 130 crores to INR 150 crores, of which we have land cost, we have invested about INR 35 crores as of now.
And also, we had spent about INR 2.5 lakhs to INR 3 lakhs --INR 3 crores for other expenditures for the last survey of the demand for pet food and other branding and other staff that we spent about INR 2.5 crores to INR 3 crores now. And as far as the product, as we told you, we are planning to launch before [ 31st March '24 ]. CMD may add something, you would like to add, sir?
Yes. See, initially, it will be for domestic market. The market is growing up on a drastic very high. And -- it's for domestic market. And if we have our -- if we can establish our brand, we will also look at the export market.
Right. I'm just trying to understand this is a completely different type of business, right? You will have to create your own brand, a lot of marketing and all that. Just wanted to understand what is...
Yes, technology-wise, the manufacturing of feed and all, they're similar to what we are manufacturing shrimp feed or something like that, but it's a define pet animal, so again, formulations and what a pet requires. And regarding the marketing, yes, simply this is the farmers who buy the feeds for the commercial business, commercial crop. Then in the pet food, it is like a pet owner. It is more emotional and work in the consumer market.
Right. And if I can squeeze one last one. Whenever these farmers have a bad crop, they bought the feed from you. Do you see potential losses or write-offs? And how does that work? Or is there a government helping fund those purchases?
No. See, the farmer buys feed as per the requirement. If, say, he would obviously plan his requirement of feed as per his requirement. And he would be taking from the dealers. And see, he would be given back to the dealer, if he has some problem with the crop and dealer will sell to some other farmer.
Right. I'm just trying to understand in terms of there would be quite a bit of a loss that you would have incurred, right? Because over the last couple of months. I just wanted to understand what is that impact?
No, see, we wouldn't -- they would not return back the feed to the company. This is only the uptick because as you saw, this year, rains are good. The rains are very good and there's a lot of flood. Because of the heavy rain, there was the flooding in most of the areas. Because of the flooding and all there have been diseases and there have been overflowing of [indiscernible]. That has happened at the end of -- from end of -- in the first week as well from June and July. But now it is quite stabilized. Now the farmers are doing back for stocking.
Because this is a good rain also -- good rains in the country also emphasize the good crops. But if heavy rains are there, they'll all do the crop. But generally, the water regenerates. And there's a -- it's a good sign for the country and for the agriculture and aquaculture.
Thank you. Next question comes from Vedant Mehta from QRC Investment Advisors.
I just wanted to understand your EBITDA margin expansion. Is it linked to only the raw material prices [indiscernible]? Or what other factors that have driven that?
EBITDA margin. Is it linked only to raw material prices or anythings?
Basically the major contributing factors are the raw material prices. So the other expenses, the normal -- the fixed expenses under rather labor and all, we have the standard expenditure. The normal -- the increase in expenditure year-on-year basis, it will be there by increments of the salaries, et cetera, it will be the overhead expenditure increase will have an impact on that.
And transportation cost is a major factor in case of frozen foods. So the ocean freight also affects the EBITDA.
Because of the Red Sea issue and the shortage of containers. Because the U.S. and the European governments are imposing some tax on the Chinese products from September 1 -- shipments received from September -- sometime in September 1. So they are sitting out there on their cargoes before that, it is just before that.
So all the containers that have been booked by the Chinese company, majorly, the battery -- lithium batteries and the electric cars. So the ocean freights have gone up very high because all the space in the vessels have been booked by the Chinese companies at a very high price.
So see, for us to -- as earlier our Executive Director, Nikhilesh has said, there are shortage of containers and shortage of place in the shipping vessels because everything has been booked, which would be eased by end of this month or something like that, because the deadline would be over for the Chinese.
And the EBITDA margin, yes, definitely -- on the [indiscernible] side, definitely, it works on the raw material side and also since the shortage of containers and space in the vessel, the ocean freights have gone up almost 3x to 4x. And on the...
[Operator Instructions] Next question comes from Pradeep Rawat from Yogya Capital.
So I just wanted to know about the demand outlook in the shrimp processing segment of various geographies, specifically U.S. and EU and how do you see competition panning out from Ecuador?
Okay. I'll answer that question. So on the production from Ecuador, I think -- see, Ecuador today is the largest producer of shrimp, but they do not compete in the same categories as the Indian processing industry does. Ecuador does more whole shrimps or head lesions like commoditization, where India is more into peel shrimp and moving more into value addition.
So that way, I don't see that Ecuador is the earlier threat to India. But there is an oversupply, which is balancing slowly more efficient producers will stay in the market in terms of producing nations.
The demand in the U.S. market, Europe, also the rest of the world continues to be stable, not great changes. Hopefully, the low pricing of the shrimp -- the protein of shrimp drives in more consumption, there's more marketing activities that are being done. For the company itself, strong quality standards and product continues to have good retraction to -- in the customer base. So we will continue to focus on expanding in all these markets.
Next question comes from Sameer Deshpande, an individual investor.
He has withdrawn his question, sir. Next question comes from Devam Modi from ARDEKO.
To begin with, could you share the details related to the PLI incentive that the company has received or is eligible for going ahead?
We will send an e-mail -- you just send an e-mail so that we will reply back. Yes, we already explained in the presentation, so we will reply back to you.
Okay, sure. And just like you highlighted on the pet food front, if you can also share on the fish feed front, what is the investment and resources that we'll be looking to allocate this year and next year in FY '25 and '26?
So we have employed some senior executives for undertaking the feed survey. The -- and we are reducing the process with identifying the fish species which is suitable for India and for that feed, so we want to take up trials -- to do the trials with imported feed from Thailand and feed meal and first experiment here and see whichever is -- the Indian conditions is suitable, we would like to start importing and do it initially.
And thereafter, we want to produce in India. We have the civil works ready. It is only the machinery that we have to order and we can immediately start within a max of about 6 months, we can start production. Once we establish the demand, supply and what is the requirement, what is the speed that is required that is in need here conditions -- Indian conditions, we will start. So it will take maybe -- so we are now under the process of the survey and trends, we are going to import some feed and do trials in India. CMD may would like to have some add.
Yes. The fish feed -- see, we have a lot of fish available in India, which is majorly low-cost fish and the feed otherwise is very cheap feed,and anybody can make that feed. But the species, what we are looking at is earlier -- in earlier meetings, what we said, we wanted to go for a high variety of species, which is already being done in the part of the development in India, like as Barramundi -- sea bass or the Barramundi or snakehead or trout or different varieties of fish, which is only -- people have taken up culture, and they're doing a lot of trials on it.
We are developing feed for that, which already exist in the [indiscernible], which they are doing in Thailand, which we want to import earlier and start doing trends with the development of the market. And if those variety of species develop with a high-protein, high-protein and good-protein fish, which has -- needs high nutrition.
Nutrition value is a lot of technology is involved. So we want to get into that, then the commodity grade. A question of you asking how much CapEx? CapEx would be around -- see once we decide on that, but initially we are importing. And once we decide on that, the CapEx of INR 100 crores would be there.
Okay, sure. And in this case, so based on what you highlighted, this would be more like a high margin but relatively lower volume than sort of the shrimp feed business. Would that be the right impression?
Yes. There are fish available like [indiscernible] and common carps and all which are traditionally in India. The farmers, most of the -- for the common carps, farmers make their own feed, because it's a very cheap -- it comes around INR 15 to INR 20 and that's manufacture fees for themselves.
[indiscernible], it is everything. But this variety of fish, people are going -- trying and doing the trials are high-quality fish, high-quality fish like sea bass and all, which is the high-protein and high-nutritious feeds of fish and it requires high-nutritious feed. So we have to target that. The volume may -- in future, it may increase to a higher size, depending on the consumptions and the development.
Okay. Sure. And there would be an overlap in the customer that you would be having on the shrimp feed side, there will be an overlap with the fish feed, with the higher...
No, there won't be an overlap, there's different segment.
Sure. And just one bookkeeping sort of question. In FY '24, we see that there is a power and fuel expense of INR 94-odd crores. How much would be the amount attributable to the power side? And how much of the fuel side within that?
Could you send an e-mail, and we will just break it out and hand it to you.
Thank you. That would be the last question for the day. Now I hand over the floor to management for closing comments.
On behalf of the Board of Directors and also the management, I would like to thank all the investors who have participated and made this call very, very more -- had more discussions, more questions and having more clarifications.
It is good to have such a session, whereby the management ask the investors also be more transparent in the information -- disseminating the information about the company prospects, the profitability margins, et cetera. I once again thank all the investors for taking active part in this session and made it more fruitful. Thank you.
Thank you. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using Door Sabha's conference call service. You may disconnect your lines now. Thank you, and have a pleasant day.