Avanti Feeds Ltd
NSE:AVANTIFEED
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Avanti Feeds Ltd
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Good evening, ladies and gentlemen. I'm Vidya, moderator for the conference call. Welcome to Avanti Feeds Limited Q3 FY '23 Results Conference Call hosted by KFin Technologies Limited. We have with us today, from the management, Mr. A. Indra Kumar, Chairman and Managing Director; Mr. C. Ramachandra Rao, Joint Managing Director; Mr. Alluri Nikhilesh, Executive Director; Mr. Santhi Latha, GM, Finance and Accounting; and Mr. Lakshmi Sharma, Senior 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, sir.
Thank you, Vidya. Good evening, ladies and gentlemen. I extend a warm welcome for all for this investors conference call to review the unaudited financial results for the quarter 3 financial year '23. Along with me here are Shri Indra Kumar, Chairman and Managing Director; Mr. Nikhilesh Chowdary, Executive Director, joining from France; and other team members.
The results of Q3 FY '23 are 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.
Consolidated financial results of Q3 FY '23. The comparative performance of Q3 FY '23 with that of Q2 FY '23 and Q3 FY '22 have been given in the presentation already circulated. Gross income in Q3 FY '23 is INR 1,132 crores as compared to INR 1,349 crores in the previous quarter Q2 FY '23, a decrease of INR 217 crores, by 16%.
Compared to Q3 FY '22, gross income of INR 1,088 crores, there is an increase of INR 44 crores, increase by 4%. The PBT is INR 96 crores in Q3 FY '23 as compared to INR 90 crores in Q2 FY '23, an increase of INR 6 crores, by 7%, when compared to Q3 FY '22 PBT of INR 66 crores, and there is an increase of INR 30 crores, by 45%.
The consolidated results indicate net impact of several factors such as increase -- decrease in income, expenditure, exceptional items, et cetera, relating to Feed and Frozen Food division, which have been discussed in the following divisional performance of the units individually.
Let me first pick up the stand-alone financial results of Feed division per Q3 FY '23 results. The gross income of the Q3 FY '23 is INR 878 crores as compared to INR 1,040 crores in the previous quarter of Q2 FY '23, a decrease by INR 162 crores, representing a decrease by 16%, mainly due to decrease in quantity of feed sales and early harvesting on account of disease, rains, decrease in farm gate of bigger size shrimps compared to smaller size.
The gross income in Q3 FY '23 increased to INR 878 crores from [ INR 2,819 crores ] in the corresponding quarter of Q3 FY '22, which increased by INR 59 crores, representing 7%, due to increase in sales realization.
The PBT for the Q3 FY '23 is INR 70 crores as compared to INR 52 crores in Q2 FY '23, an increase of INR 18 crores, by 35%, mainly due to stabilization of prices of major raw materials.
The feed sales reduced to 1,06,313 metric tonnes in Q3 FY '23 as compared to 1,26,034 metric tonnes in Q2 FY '23. The PBT in Q3 FY '23 has increased by INR 14 crores from INR 38 crores in Q3 FY '22, representing by -- [ affected by ] 37%.
As you know, the cost of raw materials constitutes major share of cost of feed production, particularly fish meal, soya bean meal and wheat flour. The average raw material cost in terms of percentage for feed sales price was INR 83.61 in Q3 FY '23 as compared to INR 87.40 in Q3 FY '22 and 88.11% in Q2 FY '23, indicating a marginal decrease by about 3.7% as compared to Q3 FY '22 and 4.5% in Q2 FY '23.
The average cost takes into consideration volatility of the major raw materials like fish meal, soya bean meal and wheat flour sometimes increase and sometimes decrease during the respective quarters. The present rate of fish meal and soya bean meal and wheat flour are INR 110 that is for fish meal, INR 57 per kg for soya bean meal and INR 36 for wheat flour -- per kg of wheat flour.
Now I would like to share with you some of the recent developments, which has contributed to the cost of raw materials. First, let me take the fish meal. There's a significant increase in the export of fish meal from India. The export of fish meal from India into countries like China, Taiwan, Vietnam, et cetera, has gone up steeply over the past 8 to 10 months, creating shortage in fish meal for domestic consumption.
The spurt in demand for exports is due to increase in import of fish meal from India by China, Taiwan, Vietnam due to shortage of production in Peru and also higher ocean price from Peru compared to imports from India. Added to this, the Indian rupee has been depreciating against USD, giving a higher sales realization for the Indian exporters of fish meal.
Further, the exports are incentivized by the duty drawback of 2.9% on FOB value at 2.30 of RoDTEP. The fish meal production in India is about 3.75 to 4 lakh tonnes per annum, and shrimp feed industry consumes almost 3,00,030 tonnes per annum for feed production.
75% to 80% of fish meal is required for feed production in India. With the present trend of exports demand, almost 3 to 3.5 lakhs metric tonnes per annum are likely to be exported. This is of great disadvantage to the domestic consumers of fish meal, creating shortage, pushing up the domestic prices.
To mitigate the hardship, the Government of India is being approached to initiate measures to safeguard the domestic shrimp feed manufacturers and the interest of shrimp exports earning valuable -- value-added exports for foreign exchange.
In this context, it is pertinent to mention that there is a recent budgetary decrease of customs duty on import of fish meal to 5% from 15% is not significant and advantageous to the domestic consumers.
Let me now dwell up on the wheat flour price. Like fish meal, wheat flour price is also increasing steeply, which appears to be due to inconsistent policy of exports of wheat and wheat products during 2022. In anticipation of allowing imports -- exports of wheat and wheat products, the traders seem to hold these products, resulting in increase of wheat flour price.
In order to check the rising domestic wheat and wheat product price, on 25 January '23, the Government of India announced a sale of 30 lakh tonnes of wheat in the open market. Again, yesterday, which is 21 February '23, the center announced a sale of an additional 20 lakh tonnes wheat in the open market to further bring down the retail prices of wheat and wheat flour.
The government has decided that the state-owned Food Corporation of India will offload an additional quantity of 20 lakh metric tonnes of wheat under open market sales scheme. Further, this year, that is 2023 crop -- '22-'23 crop year, the wheat crop also is estimated to rise to 112.18 metric tonnes as compared to 107.74 metric tonnes in the previous year.
It is expected that these factors would inflate the wheat flour prices and soften -- stabilize hereafter. To sum up, I would like to share with you that prices of these major raw materials along with related products like fish oil, soya bean, et cetera, keep changing from time to time, depending upon the seasonality, production, global trends, et cetera, which has a direct impact on the raw material cost of the feed, which is beyond the company's control.
Let me dwell with shrimp processing division now, the Q3 FY '23 results. The gross income for Q3 FY '23 is INR 266 crores as compared to INR 310 crores in Q2 FY '23, a decrease by INR 54 crores, representing 17.7%, due to a decrease in sales volume by 627, representing 18%.
A significant reason for the lower sales volume is Q3 -- reason for these lower sales volume in Q3 FY '23 is postponement of shipments on buyers' requests because of the inventory holding at their warehouses.
The gross income in Q3 FY '23 decreased to INR 256 crores from INR 270 crores compared to corresponding quarter Q3 FY '22, a decrease of INR 14 crores, representing 5.2%. Though the sales volume decreased by 18.2%, gross decreased by 5.2% only, due to positive impact of increase in average export realization by $0.29 per kg and foreign exchange gain due to depreciation of INR against USD.
Now PBT for Q3 FY '23 is INR 30 crores as compared to INR 40 crores in Q2 FY '23, a decrease by INR 10 crores, which represents 1.1% of gross income, mainly due to decrease in sales volume and average sales realization by $0.32 per kg.
Having said that, the PBT has not decreased proportionate to gross income reduction. The company was able to maintain the PBT owing to increase in the foreign exchange gain and marginal decrease in ocean freight costs. The PBT in Q3 FY '23 of INR 30 crores increased from INR 26 crores in the corresponding quarter Q3 FY '22.
Provision for recall expenses in the financial statements. In Q3 FY '23, financial statements, an additional provision of INR 1.52 crores has been made as an exceptional item towards the value of returned or destroyed products and other related expenses with cumulative provision of INR 35.62 crores till 31 December '22, out of which an amount of INR 31.56 crores has been paid on the basis of claims, leaving the balance of INR 4.06 crores as a provision in the financial statements.
As regards the product liability claims for bodily injury caused by consuming company's contaminated product under the recall, the company's insurer, new India Assurance Co. has been appointed -- has appointed a surveyor for processing of the claims. So far, the company has received 13 claims towards bodily injury, which have been followed to the insurance surveyor for processing.
Since the liability has been covered under the commercial general liability insurance policy, no provision has been made in the financial statements. The extent of claims in the financial term is yet to be ascertained.
Now let me share with you the industry overview and future outlook. You may notice that in Q3 FY '23, the Feed division resulted in an increase of profit, though the sales have decreased, mainly due to stabilization of the prices of major raw materials during the quarter.
The shrimp exports have also decreased in Q3 FY '23 compared to Q2 FY '23. The later part of the year '22 experienced severe stress on the shrimp culture industry by decrease in production of shrimps' farm gate prices going down, global recession, et cetera. The year '22 ended with a rather disappointing note for these reasons.
Coming to the budgetary support to the industry in 2023 budget. As far as import duties and GST are concerned, the aquaculture industry did not receive much support from the 2023 budget presented on February 1, '23, by the honorable Finance Minister, except the following. The import duty on fish meal has been reduced to 5% from 15%.
However, this decrease has not helped the feed industry, as explained earlier. The import duty on fish feed oil for manufacturing of aquatic feed has also been reduced to 15% from 30%. However, this decrease is not also helpful to the feed industry on the same lines as in the case of fish meal.
The import duty on krill meal for manufacturing of aquatic feeds has been reduced to 5% from 15%. This is also an expensive import item, and the decrease of 10% has not really helped the industry much on krill meal.
The import duty on vitamins and mineral premixes used for the manufacturing of aquatic feed has been reduced to 5% from 15%, which has provided a marginal benefit to the importers of vitamin and mineral premixes used for feed manufacture.
The import duty on algal prime flour for manufacturing of aquatic feed has been reduced to 15% from 30%, providing a marginal relief. The quantity of vitamin and mineral premixes, algal prime flour used in the feed manufacture is not significant. And as such, the decrease of duties of 10% or 15% does not give much relief expected by the feed manufacturers.
Continuing this outlook, the year '22-'23 started by a low-key. The farmers did not show much interest, reluctant to start the feed, which otherwise would have started now basically. As per the information available, after mid-February '23, the stocking was 5,700 million feed as against 7,800 million feed during the corresponding period of the previous year, according to the stocking going down -- stocking went down by 26.92% in the first 45 days of the year.
However, as the farm gate prices of shrimp is increasing, the farmers are looking for stocking from March 23 onwards. It is anticipated that shrimp culture will pick up from March 23 to make up the shortfall in the first 2 months.
However, to be cautious, with global economy looking bleak and recession looming large throughout the world, the production -- the shrimp production in 2023 is likely to be around 8.5 lakh metric tonnes as against 9 lakh metric tonnes in 2022.
Let me now dwell upon shrimp production and feed consumption for financial year '22 and company plans for '23, shrimp production and consumption. At the start of the first season, the shrimp feed consumption in CY '23, India is expected to grow by about 15% compared to calendar year '21 with an estimated sales of 12 lakh metrics tonnes.
However, due to the various reasons stated earlier, the shrimp feed production in calender year '22 (sic) [ '23 ] is now expected to be 9.75 lakh to 10 lakh metric tonnes as compared to 11 lakh metric tonnes in calendar year '21.
The company's feed sales during the financial year '22 was about INR 5.41 lakh metric tonnes as compared to 4.73 lakh metric tonnes in FY '21. It is expected that for financial year '23, it will be around 5 lakh metric tonnes and the shrimp culture in the rest of the year [indiscernible] due to uncontrollable reasons.
The company has completed setting up of new shrimp feed manufacturing facility in Bandapuram with annual installed capacity of 1,75,000 metric tonnes to take CapEx of INR 125 crores. The new facility has commenced production in December '22.
With the new plant coming up -- commencing production, there would not be a short supply of company's feed during the peak season this year, as it happened in the previous year, which has resulted in the short supply of feed to the market to the extent of about 50,000 metric tonnes.
Shrimp processing and exports. Shrimp production and export has come down to -- come down in calendar year '22 to about 6 lakh to 6.5 lakh metric tonnes as compared to 7 lakh to 7.5 lakh metric tonnes in calender year '21. The company's shrimp exports during financial year '22 was about 12,836 metric tonnes as compared to 11,518 metric tonnes in financial year '21. It is expected financial '23 will be around same level of 12,500 metric tonnes.
Avanti Frozen is in the process of expanding preprocessing and main processing as detailed below. Preprocessing facility in Gopalapuram, adjacent to the existing processing plant, the status is completed and waiting for final approvals to start preprocessing, CapEx of INR 11.43 crores. New processing plant and cold storage in Krishnapuram, East Godavari District in Andhra Pradesh with 7,000 metric tonnes per annum capacity.
Land is acquired. Facility was commenced. The estimated cost of this project is INR 64.6 crores. The company has been selected under 2 investment incentive schemes under the Government of India. One is sales-based incentive under production linked incentive scheme. And the other is granted under Operation Greens long-term intervention scheme.
The production-linked incentive scheme, company is eligible for the incentive of 6% value-added products 10% on incremental sales over a period of 6 years from the financial year '21-'22 to 2026 to '27, subject to a maximum of INR 79.44 crores with a minimum 5% CAGR in sales.
The company has made a application claim at 6% on the incremental sales of INR 57 crores for release of incentives under PLI for the financial year '22, and it is under review by the Ministry. This is not accounted for in the books accounts as per the policy of the company to account such items only on this list.
Operational -- the other scheme, Operation Greens scheme, approval from the Government of India for grant date for the proposed investment in new shrimp processing plant at Krishnapuram has been received in December '22. Maximum grant in aid under this scheme is INR 10 crores. Grant in aid will be released in 3 installments. Application for disbursement is requested to be submitted 8 months, 16 months and 24 months after the date of approval of the project.
The outlook for coming quarters -- the processing division appears to be promising on account of softening of the ocean freights, increase in value-added products' exports and also with the Chinese market promising, we just hope that the processing division would do better in the coming quarters.
I think with this, I close the brief background with the -- setting the ground for discussion. Now we will go into the question-and-answer session.
[Operator Instructions] The first question comes from [ Onkar Kulkarni from Shree Investments ].
Yes. My question was regarding -- just now you mentioned that with the softening of raw material prices, the future seems to be bright. So what do you think, what could be your margins in the medium to long term? I mean we are not able to gather like what kind of margin percentage you can deliver in the mid to long term because of so much of volatility in all the things?
Yes, I think the question has been split into 2. One is about the feed, the other about the processing. Let me first take up the Feed division. As I explained very clearly in my presentation that the raw material prices are likely to come down further, but which is very uncertain to what extent we'll be able to -- it will come down, what extent we'll be able to take advantage of that. These are all the factors which will -- only can be answered in the due course.
The decision of the government to release the 30 lakh plus 20 lakh, about 50 lakh tonnes, of the wheat has come very recently. So we have to see how the market is going to react for this, whether the prices are going to come down or how it is going to happen.
Similarly, we are trying to see the exports -- the fish meal has really created a great disadvantage for domestic consumers like the shrimp feed producers, because the prices are very high and which export prices they are giving at about INR 150. So we are -- they are selling at INR 110 per kg now fish meal.
So at this whatever amount of the concession that -- the difference is so huge that to divert them some -- government has to come with a very strategic planning so to domestic -- to save the -- to provide the comfort to the domestic industries as far as the availability of fish meal is concerned. We are working on that.
So like soya bean is also like that. Today , the prices have gone up again, soya bean meal. The reason is not known, why it has gone up. So these are all -- as we have been telling almost in all -- every -- our investors call that these raw materials are very highly volatile and it is very, very difficult to give you a precise margins this is going to result in.
And on the other side, as you know that the pricing of feed is also not totally free from certain conditions, regulations by the government. So we are -- on the both sides, we have very stringent conditions whereby we are operating. So under these circumstances, it is very difficult for giving you any specific percentage of the profit margin.
Coming to the question of processing. The share also, there is always a mismatch between the raw materials, the farm gate prices and the final export price. So the -- there also, we try our best to reduce our cost of processing and maximize the profitability. I think Indra Kumar, our CMD, will explain more on this aspect.
See, the international market -- everything depends on the international market situation and the openings of the different markets. As of now, because of the recession and the inflation across the world, there are -- there is a pressure on the prices. And definitely, within another 2 to 3 months, that would come to normalcy. And in the U.S., there are all the -- they have huge inventories.
And because of China declared a complete lockdown and lifted it only in the month of December, see, there has been -- the ship was not -- no item was exported to China because of the lockdown and they declared 100% lockdown. Because of that, there was a turbulency in the market because China constitutes around -- they're the second largest importer of seafood, mainly shrimp.
With the lockdown declaring, all the exporting countries and the exporters have looked into similar market of America, U.S. And as everybody knows, with the Russia and Ukraine war, the European market is also very volatile. Definitely, the -- because of that, the shrimp farmers were a little skeptical of stocking in the beginning of this year, January, but slowly, they're coming back for stocking.
The prices looks stabilized. And as of now, since our company is concentrating more on value-added products, we are able to sell and the margins are quite reasonable. And if you look at the supply and demand, the supply of ship for the processing plant is very low now, because in the end of '22, because of the cyclones or disease and also the Chinese lockdown, the farmers were slow in stocking so that the raw material availability has come down right now. Slowly, the farmers are going back to stocking and it'll stabilize.
Okay. This is about margins. But what about the revenue front? I mean with all the headwinds you have, what kind of revenue you are expecting for medium term, given the market condition?
The -- see, what -- the revenues will be the same as last year. Maybe there won't be much increase. The revenue may be around 5% or 10% more or similar as last year, because the -- seeing the world situation and that world situation, we cannot expect much jump in the revenues.
So here, I'm asking you about the overall revenue.
Yes, overall revenue. Yes.
Yes, what CMD -- see, the -- most of our customers are long-standing customers and they have the tie-ups with the U.S. long term, so we are able to cater to them. They are more consistent buyers. So as far as demand for the product, the sales, exports -- the company is concerned, we do not foresee any big headwinds in the export market as far as the company is concerned.
Yes. But my question was regarding a little bit long term, around 2 to 3 years, what kind of revenue you are expecting, given all the headwinds you have?
The company is working on increasing the revenues. That's why we are expanding the preprocessing capacities and also going in for the value-added products. And we have to see the market situations and world situation.
Yes, just to add in on the long term, for 2 to 3 years, we are adding in additional capacity to produce more value-added products. And once we do that -- these kind of value-added products require high preprocessing activity because a lot of the preparation is being done in-house, so the consumer can consume the product without much preparation on their side. So that's the reason why we're expanding the preprocessing capacity.
So on 2 to 3 years' horizon, we have already started taking in new product orders. We have already started shipping out some of these orders. But the market needs to develop for these orders and we need to develop the recognition in the market for these kind of products. The trial orders have already started going out. So on 2 to 3 years' horizon when it becomes fully commercialized, there will be higher revenues in this segment.
We are also -- that is for one we will start 2 to 3 categories of value-added products, which need to get into full commercialization. Once they do, we will -- we can expect a higher level of realization from the current level and also an increase in revenue. But the quantity would not increase as much, the volume, because we're producing high-value products. The quantity might not increase as much, but the value will increase.
Okay. And with the additional capacities commencing very recently, what kind of asset turn you're expecting on that?
What did you -- asset turn?
Yes, asset turnover ratio, how much you can -- how much of your revenue could increase because of those additional facilities coming?
It's very hard to put a number to it right now. Because like I was saying, it's a step-by-step process. It's a new product that we're introducing into the market. So we need to gain recognition for producing such kind of product. So I wouldn't put a number to it right now. But I would say our strategy is to diversify our product portfolio to enable higher margins and revenue. So right now, I wouldn't -- I can't put a number because they're in very early stage of even construction.
Okay. But as far as the feed is concerned, your capacities have gone up, right? You have recently increased your capacity. So on that also, how much revenue you can produce with those increased capacities?
We can produce -- see, we have increased the capacity of 175,000 tonnes. Because of the product mix and -- now what has happened, see, we have to upgrade to the technologies, what is required by the customer.
So we are gearing up to that. And definitely, last year, in 2022, we could not supply to our customers because we didn't have capacity. So we have increased the capacity, and also due to the product mix, what the product mix, what we are trying to do in the market to the requirement of the customer, see, we are geared up for all the products what is required by the shrimp culture.
In fact, say, for example, earlier, we used to supply the starter feed in a crumbled form. Now we are doing it in a pellet form. So the productivity will come down, but the growth of the shrimps will be much better with good FCRs. And if the shrimp culture -- because of the world scenario, the shrimp culture has -- see, there's a little bit apprehension by the farmers, which they're coming out. So as the shrimp culture increases, we can increase our revenues.
So at full capacity utilization, how much more you can -- how much more revenue you can generate with the additional capacity?
See, full capacity, we can generate around, I think, 25% more.
Sorry, I missed the number, which you talked about. Can you please...
I cannot. See, 25% more on this.
Okay. All right. Another question which keeps coming back to the management for the last, say, 2 to 3 years, it is the utilization of cash. And there have been plans about entering into new segments, which haven't fructified. You haven't been utilizing the cash...
Yes, Mr. [ Kulkarni ], see, we have expanded our -- with our own generation, and we require the funds for the working capital. See, working capital requirement in this industry is very high, very high and...
So as of...
Please listen to us.
Sorry for interrupting you, sir. I request the participants to restrict with 2 questions in the initial round and join back the queue for more questions.
Yes, yes. I'll join back the queue. But let the management answer the current question at least.
See, the capacity increase and the markets, what we are planning to expand into the new segments, requires a lot of study, which we are -- because of the COVID reason or different market position, we have to go carefully.
But plans are still on, you mean?
Yes, plans are still on.
And how much progress has been made about that?
See, please understand, we are -- we have to go cautiously. We have to see the market and we have to supply the -- what is required by the market. And when we are diversifying into other products, we need to be very careful and we need to work on success.
Yes, sir. That's what I'm asking. At what level you are in terms of that?
We are almost, say, we -- once the markets are ripe, we can start the production and supply within 6 months.
The next question comes from [ Vishwanath Shettigar ], an individual investor.
Yes. The first question is that right now, the shrimp processing...
Your voice is very low, sir.
The shrimp processing segment contributes somewhere around 2%, 2.5% of the total revenue. So in terms of percentage, what do you feel that the processing segment would contribute, say, 5 years down the line?
No, it's not 2%, 2.5%, sir. We are almost 20% of the revenue.
20% of the revenue?
Yes.
Sir, in terms of -- okay, okay. Sorry, sorry, sorry. Yes. Second thing that -- since -- as far as the pricing pressure is concerned with regard to increasing shrimp feed price, like you, other players are also having similar issues that you cannot raise the price. Do you feel that when the prices of raw material goes down, there will be pressure again from government that you need to reduce the price?
So definitely, there will be -- you see -- we have to see the markets, we have to see the customers and your competitor. First, you have to see the customer and the competitor. When the -- we have to carefully see the pricing so that the customer is comfortable and we are able to market our products.
See, we have competition, and we are -- have to see the -- one way, because the government also tries to interfere because it's more of a [indiscernible] schemes. So we have to carefully handle all those things.
Okay. Okay. Okay. And last question is with regard to the falling ROE and ROCE, right? If you look at the company's ROE and ROCE, it's very low, right, below 10%, right? So we need to work something around on that thing because it's basically below cost of capital right now?
Yes. Because as we've said to you, the activity, the -- what you say [indiscernible] depend on the revenues that we get and the expenditure and net profits that we are going -- PBT and this one. So unless they -- automatically once they improve, it also improves. So I think we have to bear with this, the -- unless have a high -- better opportunity, we cannot go for any investment to get a better ROI and ROCE.
So what is the management's viewpoint with regard to long-term ROE, where they want to be, say, in 5 years or 10 years down the line?
If you take in the segment of shrimp processing, we are working out on the value addition, higher value addition products and where we're adding value to the products. And we get higher margins. And in the shrimp feed, we are also trying to bring in working -- see, a lot of research has to be -- is being done to reduce the cost of production, how it comes to and improve the FCR.
Okay. And sorry, again, the last question with regard to hatcheries. I've seen that you started with the hatcheries and what's the way forward on that front.
Yes. The hatchery business has started to provide the shrimp farmer best quality -- good quality feed. And see, our hatchery capacity is not compared to the industry standards, but we have just started it. And we have started -- by the time we got permissions and all these things, it took a long time. And we have -- the hatchery business would be around -- we can scale it up to 1 billion capacity, which -- revenue would be around approximately around INR 30 crore.
[Operator Instructions] The next question comes from [ Rahil Shah from Crown Capital ].
My questions have kind of been answered on the guidance for the next year.
The next question comes from Jasdeep Walia from Clockvine.
Sir, we understand there's a demand issue on account of high inventory in U.S. But let's say if the demand were to come back, are there any issues with constrained production in India? For example, we have been hearing that there's a lot of disease issue with the shrimp on account of which the farmers have not been able to scale up production even in the [indiscernible]. So just wanted your comments on that.
Yes. No, no. Please come back again. Your voice is not clear. And please speak slowly, because we could not understand your question.
Sure, sir. Sir, I understand that there is a demand issue right now on account of high inventories in U.S. But let's say if the demand were to come back, are there any other issues in India, which are constraining production? For example, we have been hearing that there's a lot of disease issue in India. On account of it, farmers may not be able to scale up production, let's say if the demand were to come back. So just wanted to...
No, that is not right. If the demand is there and the price is there, India can scale up production.
Got it. There is no other issue with regard to disease -- controlling disease...
Disease is there. Disease management also is there.
The next comes from [ Ronav Shah ] from Equitas.
Yes, sir. So my questions are regarding 2 things. First is what is the current capacity inflation of the -- our existing feed and processing plant, sir?
Feed plant, we were utilizing around 98%. And now with the expanded capacity, we are almost -- we are -- because just now the season has started, we are at around 80%, just because the season has started. As we've talked about today, the season has just started that -- stocking has just started. We are working on an 80% capacity. And days pass by, the stockings happen much more, we may touch around 90%, 95%.
Okay, sir. And for processing feed?
And the processing, we are operating at around 60% to 65% because we are concentrating more on the value-added products. See, when the value-added products -- see, the capacity is there, but doing value addition is the major -- it's a human -- actually, it's not machine-made. It is a human capital and all these other things.
Yes, because of the capacity -- because the customers want human like -- man -- the process is, either you can do by machine or by hand. They want hand-made, manual. So the capacity would not be -- we cannot touch 90% or something because it is manual. Human factor is -- because of value addition. If it is bulk -- if it is commodity side, we can touch around 80% to 90%. But it is value addition, we are not able to -- we have to -- we are able to do around 60% to 65%.
Okay, sir. Got it. And sir, in terms of processing division, what is the benefit in terms of -- if we are saying that we are focusing on the value-added products, how it benefits in terms of the realization? So what is the incremental realization which we can get from the value-added products? And what is the current proportion of the value-added products in the processing from exports, sir?
Nikhilesh, are you answering?
Yes, sir, I have 2 questions in this...
No, no. No, I'm...
One second, could you repeat the question?
Yes, sir. So what is the current proportion of the value-added products in our exports and processing division? And second is, what is the incremental realization which we can get from the value-added products from the normal exports?
Muthyam, could you give the breakup of what is the percentage of value-added exports?
It is around 24% to 25% of the value-added.
So out of the total exports, about 25% is value-added. On a regular day, today, we're facing kind of price pressure, but it should develop. I think we reached the bottom of the pricing pressure. It should start increasing from now. We can expect a double-digit margin on the value-added products and commodities high single-digit margin.
For you to understand a little bit more, see, earlier what we were doing, value added has become a commodity now. [indiscernible] and P&D or butterfly and all, earlier they were value-added. Now they have become commodity. And we have gone into higher -- this thing of our products like cooked range and these things. Now they're called value-added.
So we are taking the -- see, the newest products as value addition. The ones which were earlier called value-added, we have taken into commodity grade. In shrimp exports, there are different -- these things, headless, shell-on is the commodity product.
And further value-added is the deveining and de-shelling and all these things are supposed to be value added. Now we are not taking as a value-added product further. We are taking higher products like cooked products or skewers or different as value-added.
Okay. Got it. Got it, sir. And sir, last question from my end. Sir, I think U.S. FDA at the time, we have created the provision. And at that time, there was incremental 80 million of provisions. So are we expecting any reversal of that in upcoming quarters?
Can you please come back?
Repeat your question.
Please repeat the question.
Yes, sir. So in earlier quarters, for the U.S. FDA issue, we have created some provision in the books of accounts. And at that time, we have on created around 80 million of incremental provision. So are we expecting any reversal of the same in upcoming quarters?
Not exactly. Reversal means what we are doing is, depending upon the claims received from time to time during a particular quarter, we are making the provision. That particular quarter, if we any additional claims, we're making provision for that. And when the claims are settled, we take that as the expenditure from the provision.
So what we do -- now it has almost come to almost 0 level now. There'll be not much hereafter. So what we are intending to do is, by 31 March, we will close all the claims that have been received so far and how much settlement is it, whatever there is an excess provision, it will be written back.
Or if it is the shortfall, we'll provide further and close it. Like 31st March, we should be able to get the total -- the liability, which we have incurred or our account of the recall. That we'll be able to do it by end of this year. But we do not foresee any much increase hereafter. Almost all the claims, we hope that has been received already.
The next question comes from [ Satat Kapoor from Kapoor Company ].
Sir, if you could explain to us, firstly, the seasonality factor in the business, how do the seasonality factor plays?
Sir, shrimp culture, see, if you take a calendar year, shrimp farmer starts stocking from after Pongal or Sankranti or -- because shrimp culture in the cold climate, the [indiscernible] on shrimp doesn't work. So actually, it is seasonal. After Pongal, after January 15 or 16, they prepare the ponds and they -- from this -- after the 20th of January, some people [indiscernible], they stock.
That goes on up to March, end of March, because the temperature has -- higher the temperature, it's good for the shrimp. So first crop gets over. The people who stock in January, they harvest in April. People -- like that, it goes on.
The first crop gets over by June. And the second crop starts by, again, June because people who harvested in May, they the stock in June. There are 2 crops. One is January to April or depending on the stockings. Second crop is from June, July to September, October. This is the pattern of the shrimp culture. Hope your question is answered.
Yes, sir. Sir, in your opening remarks, you did mention about the degrees of the raw material prices also with meat prices and then other than [indiscernible]. So if you could give us some more color of what constitutes the raw materials, sir.
Raw material is fish meal, soya, soya meal, wheat flour. And we have -- there are different, almost 20, 21 varieties of raw materials, minute and major. The major are fish meal, soya meal and wheat flour.
Okay. But when we take this fish meal as a major constituent, what -- why have we not looked at backward integration in terms of developing our own fish meal and, therefore, removing the element of -- I think that other players in the same segment are coming up with this idea, and they are also into the trading aspect into it. So what is our thought in terms of fish meal...
Fish meal is the -- is done from the marine fish, which is available on the West Coast of India. See, there is -- the fish meal companies are majorly -- they are specialized in that product. They specialize in their product. See, we cannot do everything. Fish meal is a big activity, which deals with the fishermen community and lot of concentration, and there's a lot of this thing is required. So they're specialized.
[Operator Instructions] We have a follow-up question from [ Onkar Kulkarni from Shree Investments ].
Sir, if you recall 8, 10 years back, there was a -- vannamei shrimp, which were introduced. And that was a game changer for Avanti as well as for the overall industry. I mean any such opportunity arising in the future or that was just a one-off?
See, there's a lot of research and a lot of innovation is going on. See, today, vannamei, we have -- earlier, our native species is black tiger. So the black tiger -- there was a wild feed, which was -- were used earlier, wild feed. Now [indiscernible] feed for black tiger is being produced that -- so the black tiger is also coming back into the picture along with vannamei.
Because -- vannamei is successful because it is -- specific pathogen-free vannamei was available. The success rate was very high. Now the specific pathogen-free black tiger feed is also being available. Because the technology, they've developed the feed. And now it is available and some farmers are going for that also. And there, a lot of work is being done for blue shrimp and different types of shrimp. That has to come into the commercial availability.
Okay. But there is no immediate or -- like say, within a year, there is nothing which is happening or on the cards?
A lot of work is going, sir, which I cannot or anybody cannot tell whether it is coming tomorrow or within 1 year. But black tiger SPF is coming. Black tiger SPF is available, it is coming. Already people have started stocking SPF for black tiger feed. It took almost 10 years for them to develop it.
Okay. Can you just let me know what was the cash in the company's balance sheet as of 31st December?
Yes. We have about INR 1,100 crores.
Okay. And you said majority of that, you require for the working capital. I mean may I know how much percentage of that is required generally like every year?
It is seasonal. See, as we answered earlier, this is a seasonal business. In the peak season, we would be requiring around INR 700 crores, INR 800 crores.
How much? INR 700 crores to INR 800 crores?
INR 700 crores to INR 800 crores or sometimes INR 900 crores, because the availability of the raw material, we have to book the raw materials, seeing the prices and all these things. There are -- the things, we have to look and keep the stock and keep -- depending on the -- because all the -- of fish meal or availability of soya. That's seasonal. We have to cover those. And before the prices go up, you have to buy. All these things are there.
May I add something to what CMD said that by using these funds, we are in a much, much better advantageous position compared to going for a bank borrowing. So because -- so one thing is that we are able to pay our raw material suppliers immediately within 3 to 4 days of receiving the product and quality control is cleared.
So this has given us a lot of advantage in pricing -- the price trend to bargain for a good price. That is one advantage we are taking. Similarly, in the season, what happens is, apart from the raw material required, for example, now January, March, here what we do is we credit these discounts to our dealers. So the cash rotation is less in these 2, 3 months when we use these funds for all our raw materials.
So we procure the raw materials by paying from these funds. So if you compare the -- really speaking, if you look at the returns today, because of the FD interests have gone up and the -- and at the same time, your borrowing cost has also gone up. If you were to use this, it will be disadvantage if you borrow funds. So we use the same funds for this working capital requirements.
This is -- in fact, it is an advantage to the company and the shareholders also. So we are able to maintain a low cost, particularly interest costs much, much lower, almost negligible. So this entire amount, see, it depends upon -- throughout the year, maybe a couple of months, we have some surplus, but it does not mean that we have got a lot of cash surplus for a longer period. It was a short period. In almost 9 months in a year, we require these funds.
It is a rotation. I think it's a very seasonal items when the crop of soya comes to keep purchasing and all these things. So the money is just mostly for the working capital. Yes.
In October-November, you get soya bean meal. In March, April, you get wheat flour. Sometimes there is, this one, fishing band or fish meal. At a time like this, every year, they will have their own calendar. We have to manage the funds to keep the stocks.
That will be the last question for the day. Ladies and gentlemen, we would like to come to the end of this conference. On behalf of KFin Technologies Limited, 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 the participation.
Thank you. And if you need any further information, you may connect with Mr. Vivek Jain of KFin Tech at vivek.jain@kfintech.com. Thank you for your participation and for using [indiscernible] conference call service. You may disconnect your lines now. Thank you, and have a good day, everyone.