Avanti Feeds Ltd
NSE:AVANTIFEED
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Avanti Feeds Ltd
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Good morning, ladies and gentlemen. I'm Felicia, the moderator for the conference call. Welcome to Avanti Feeds Limited Q4 FY '24 Earnings Conference Call. We have with us today Mr. C. Ramachandra Rao, Joint Managing Director; Mr. A. Venkata Sanjeev, Executive Director; Mrs. Santhi Latha, GM, Finance and Accounts; Mrs. Lakshmi Sharma, Senior Manager, Corporate Affairs; Mr. D.V.S. Satyanarayana, CFO; Avanti Frozen Foods Private Limited. [Operator Instructions]
Please note this conference is being recorded. I would now like to hand over the floor to Mr. C. Ramachandra Rao, Joint Managing Director. Thank you, and over to you, sir.
Thank you. Okay. Good morning, ladies and gentlemen. We are very much pleased to extend a warm welcome to all of you for this investors conference call to review the audited financial results for the Q4 FY '24. Along with me here are A. Venkata Sanjeev, Executive Director, Avanti Feeds; Mrs. Santhi Latha, GM, Finance and Accounts; Mr. D.V.S. Satyanarayana, CFO of Avanti Frozen; and Mr. Narender Sharma, Company Secretary. Lakshmi is out for some work. Yes. So you said in the interaction that she will also be joining. She's not here, she has gone on some work. Yes. To begin with Mrs. Santhi Latha, GM, Finance and Accounts, Avanti Feeds will present highlights of financial results of Q4 FY '24 and year ended 31st March 2024 of feed division and also consolidated financials of the company for the same period. Thereafter, Mr. D.V.S. Satyanarayana, CFO, Avanti Frozen will present the financial highlights of shrimp processing and export division. After the presentation by both of them, we'll have just a quick review of the latest situation, and then we'll go on to question-and-answer session.
Now I request Santhi Latha to take over.
Thank you, sir. Good morning, everyone. Now I'll take you through the consolidated and Feed division financial performance highlights for the quarter and year ended 31st March 2024. Consolidated financial results for the quarter Q4 FY 2024. The comparative performance of Q4 FY 2024 is that of Q3 '24 and Q4 FY '23 has been given in the presentation already circulated. Gross income in Q4 FY '24 is INR 1,320 crores as compared to INR 1,287 crores in the previous quarter, Q3 FY '24, an increase of INR 33 crores, that is 2.5%. Compared with Q4 FY '23, gross income of INR 1,117 crores, there is an increase of INR 203 crores by approximately 18.2%. The PBT is INR 151 crores in Q4 FY '24 as compared to INR 116 crores in Q3 FY '24, an increase of 30%, about INR 35 crores. And compared to Q4 FY '23, PBT of INR 144 crores, there is an increase of INR 7 crores by 4.86%.
So the comparison of the performance of the year 2023-'24 with '22-'23. In FY '24, the total income increased to INR 5,505 crores from INR 5,179 crores in FY '23. The PBT in FY '24 increased to INR 537 crores from INR 427 crores in the corresponding period of previous year. That is an increase of INR 110 crores. This is mainly due to increase in revenue, decrease in raw material costs and better overhead absorption because increase in the quantity sold.
The consolidated results indicate net impact of several factors such as increase or decrease in income, expenditure, exceptional item relating to both feed, frozen divisions, which will be discussed in the divisional performance of these units individually.
Stand-alone financial results of Feed division. For the quarter ended Q4 FY '24. The gross income for the Q4 FY '24 is INR 1,022 crores as compared to INR 958 crores in the previous quarter of Q3 FY '24, an increase of INR 64 crores, mainly due to increase in the quantity of feed sold by 5,960 metric tonnes. The gross income in Q4 FY '24 increased to INR 1,022 crores from INR 875 crores in the corresponding quarter of Q4 FY '23, an increase by INR 147 crores, representing 16.8% due to the increase in quantity sold by 18,902 metric tonnes. The PBT for the quarter, the stand-alone PBT for the Q4 FY '24 is INR 119 crores as compared to INR 76 crores in Q3 FY '24, an increase of INR 43 crores by 56%, mainly due to increase in sales volume and better overhead absorption.
The feed sales increased to 1,22,278 MTs in Q4 FY '24 as compared to 1,16,318 MTs in Q3 FY '24. The PBT in Q4 FY '24 has increased by INR 12 crores from INR 107 crores in Q4 FY '23, representing 11.2%. As you know, the cost of raw materials constitute major share of cost of feed production, particularly fishmeal, soyabean meal and wheat flour. The percentage of average raw material cost was 79% on feed sale price in Q4 FY '24 as compared to 82.6% in preceding quarter Q3 FY '24, registering a decrease of 4.35%. However, the raw material percentage was on par with corresponding quarter of the previous year. That is Q4 FY '23, which was 78.3%.
To summarize, the prices of major raw materials have shown a decreasing trend during the Q4 FY '24 compared to previous quarter, nearing almost the same levels as in the corresponding quarter of the previous year. The average cost takes into consideration volatility of the [Technical Difficulty] like fishmeal, soyabean meal and wheat flour during the year. While soyabean meal and wheat flour prices did not undergo much volatility during the year '23-'24, the fishmeal did undergo high volatility due to drastic fall in fish catches in Chile and Peru, leading to fishing ban, resulting in an increase in demand from Indian fishmeal in Southeast Asian countries, causing unprecedented hike in the fishmeal prices, both in domestic and overseas market. During the current quarter, fishmeal price has come down marginally due to good catch in Chile and Peru and release of Peruvian quota during the season. However, the soyabean meal price and wheat flour prices remained more or less stable, which are marginally lower than the previous year.
To sum up, I would like to share with you that the prices of these major raw materials along with related products like fish oil, soya lecithin, et cetera, keep changing from time to time depending upon the seasonality, production, global trend, et cetera, which has direct impact on the raw material cost of the feed, which is beyond the company's control.
Comparison of performance for the year ended 31st March 2024, with that of 31st March 2023. This is stand-alone performance. In FY '24, the total income increased to INR 4,396 crores from INR 4,104 crores in FY '23 due to increase in feed sales and other income. The PBT in FY '24 increased to INR 407 crores from INR 307 crores in the corresponding period of the previous year, mainly due to increase in sales, other income and decrease in raw material costs and better overhead absorption.
So coming to the future, the shrimp production and feed consumption in FY '23 and company plans for FY '24. Shrimp feed consumption. On the basis of estimated shrimp production of about 8 lakh metric tonnes in 2023, the overall industry feed consumption is estimated to be around 10.5 to 11 lakh metric tonnes. The company's feed sales during the year 2023. This is calendar year, was about 5,13,000 metric tonnes as compared to 5,26,000 metric tonnes in 2022, a decrease of 13,000 metric tonnes.
Coming to shrimp processing and exports. The country's shrimp exports in terms of value declined in FY '23, compared to FY '22 by 8.11% from USD 5,234 million to USD 4,809 million. The country's overall export of frozen shrimps in quantitative terms for FY '23 was 7,11,099 metric tonnes as compared to 7,28,123 metric tonnes in FY '22, a decline of 17,024 metric tonnes representing 2.34%. However, the company shrimp exports during FY '24 was about 13,443 MTs as compared to 12,497 MTs 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, CFO, Avanti Frozen Foods to present highlights of shrimp processing and export division.
Thank you, madam. Good morning, everyone. Now I would like to take you through the financial highlights of shrimp processing and export division. Q4 FY '24 results. The gross income for Q4 FY '24 is INR 297 crores as compared to INR 329 crores in Q3 FY '24, a decrease by INR 32 crores, representing 10%, mainly due to decrease in sales quantity by 144 metric tonnes, representing 4%. The gross income in Q4 FY '24 increased to INR 297 crores from INR 244 crores during Q4 FY 2023, an increase of INR 53 crores, representing 21% year-on-year. The sales volume during Q4 FY '24 increased to 3,846 metric tonnes from 2,880 metric tonnes in Q4 FY 2023, an increase of 966 metric tonnes. The PBT before exceptional items for the Q4 FY '24 is INR 32 crores as compared to INR 40 crores in Q3 FY '24. It is decreased by INR 8 crores.
The PBT is decreased mainly due to decrease in sales quantity by 144 metric tonnes and also decrease in average sales price realization during Q4 FY '24. The PBT in Q4 FY '24 is INR 32 crores, decreased from INR 38 crores in the corresponding quarter, that is Q4 FY 2023 as there is a decrease in average sales price realization.
Comparison of performance for the year ended 31st March 2024 with the year ended 31st March 2023. The gross income for the FY '24 was INR 1,117 crores as compared to INR 1,083 crores in the corresponding previous year, that is FY 2023. The increase of INR 34 crores in the gross income for the year ended FY '24 is mainly due to increase in sales quantity by 946 metric tonnes and share of value-added products by 1,948 metric tonnes. Total income of FY 2024 includes the PLI incentive of INR 6.85 crores. The PBT in FY '24 is INR 136 crores as compared to INR 137 crores in FY 2023. A decrease in PBT by INR 1 crore is mainly due to increase in manufacturing expenses and also depreciation.
Provision for recall expenses in the financial statements. The company has not made any additional provision for recall expenses in Q4 FY 2024. Status of product recall is as follows: Value of claims received and charged to P&L, including recall-related expenses, INR 35.62 crores less amount of claims settled up to 31st December 2023, INR 34.63 crores. Balance claims provision in the books of accounts as at 31st December 2023 is INR 0.99 crore less provision reversal during Q4 FY 2024 INR 0.99 crore. So balance as of 31st March 2024 is zero.
As regards to product liability claims for bodily injury caused by consuming company's contaminated product under the recall, the company has received insurance claim in full from United Insurance Company on 21st March 2024. And no further liability for the company on this account.
Update on new shrimp processing plant at Krishnapuram. The new processing plant with a capacity of 7,000 metric tonnes per annum has been in operation since 21st March 2024. 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 Operation Green Long Term Interventions scheme.
Production-linked Incentive scheme. Company is eligible for incentive of 6% in case of raw products and value-added products, 10% 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 minimum 5% CAGR in sales. The company has received an incentive of INR 9.92 crores pertaining to financial year 2023.
Operation Green scheme. Approval from the 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 total Grant-in-Aid is due from the ministry. The company has submitted all the relevant documents in this regard.
Now I hand over to JMD sir for sharing future outlook of the industry.
Thank you, Satyanarayana. Having reviewed the financials of Q4 FY 2024 and comparison of '23-'24 with that of '22-'23 financial performance. Now I would like to share with you some of the developments that have taken place in the industry and the present status and outlook of the aquaculture industry for this year 2024. You may remember, recollect that we had informed you that 2024 will be a challenging year for aquaculture industry though we anticipate a marginal improvement in overall industrial performance. In line with the global forecast of moderate recovery of fishery sector in 2024 over 2023, the stocking of feed for first crop of shrimp culture in India commenced during second half of January 2024, with an increase of about 10% to 15% over the corresponding period of the previous year with a positive outlook for a successful first crop season.
However, unfortunately, due to uncertain and unfavorable climatic conditions, white spot disease affecting the culture in some of the areas and fluctuations in farm gate prices, the culture did not progress as expected, and they were forced to harvesting in some of the areas impacting the overall production of shrimp for the first quarter.
However, the climatic conditions being more stable now after a severe summer, the farmers are looking forward to commence fresh stockings from first week of June '24. Hopefully, this crop survives full season of 90 to 120 days, and the farmers will be able to make it a profitable season -- for a profitable quarter, the company will also be in a position to increase feed sales in ensuing 2 quarters.
The processing and export shrimp division is also expected to increase exports to about 16,000 metric tonnes for the current year, considering commencement of commercial production by the new processing plant at Krishnapuram. The company is focusing on increasing the processing and export of value-added products during the financial year '25.
As mentioned before, the company's value-added products exports -- product exports have gone up by 142% in FY '24 compared to previous year. The company while strengthening the exports to U.S. and Canada market, also exploring the other markets like Japan, Korea, which are more potential markets for shrimp exports. .
At this juncture, I would like to share with you a couple of important events that have impacted aquaculture.
The first one, the levy of countervailing duty at 4.36% on export of shrimps by U.S. Department of Commerce effective from 1st April '24. The U.S. Department of Commerce has made a preliminary determination of CVD rate on the basis of complaint lodged by U.S. domestic shrimp industry against imports from India and also the preliminary data that was gathered by the department.
In the next step, U.S. DoC will determine the final rate basing on the objections raised by the Seafood Exporters Association of India, Government of India and other agencies on the basis of data provided by them. The final determination is scheduled to be announced on 6th October 2024.
In the meantime, the exporters are required to deposit CVD at 4.36% with effect from 1-4-'24 subject to adjustment after final determination. Along with India, other countries like Ecuador, Vietnam and Indonesia have also been levied CVD at different rates. The Seafood Exporters Association, MPEDA, EIA and Government of India are making efforts to get the CVD withdrawn at the time of final determination in October '24 by furnishing all the required data and justifying the withdrawal of the CVD.
Secondly, there were reports in U.S. and international media, alleging that shrimp exports from India are processed under unhygienic conditions and Indian processors do not adhere to labor regulations, et cetera and these allegations were aimed at the few processors from India. In view of these generalized such observations in the media, the company has further strengthened its internal checks and controls to ensure strict compliance of all the regulations.
Coming to the -- the industry considers these upheavals are part and parcel of the business activity, and they do not hinder the sustainable growth of the industry. The Government of India has been focusing on encouraging -- focusing and encouraging aquaculture sector by extending promotional schemes like PLI scheme, Operation Green, et cetera, which the company is availing. It is heartening to note that in the budget for 2024-'25 presented by the honorable Finance Minister on 1st February 2024 announced Pradhan Mantri Matsya Sampada Yojana, PMMSY is being stepped up to enhance aquaculture productivity from existing 3 to 5 tonnes per hectare at doubling exports to INR 1,00,000 crores and generate 55 lakhs employment opportunities along with big infrastructure changes of establishing 5 integrated aquaparks. Further details of the scheme are expected to be notified after the general elections while presenting the regular budget, which is expected somewhere maybe at the end of June or July.
To consider the stakeholders of the industry look forward for a bright -- to conclude the stakeholders of the industry look forward for a bright future for aquaculture industry in '24 and more in '25 and thereafter, unless any unforeseen developments in the climatic conditions or changes in the global market scenario impacts the industry.
Diversification of companies planned into pet food and pet care products. You may be -- you are aware that the company has diversified into Pet Care products business through its subsidiary, Avanti Pet Care Private Limited as a special purpose vehicle for manufacture of pet food mainly dogs and cats and other pet care products for catering to the domestic market. The required technical knowhow is being provided by Bluefalo Petcare Company Limited, Thailand, a reputed pet food and pet care products manufacture in Thailand. A memorandum of understanding, transfer of technical know-how agreement and joint venture agreement has been entered into with them. The company has identified suitable land for construction of the factory and is in the process of scrutiny of legal documents and acquisition of the land.
And the business of independence and competing products in the market, the company has identified the product range, both for cat as well as dog food. Recently, the company is in the process of developing formulations and producing trial products in collaboration with Bluefalo, Thailand, to undertake trials in India before finalizing their products. It is anticipated that this process would take about 6 to 8 months before the launch of the products in India.
Coming to the fish feed as reported earlier, the preliminary survey on supply versus demand of fish feed in domestic market has been completed, and the survey has revealed potential demand for certain types of fish feed for high-value fishes like Murrel, Seabass and Rainbow Trout. The company is considering various options such as import of fish feed of required fishes initially, conduct trials under Indian conditions and set up manufacturing facility based on the results.
With this, I thank you all. And now we will take up the questions from you, gentlemen.
[Operator Instructions] First question comes from Agarwal from Purnartha Investment Advisers.
I have two questions.
I'm sorry, to interrupt you sir. Could you please speak a bit louder, sir?
Hello, can you hear me?
Yes, sir, please go ahead.
We can hear you now. Yes.
Yes. So I have two questions. One was on the EBITDA point of view. Last quarter, we reached 10%. So what are our plans to reach 12% to 13% of EBITDA because over the last 10 years, we have had a GP margin of around 20%, and we have already reached that. So how do we plan to increase our EBITDA margins to 12% to 13%?
Yes. See, basically, the EBITDA, gross margins depend on the raw material cost for this industry as we have been almost discussing on every investor's call because our major raw materials are fishmeal, soyabean meal and wheat flour. So these products' prices keep changing. Yes. Let me complete if your question was that the -- what are the plans for increasing the EBITDA and the gross margins? That is what your question is it. Am I right? .
Yes. So basically, we have already reached the like 20% GP margin because raw material costs have come down. So how -- if they remain the same, how do we plan to increase our EBITDA margins?
Yes. See, that's what I was about to explain. See, this year, the prices have just stabilized, particularly in the '23, we have seen that compared to '22, '23 was more stable, all the prices, except the fishmeal, which went very high because of the overseas department. And that was also the reason because of very low production in Chile and Peru. So that have caused the international market price of fishmeal because India was the supplier of fishmeal to all the Southeast Asian countries, which were hitherto getting from Chile and Peru. So that -- this year, there is a very good crop that fish catches are very good in Chile and Peru and they have resumed the production of fishmeal and supply. So the prices have come down from -- it was like INR 125 per kg, it went up even INR 135 per kg also. Now it has come down to about INR 98, INR 99 is now. We expect that it will be stable between INR 95 to INR 98, which may not come down further but certainly, it will be around definitely much lesser than INR 124, INR 125 levels. And for the rest of the year, we hope this will be continued.
And similarly, the IMD has predicted a good rainfall this season also, this year also. So though you get just as we got very good crop last year, both soya as well as wheat. So this year also, we are expecting that the soyabean production and wheat production would be same level, if not more, in the current year also because the sowings will start sometime in June, July, the soya and September, October, we get the first crop. Similarly by -- this one, the wheat product -- wheat harvesting will be in March '25. So we see that the much variance is not going to have -- take place for these two products. And fishmeal again, is a very, what we call dicey situation because there is a shortage of fish catches in the West Coast in India. So there has been the impact -- some of the factories have suspended production. And they may have a ban from 1st July or so, the fishing ban.
So with all these figures taking into consideration, we see that the fish can be less than INR 100, that will be a very good sign. We should be able to keep up the margins in a comfortable level, both EBIT and EBITDA and also the gross margins. And as far as the productivity is concerned, we have -- ideally, we have a good production, good yields are coming, and we have sufficient production capacity also. And again, it depends on the how the culture takes its way in the coming months in 2024.
As I just explained, the farmers, when they started with enthusiasm in January, February, did not -- the enthusiasm did not last long because of the climatic conditions and the other export and all. They had to do some early harvesting. So they are now looking for stocking it again from June. From June, it should be good because weather it is too extreme -- it's not an extreme climate. It is an ideal climate through June, July, August, we'll have a good season. So we are expecting that the farmers will be able to take out good production during the next 4 months or so, 60 days to 90 days, we should be able to do. As we expect it happens, it will be good production whatever we have lost in the first quarter, we'll make it up in the second and third quarters. So that way we look forward for a stable performance for the '24-'25 year also.
Another question was, could you explain why the cash flow from operations have reduced from INR 451 crores to INR 263 crores this year even though our...
Cash flow -- any working capital, check any investments. Just we look into the numbers and come back to you. It go to only working capital limits only.
Working capital, little increase in debtors, with increased containers and in the frozen, we have more...
It is mostly because we do more working capital. We are using it for working capital. It will be more utilization for that size. That's why we did -- yes. The cash flow statement, just go through...
Yes. The cash flow statement is there. But if you see, because of working capital changes, there is a big reduction in the cash flow. Otherwise, from the operations, if you see profit before tax under adjustments, there is an increase from INR 274 crores to INR 341 crores. But the adjustments in the working capital because there is an increase in the inventories if you can see. And also, there is an increase in the debtors. So that is what has made it like the operations, it is INR 288 crores versus INR 177 crores. I think you have the...
I have the numbers. I just wanted to understand the inventory part of it, like what is the reason for the increase? Because I think last quarter, it was said that we will stock up inventory for value-added products. So I just wanted to understand if that was the case.
Frozen or feed?
Frozen.
No, it is a consolidated.
Consolidated the cash flow statement. See, we have consolidated and stand-alone of feed.
Yes, yes. So actually, last quarter, you had just said that we are going to stock up inventory. So I just wanted to understand if that is the reason why inventory has gone up.
Yes.
See, what happens is, I think the one -- yes. See, what happens is when we for accounting purposes, what we do is, though it is dispatched, but it has not reached the destination. As for accounting standards, we are taking it as a inventory only as a stock-in-transit which we are taking. So compared to that, it will be more -- at the end of the year, more shipments have taken place. So it is more now, inventory is more. After 45 days, it will come down. At the 31st March, it will be more. Because all the shipments which have taken place in the second half of March, which is much higher this year, it will -- that would not have reflected in the form of a sale, it will come in as an export sale only after it reaches the destination.
[Operator Instructions] Next question comes from Amit Agarwal from Leeway Investments.
My question is regarding domestic market. So there's -- a domestic market is huge for prawn market. But surprisingly, your presentation showed that you don't sell anything in domestic market. Any particular reason for this?
We have started domestic market sales and we did a lot of studies and what type of products are required. And we have already appointed some -- of course, market development team have been appointed, senior 2 RMs and 1 DGM and 2 RMs are working on that. We have identified the areas and we have, in fact, have some dealers also have been appointed. And see, the most important thing is that this is again a credit market. We have to be very careful because we are trying to only focus on the cash sales. I mean cash in the sense, immediate daily adjust payment. So it will take some time, but we are very confident that in time to come next, maybe by end of this year, we should be able to increase our domestic sales significantly. Everybody wants credit. So they don't pay. That is a big risk. If you supply material and go after them for money, which is very big headache which we do not want to take it up for the domestic sales. If we are giving credit, everybody will come and take it.
So what is the size of the market? And who are the big players in the market right now in domestic market?
Yes, domestic. I think I'll -- I don't have really exactly. I think we will -- can you send a mail, we'll get back to you because we will discuss with marketing and come back to with survey report.
Just last question regarding the same thing. Sir, is this a low margin business? Or is it a profitable margin?
I'll clarify that point because this market, there is no statistics readily available. It is only our marketing staff or any company's marketing staff, they go around the market and find out and give the reports. But they do not have any published reports as far as the market survey on this. That is one issue which we have to -- whatever the figures that we are giving is only the data collected by our marketing team. Please go ahead with your next question.
My last question is regarding -- sir, I'm a vegetarian. So I just don't know much about it. So is prawns and shrimps are the same thing? Or we are specialized in shrimps only and not in prawns?
I think my colleague Mr. Venkata will give.
It is the same thing in the Indian market, there's no difference between prawns and shrimps in the Indian market. We just use different names for it.
And shrimp in the export market is also the same? Shrimps and prawns are the same thing in the export market?
That's about similar. Actually, there's not a big difference.
They call it frozen shrimps. In the export market, they call it as frozen shrimps.
Okay. And in domestic market, we call it prawns market, right?
Yes. The local call it prawns.
Next question comes from Kaustav Bubna from BMSPL Capital.
How is the pricing of Indian processed shrimp compared to Ecuador and Indonesia post the addition of duties by the United States on all 3 of these nations. So could you please give the pricing of processed shrimp into the United States for India, Ecuador and Indonesia pre and post imposition of countervailing and antidumping duties?
See the -- Yes. see, as you said, that Ecuador normally the pricing depends upon the production, supply and demand. So the Ecuador being, they're having large production capacity. They are in a position to slightly lesser in cost perspective and they are being nearer to U.S., they try to capture U.S. market. And China is also, they are one of the big markets that they diverted. Last year, there was some problem with China. They were not exporting much to China. Now they're focused on Ecuador. But of course, India and Southeast Asian countries, more or less the same cost of production will work out. And we stand in a better footing for the reason that we are -- our quality of the value-added products or the traditional products is more compared to others. So we have more exports to U.S. compared to others. We have got -- I think in the U.S., it is one of the largest exporter to U.S. from India. .
Pricing, always it varies. Pricing also varies and it depends upon the international market price. So it keeps on fluctuating the almost like every day, there is a new price, it depends upon the what we work is we take into our cost of production and conversion costs and see the margin, but it is not necessary that always you make a big margin out of it. it all depends upon the demand and supply, another thing is the inventory situation in the U.S. and other countries, Europe and all. As far as the -- our company, Avanti is concerned, we are very happy to say that we have been able to make good inroad into the Japanese market. And in fact, CMD and also Mr. Nikhilesh, ED, both of them are working on very seriously on that. And we are very confident that many importers from Japan are showing more interest towards our products. So I think that we should be more spread in the global market, not only U.S., but we'll have Europe as well as the Japanese market also with you. We have some Vietnam also. We've got. I am sorry, Korea, not Vietnam. Korea.
No. But sir, I mean, countries would put import duties, would put duties on to other nations if they were promoting domestic production, right? So is -- how is -- is the domestic reduction of growing in U.S.? And how do you see that as a risk to exports in general to the U.S.? And also Ecuador is really close to the U.S. So how do you view a nation who's so close to the U.S. taking market share from India? .
Yes. See the method of levying the dumping duty or CVD depends on the cost of production and the basic dumping duty comes from the concept that these countries are dumping the products in U.S. market less than what their cost of production is. That is a concept that comes. And U.S. is very meticulous and particular about this aspect, and they go into it. Almost like every year, there is an exercise going on what for determination of the rates that are being charged for these products because almost every country definitely resist, they go with an appeal with figures that what you have arrived at the rate is not correct. It is not that so much subsidies -- we are not getting it. Our cost of production is equally high and the exporters are giving the details to them and trying to convince them to reduce the duty.
However, the U.S. has its own methodology and its own criteria for determining the rates and they do come to countries, and they take the figures, work out the -- what is the cost of production they take into consideration? What are all the subsidies support that being given to these exporters from the government side. So they take all this into consideration, and they arrive at what is the dumping duty or even CVD is nothing what the taxes that we are giving relief, the government is giving a relief on taxes based on export products that they consider it as a subsidy, so they added in CVD. Like that, these are the things. In fact, it is not the countries -- India is now -- the Government of India as well as its export associations are fighting very tough, saying that these are all not the -- actually the subsidies, but it was only the reimbursement of duties and taxes paid by the domestic exporters for the export.
And even every country has this provision that any export is made from their country, whatever taxes paid locally is refunded. The same thing, this is a stand which the Indian exporters are taking in their what you call briefing between you submit objections to the preliminary determination of 4.36% CVD. These are the things which we are going to present it to the Department of Commerce in justifying that these are all not -- every country will have this. And so it should not be charge the CVD, so these are all the things which always continuously being engaged with the lawyers and experts on this with the Department of commerce. So by October, we will know exactly what is the final determination. Is it going to be less than 4.36% is what they have -- all our efforts are towards that. .
Similarly dumping also. We cannot specifically say it is a criteria is that what is the cost that the local exporting countries incurring to make this product. Are they selling it in U.S. lesser than that cost? That is the basic criteria for dumping duty. The difference is treated as a dumping duty and they are charging the antidumping duty.
[Operator Instructions] Next question comes from Nitin Awasthi from InCred Equities.
Just wanted to understand how the booking of the CVD will be done given that the rates are out, but they're not final as of now. And with the final rates should be out on [indiscernible] like you mentioned. So from Q1, will we already start expensing it out and booking it when we report our first and second quarter numbers. And finally, when the final rate is out, will we make an adjustment post that? Or will we keep it separately on the balance sheet till the time the final rate is out?
So the practice is that we will take it as -- the cost -- the product expenditure only. We add on. And even that is taken into consideration while you are working for cost of the product also. As and when they make the determination and when they refund it, only we take it as an income.
Understood, sir. understood.
Yes, because it's only preliminary, we are depositing, but it is -- from their point of view, it is a deposit. But from our point of view, it is an expenditure. So because we have to -- CVD is an expenditure, we have to add to the cost of the product, like any taxes. So we take it as and when the final determination is made, if it is less than 4.36%, the difference is refunded. If it is more than that, we have to pay it. The difference also, we have to pay from the date. So that adjustment we will make as and when the final determination is announced on 6th of October.
Understood, sir. Sir, you supplied shrimp directly to a related party, which is Thai Union, which goes ahead and also supply shrimps to a related party of Thai Union, which is Red Lobster, which has filed for bankruptcy. So are we directly exposed to any payments or any receivables from Red Lobster?
No. As of now, we are not supplying anything to Red Lobster directly. It is only the Thai Union's company, Chicken of the Sea, which is the company of Thai Union, through them, it's being exported to Red Lobster, so through that. If there is -- of course there's so many developments that are taking place in the scenario in the U.S. market. But so far, we have been only doing through Chicken of the Sea.
Understood, sir. Sir, last question, capital outlay for the pet food business?
See, we have initially estimated INR 100 crores, the INR 100 crores, and we'll have to -- see, we are in the process of like land costs, you know how it is going up and all. See we are now working practically what is going to be the actual cost nearer to the reality because all the -- whatever the plant and machinery cost or land cost or any other civil constructions like factory, other buildings and all, we have taken on an estimated basis because full information was not available at the time of estimating the project cost.
We have taken on the basis of the information that is provided by Bluefalo for instance, the area of the factory or other administrative buildings and also the machinery imported, then local domestically acquired purchase machinery and all. But it is the next maybe about, say, next 6 months, we should be able to come to the real -- come to real cost of total project which maybe about -- we are expecting about 20% to 25% increase by the time we complete the project, that's what our expectation. But as of now, we have -- the cost is estimated at INR 100 crores. And the entire thing is being funded through equity. We are not going for any borrowing as of now.
Understood, sir. Bluefalo has any shareholding in the JV?
Actually, Bluefalo has got their owner MD is also having a share in that. He got -- Bluefalo has got.
No, no. So the JV that we have made for the pet food division, how much is owned by Avanti Feeds, how much is owned by others, including Bluefalo?
Yes. Capital structure is 51% is held by Avanti Feeds and 17% by the promoter, another 17% by Bluefalo, another 16% by some private investors.
Next question comes from Gunit Singh from Counter Cyclical investments PMS.
Sir, in one of the replies to our previous participant, you said that whatever loss or whatever conditions we are seeing in the first quarter, they would be made up in the coming quarters, looking at the season and the cultivation. So I would like to understand, we are 2 months into Q1. What are the current conditions in the market? What kind of sales and what kind of, I mean, margins are we looking at as of now? Is it like below expectations? I want to understand your views on that.
Yes, I explained. I told that in the first quarter, that is till June -- 30th June '24, that is the first quarter, which is rather lesser than what our expectations were. In the normal course, you may see that May, June or the peak months in the normal course, but this year, it was slightly different because the first crop was not -- continued for a period, which is normally should have, but they have -- there was premature at least harvesting. So that's why there was a gap and now they're starting again in June 1st week, they are starting. It means that June month, it will be less only because they will not be stocking the entire all the prawns at a time. They gradually they go on stocking it.
So what I said was the second quarter means that is July, August, September, October, November, December. See, like that stage-wise, you get better yields because we are presuming that the one on one side, the culture will be very good and also the -- so that gives opportunity for increasing our feed production sales that we make and the raw material costs are also likely to be more or less stable in the next couple of -- next half year or so, 2, 3 months. So they are in 2 quarters. I think all these things put together subject to the conditions all this work out favorably, we should be able to do pickup -- I mean, make over whatever the loss of sales that was there in the first quarter and we made good in the second quarter and third quarter.
All right. Sir, so I mean, look, Q1 is normally our heaviest quarter in terms of sales. So I mean, we would not be able to maintain the Q1 sales that we made in Q1 last year. Is that a fair assumption?
No. I think we are not expecting any drop in the margins or in the quantity sold in the Q1. The market is not doing well.
Yes, I think we should have got more. That's what we are trying to.
We want to increase our...
We expected more but it did not happen. But nevertheless, the overall situation will be the make up the shortfall in the first quarter and even in the second and third quarters because there is a delayed the crop.
So we are expecting our markets to go up because the overall market is down. Overall market has not reached its peak in the first quarter as expected. We are talking about the overall market, not only about Avanti Feeds, generally. April, May, June.
June, we are expecting, it will be a good stocking in June and July, and which will result in a good crop, already started some places, but we are expecting that this -- it will pick up momentum in June and it will be somewhere around September, October -- August, September, October, we'll be able to get good results, the crop will come and it will be phased manner. It will not be at a onetime, but it will -- we will see the results, the performance in the second and third quarters.
Got it. So despite the slower market, I mean, Avanti sales and margins in Q1 would not be, I mean, anywhere lower than last year's?
Still June is there. We are expecting that June will give some relief for us, we hope so. We'll have to wait for that. Because still we have got full month, June entire month, it's not yet started. So we'll have a full month of June. I think it will have a real impact on the performance. If the June month, we get more sales and all, we get good prices, the raw material prices are also stable. We get good performance in the first quarter if June goes on well. .
All right, sir. And you mentioned that raw material prices have mostly softened down and even fishmeal prices have come down from INR 135 to about INR 98 levels. So what are our outlook for FY '25 in terms of steady state EBITDA margins that we can look at?
It is very difficult to make any prediction as of now. It is like astrologer making predictions. So because it is a natural law, the fish catches depend upon the overall climatic conditions and how the particularly ocean conditions for the growth of the fish and fish catches and all these things. Same thing happens for all other 2 raw materials like soyabean meal and also this wheat flour. So it is very difficult to predict 1 year in advance. It is -- we can only say that today because we are sitting in May end. So we can say next 6 months, it is likely to be good. It's what we have been always emphasizing next 2 quarters. So beyond that, what's going to happen is very difficult to predict as of now.
All right, sir. Sir, on the new plant that got commissioned the new capacity, so what kind of incremental revenues can we expect from that in FY '25?
You are asking feed or frozen or shrimp?
Sir, whatever extra capacity that has been commissioned, you mentioned about 7,000 metric tonnes capacity?
We made shrimp -- shrimp processing, we have commenced the new factory and we are focusing more on value-added products.
Yes, sir. What kind of additional revenue can we expect from that plant in FY '25?
I think we'll be able to give you in the next quarter because we have just -- we have started that, but it's all because we are focusing more on value-added products and we hope the next quarter, we'll have more clarity on that, how much demand. See the -- as I told you, our CMD and ED Mr. Nikhilesh both of them are, in fact, on tour to the market. So this thing, we'll have to wait and see how the -- so far, it has been very good. Response has been very good for our value-added products. And we expect that more support will come and more orders from the other markets also will come. .
So I think your question can be answered more precisely, maybe by the end of next quarter. We will have clarity in July, August, September. So in that quarter, we'll be able to come with a clear picture as to future and what we have been able to succeed with other markets and -- but one thing we can say that as of now, the whatever products that we are now making in, that has got very good response in the global market, okay?
That was the last question for the day. Now I hand over the call to management for closing comments.
Yes. Thank you, ladies and gentlemen, for your active participation. And it gives us more encouragement to answer your questions and work better and see that the value of the investors is really increases and this thing. And we are very confident with all expansion of Avanti processing division and also a new Avanti Pet Care in days to come in the domestic market also. We're very positive about the future of the domestic market, but it will take some time. But fish feed also, we are working very seriously on that. With all this, we hope that the -- by end of this year, maybe early next year, we'll have more clarity on the way in which these projects are going and also, the Pet Care is interesting, which we are working very hard on that. To see that it becomes -- it is placed on a premium position in our market, and we get a lot of customer response for the pet care products also. I think with all that, I would like to conclude, and thank you for your participation. Thank you very much.
Thank you, sir. 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 good day.