Finance Specialization Project on

“Equity Research on Aquaculture Industry- Avanti Feeds LTD”

SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF THE

DEGREE OF

MASTER OF MANAGEMENT STUDIES (MMS)

(Under University of Mumbai)

SUBMITED BY:

Akshay Patyal

Roll no - MG 243

UNDER THE GUIDANCE OF

Prof Dr. Anju Motwani

2017-19

N. L. DALMIA INSTITUE OF MANAGEMENT STUDIES AND

RESEARCH MIRA ROAD (EAST), MUMBAI, 401104

1
 CERTIFICATE

This is certify that project titled “Equity Research on aquaculture Industry- Avanti Feeds LTD”
is successfully completed by Mr. Akshay Patyal During the IV Semester, in partial fulfillment of
the Master’s Degree in Management Studies recognized by the University of Mumbai for the
academic year 2017-2019 through N.L. Dalmia Institute of Management Studies and Research.
This project work is original and not submitted earlier for the award of any degree / diploma or
associateship of any other University/ Institution.

Name: Prof Dr. Anju Motwani

Date: 30/03/2019 (Signature of the Guide)

2
 DECLARATION

I hereby declare that this Project Report submitted by me to the N.L. Dalmia Institute of
Management Studies and Research is a bonafide work undertaken by me and it is not submitted to
any other University or Institution for the award of any degree/diploma certificate or published
any time before.

Name: - Akshay Patyal

Roll No: - MG-242 (Signature of the student)

3
 ACKNOWLEDGEMENT

With deep satisfaction and immense pleasure, I am presenting this project report on

“Equity Research on aquaculture Industry- Avanti Feeds LTD”

I would like to extend my sincere gratitude and appreciation to my project guide Prof Dr. Anju
Motwani who initiated me into this project.

It has indeed been a great experience working under his guidance during the course of the
project. I would like to thank him for his valuable advice and support throughout this project.

And last but not the least I would like to thank all the Faculty Members, staff of the institute for
their help in making my project an unforgettable and great learning experience.

EXECUTIVE SUMMARY
4
Equity Market. Is rapidly growing in India with many Individuals considering the Equity Market
as a destination for Investments rather than Bank Fixed Deposits. This revolution has led to
Equity Research Reports having high demand because the Investors wants to know the Business
Model, the sources of earnings and estimates of future profitability before investing in these
organizations.

This project was undertaken with the objective to study the Equity Research of Avanti Feeds
Limited Company and to analyze the company on the basis of ratios, compare with its peers,
valuing the company of basis of DCF (Discounted Cash Flow) model and relative valuation
which would be helpful in understanding the trends & growth prospects of the company. Along
with the company research overview of Aquaculture sector is also found out.
In addition, to analyzing the company, it is necessary to understand the business model & growth
trajectories from financial data of the company, which is initially prepared with the help of
quantitative as well as the qualitative data. All the quantitative data is available from the Annual
Reports, capitaline and Investor Presentations of the company where as the qualitative data
regarding the market trends, growth projections and scenario can be captured from the quarterly
Conference Call transcripts of the company, research reports, IBEF reports etc.

INDEX

5
S.NO TOPIC PAGE
NO
1 Methodology 7

2 Aquaculture Industry- Overview 14

3 Avanti Feeds Limited-Company Overview 16

4 Management Team 20

5 Union Budget 2019 Analysis 21

6 Products 24

7 Business Model 26

8 Global Scenario 30

9 SWOT Analysis 32

10 Shareholding Pattern 35

11 Common size balance sheet 36

12 Ratio Analysis 38

13 Peer Comparison 46

14 Valuation-DCF 49

15 Relative valuation 57

16 Share price chart 58

17 Conclusion and Reference 59

METHODOLOGY
6
Equity Research refers to the study of the performance of the economy as a whole, the Industry
and various companies and analyzing the same. It enables to predict the future performance of a
particular stock based on its past performance, the current status of the internal as well as external
environment.
The internal environment includes:
• The financial performance
• The operational performance
• The future deals with the clients
• The share price trend
• The management of the company, i.e. the Board of Directors etc.
• The nature of the business
The external environment includes:
• The Economy
• The global scenario with respect to the business
• General economic scenario
• Political scenario
• Performance of the stock market on the whole
• Competitors
EQUITY RESEARCH can be done by two methods:
• Fundamental Analysis
Here we look at balance sheet, income statement etc. to determine a company's value. In
financial terms it is used to measure a company's intrinsic value. It takes a long-term
approach to analyze the market as compared to technical analysis. It often looks at data
over a number of years.
• Technical Analysis
Technical traders study the price movements of the particular company's stock in the
market. Technical analysts strongly believe that the price movements follow a trend and
by identifying the trend, one can accurately predict the price that might occur in future.
Technical analysts use financial tools with software support. One can be overawed by the
terms and studies of a technical analyst when he/she explains the rationale behind the
prediction. Technical analysis is used for a time frame of weeks, days or even minutes.

The various steps in fundamental analysis are listed below.

Fundamental Analysis is a conservative and non-speculative approach based on the

"Fundamentals'"

7
 • The Economy
• The Industry
• The Company

A brief glimpse of each of these factors is explained below:

The Economy Analysis

Economic Factors Economic Indicators Impact on the stock market

GNP Growth Favorable

Decline Unfavorable
Price Conditions Stable Favorable
Inflation Unfavorable
Economy Boom Favorable
Recession Unfavorable
Employment Increase Favorable
Decrease Unfavorable
Personal disposable Income Increase Favorable
Decrease Unfavorable
Personal Savings Increase Favorable
Decrease Unfavorable
Interest Rates Low Favorable
High Unfavorable
Balance of Trade Positive Favorable
Negative Unfavorable
Strength of Rupee in Forex Market Strong Favorable
Weak Unfavorable
Corporate Taxation Low Favorable
High Unfavorable

The Industry Analysis

8
1. Overview- past and present scenario, market size, residential and commercial, various
themes
2. Government. policies
3. Status in tier I, II and III cities
4. Demand and Supply
5. Problems
6. Company Analysis
▪ About the Company
▪ Financial Performance
▪ Shareholding Pattern
▪ Projects Done
▪ Projects in Pipeline
7. Competition
▪ Herfindahl Index
▪ Michael Porter Analysis
8. Market Performance
9. Synthesis

The Company Analysis

There may be situations where the industry is very attractive but a few
companies within it might not be doing all that well; similarly, there may be one
or two companies which may be doing exceedingly well while the rest of the
companies in the industry might be in doldrums. You as an investor will have to
consider both the financial and non- financial aspects so as to form qualitative
impression about a company. Some of the factors are
I) About the Company
2) Management Team
3) Products/ Services
4) Business model analysis
5) Industry Analysis
6) Operational Performance
Sales & its Growth
. Segment Wise Analysis
Operating Profit Margin
Cost Structure
7) Financial Performance
Profit/Loss & Balance Sheet
Ratios
The following ratios are usually calculated to assess a company: But sometimes due to
lack of certain data, some ratios may not be calculated.

9
Liquidity Ratios

Liquidity implies a firm's ability to pay its debts in the short run. If a firm has sufficient
net working capital, it is assumed to have enough liquidity. The current ratio and the
quick ratio are the two ratios, which directly measure liquidity
Current Ratio

As the CURRENT RATIO measures the ability of the enterprise to meet its current
obligations. It gives an idea about the short-term liquidity position of the firm.

CURRENT RATIO = CURRENT ASSETS

CURRENTLIABILITIES

Quick Ratio

In current ratio, the composition of current assets is not considered. A firm which has
large amount of cash and accounts receivable is more liquid than a firm with high
number of inventories in its current asset. Thus, we take quick ratio which shows the
firm's ability to pays its liabilities without relying on sale and recovery of it invent
QUICK RATIO = (CURRENT ASSETS- INVENTORY- PREPAID EXPENSES)
CURRENT LIABILITIES
PROFITABILITY RATIOS

These ratios measure the efficiency of the firm's activities and ability to generate
profits

Gross Profit Margin

This ratio is used as an indicator of the efficiency of the production operation and the
relation between production costs and selling price

GROSS PROFIT MARGIN = GROSS PROEIT

NET SALES
Net Profit Margin

It measures the overall efficiency of production, administration, selling, financing

pricing and tax management

NET PROFIT MARGIN= NET PROFIT

NET SALES

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Return on Equity (ROE)

It measures the corporation's profitability that reveals how much profit a company
generates with the money shareholders have invested.
Calculated as:

ROE = PROFIT AFTER TAX

SHAREHOLDER'S EQUITY

The ROE is useful for comparing the profitability of a company to that of other firms in
the same industry

Return on Capital employed (ROCD)

It measures the efficiency and profitability of a company's capital investments.

Calculated as:

ROCE = EBIT
FA+CA-CL

ROCE should always be higher than the rate at which the company borrows, otherwise
any increase in borrowing will reduce shareholders earnings

TURNOVER RATIO:

It gives the speed of conversion of current assets (liquidity) into cash

Asset Turnover:
It highlights the amount of assets that a firm uses to generate its total sales.

ASSET TURNOVER RATIO = SALES

AVERAGE ASSETS
LEVERAGE RATIO
These are of two types:
1. Capital Structure Ratio- these are based on proportions of debt and equity
in the capital structure of the firm.
2. Coverage Ratio- these are derived from the relationships between debt
servicing commitments and sources of funds for meeting these obligations.
Capital Structure Ratio

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Debt Equity ratio

It indicates the relative contributions of creditors and owners.

DEBT EQUITY RATIO= DEBT

EQUITY
Coverage Ratio:
Interest Coverage Ratio
This ratio tells us how many times the firm can cover or meet the interest payments
associated with debt

INTEREST COVERAGE RATIO = EBIT

INTEREST

EQUITY RELATED RATIOS

It measures the shareholders return and value.
Earnings Per Share

It gives the performance of the firm

EPS = NPAT
Number of Outstanding shares/Ordinary shares

Price Earnings Ratio

It is the number of times the market price of a share is discounted vis-à-vis the EPS of
the firm. It is the most popular financial ratio in the stock market for secondary market
investors as it indicates whether the stock is undervalued or overvalued. This method is
useful as long as the firm is a viable business entity and its real value is reflected in its
profits.

P/E RATIO = MARKET PRICE OF SHARE

EARNING PRICE OF SHARE
8) Shareholding Pattern
9) Capital Market Performance
• Company with Sensex
• Company with Competitors
• Company with Industry Sensex.

12
10) SWOT Analysis
I1) Recent Strategy/Management Discussion
12) Synthesis

LIMITATIONS
The research that we are doing of the companies and IPOs help us to suggest as to buy,
hold or to sell the particular stock. But these suggestions are based on what we expect,
would happen in the environment, the working of the company, global economies, etc.
This means that whatever value we expect would change as the conditions that are
beyond our control, keep on changing

13
 Industry- Overview
Aquaculture is the farming of freshwater and saltwater organisms as finfish, paw, crustaceans
and aquatic plants. It is also known as aquafarming. Aquaculture involves cultivating aquatic
populations under controlled conditions, and can be contrasted with commercial fishing, which is
the harvesting of wild fish. Commercial aquaculture supplies one half of the fish and shellfish
that is directly consumed by humans. Aquaculture and agriculture are not strictly parallel
developments in food production, even though food gathering, hunting and fishing might have
started at about the same time in human history. The complexity of aquaculture as a multi-
disciplinary activity, even more complex than agriculture, is perhaps one of the reasons for the
late start of modern aquaculture. Indian fisheries and aquaculture is an important sector of food
production, providing nutritional security to the food basket, contributing to the agricultural
exports and engaging about fourteen million people in different activities. With diverse resources
ranging from deep seas to lakes in the mountains and more than 10% of the global biodiversity in
terms of fish and shellfish species, the country has shown continuous and sustained increments in
fish production since independence. Constituting about 6.3% of the global fish production, the
sector contributes to 1.1% of the GDP and 5.15% of the agricultural GDP. The total fish
production of 10.07 million metric tons and presently has nearly 65% contribution from the
inland sector and nearly the same from culture fisheries. Paradigm shifts in terms of increasing
contributions from inland sector and further from aquaculture are signification over the years.
With high growth rates, the different facets of marine fisheries, coastal aquaculture, inland cold-
water fisheries, freshwater aquaculture, at fisheries to food, health, economy, exports,
employment and tourism of the country.
Development Agencies (FFDA’s) and 39 brackish water Fish Farms Development Agencies
(BFDAs) for promoting freshwater and coastal aquaculture. The annual carp seed production is
to the tune of 25 billion and that of shrimp about 12 billion, with increasing diversification in the
recent past. Along with food fish culture, ornamental fish culture and high value fish farming are
gaining importance in the recent past. With over 2.4 lakh fishing crafts operating in the coast, six
major fishing Harbors & 62 minor fishing wand 1511 landing centers are functioning to cater to
the needs of over 3.9 million fisherfolk.
Fish and fish products have presently emerged as the largest group in agricultural exports of
India, with 10.51 lakh tons in terms of quantity and Rs. 33,442 crores in value. This accounts for
around 10% of the total exports of the country and nearly 20% of the agricultural exports. More
than 50 different types of fish and shellfish products are exported to 75 countries around the
world.

14
Indian Fisheries
Global position 3rd in Fisheries 2nd in Aquaculture
Contribution of Fisheries to GDP (%) 1.07
Contribution to Agril. GDP (%) 5.15
Per capita fish availability (Kg.) 9.0
Annual Export earnings (Rs. In Crore) 33,441.61
Employment in sector (million) 14.0

Global seafood production has grown by 1.40% in the year 2017 as per the report by Food and
Agricultural Organization (FAO) recording 174 MnMT in volume in the calendar year 2017. The
production from aquaculture has grown by 4.5%during the year, cloaking harvest of 84 MnMT,
whereas the production from capture fisheries remained stable at 90 MnMT. Global seafood
consumption is continuing to increase at 1% per annum. The per capita consumption was 17.6 kg
in 2006, which increased to 20.72 kg in 2017. As per FAO estimates, the global per capita seafood
consumption will increase to 21.8 kg by 2025. The Report further identified that the seafood
consumption in China, Middle East, East and South East Asia is increasing at a steady pace because
of income growth and expansion of middle class. India is well positioned to take advantage of an
increase in global seafood consumption because of our long coast line, availability of raw materials
and idle land available for taking up aquaculture on a large scale. Total exports of seafood from
India was 13.77 Lakh MT in 2017-18 as compared to 11.35 Lakh MT in 2016-17, reporting an
increase of 21.32% in volume terms. In value terms, the exports were ` 45,107 Crore in 2017-18
as against ` 37,871 Crore in 2016-17, an increase of 19% in value terms. Shrimp continues to be
the back bone of Indian seafood exports and accounted for 41% in volume terms of total seafood
exports from the country as against 38% in the previous year. The total shrimp exports were around
5,66,000 MT in the year 2017-18 as compared to 4,34,000 MT in 2016-17 in volume terms. In
value terms, the shrimp exports were` 30,868 Crore as against `24,711 Crore in 2016-17. The
major export market has been the US followed by Europe, Japan and South East Asia during 2017-
18 for shrimp exports like in the previous year. For 6 consecutive years from 2010-11 to 2017-18,
the shrimp culture industry registered a CAGR of 23% on an average 1,51,465 MT in 2010-11 to
5,11,000 MT in 2017-18.

15
 Avanti Feeds Limited-Company Overview

Avanti Feeds is the leading manufacturer of Prawn and Fish Feeds and Shrimp Processor and
Exporter from India. Avanti Feeds Limited has established joint venture with Thai Union Frozen
Products PCL., the world's largest seafood processors and leading manufacturer of prawn and fish
feeds in Thailand with integrated facilities from Hatchery to Shrimp & Fish processing and
Exports.

Prawn and Fish Feed Manufacturing Units

Avanti has Four Prawn and a Fish Feed Manufacturing Units, certified ISO 9001:2008, in Kovvur,
Vemuluru and Bandapuram in West Godavari District, Andhra Pradesh and Pardi in Valsad
District, Gujarat, in India with a capacity of 4,00,000 MT per annum. Avanti produces nutritionally
well balanced and high-quality feed, consistently, catering to the Indian prawn and fish farmers,
at their door step.

16
Shrimp Processing and Exports Unit

The Shrimp Processing and Exports Unit, certified ISO 22000: 2005 is located in Gopalapuram
near Ravulapalem, East Godavari District Andhra Pradesh, India and confirms to HACCP,
USFDA, EU & BRC Global standards. It is also an ACC Certified for best aquaculture practices.

The state of art technology coupled with quality consciousness, excellent storage facilities,
logistics capabilities, timely deliveries and commitment to customer satisfaction has made Avanti
to be proud of a long list of loyal customers from USA, Europe, Japan, Australia & Middle East.

Avanti has started its commercial operations in 1993 under the able leadership of Late Sri Alluri
Venkateswara Rao in technical collaboration with Pingtai Enterpries, Taiwan. Later his son Sri
Alluri Indra Kumar expanded the capacity and enhanced technical and marketing capabilities by
bringing on board Thai Union Frozen Products PCL., Thailand, the world's largest seafood
manufacturers and also having Feed Mill and Prawn Hatchery in Thailand. Today Thai Union is
closely associated with Avanti Feeds with equity participation, technical collaboration and
marketing tie-up in India.

17
FINANCIAL HIGHLIGHT
(INR-in Cr)

18
(INR-in Cr)

19
MANAGEMENT TEAM

20
 BUDGET 2019 ANALYSIS

Stakeholders in the seafood industry expect that the two per cent interest subvention announced
in the Interim Union budget for 2019-20 for farmers in animal husbandry and fisheries will lead
to increased shrimp production and exports.

India is one of leading exporters of shrimp in the world market, having exported about 600,000
tons in 2017-18. Total seafood exported from India was valued at Rs 45,000 crore.

The Government of India's budget announcement of setting up a separate Department of

Fisheries is positive for the Indian aquaculture industry as it would lead to prioritization and
more focused follow up on the development of farmers.

Further, loans availed through the Kisan Credit Card would give the farmers benefit of two per
cent interest subvention and will go some way towards easing the ongoing pricing pain for
shrimp farmers.

Last year, low pricing of the perishable item had made the production unprofitable. The
announcement has come at a time when Indian shrimp exporters are facing stiff competition
from Ecuador, Indonesia and Vietnam and shrimp export volume growth is expected to slow in
this year.

Exporters also welcomed the announcement to provide interest subvention.

The announcement (of interest subvention) will motivate the exporters to do business and
farmers will be motivated for increased stocking.

It will generate employment and boost exports of shrimp from India

“Now, I propose to provide the benefit of two per cent interest subvention to the farmers
pursuing the activities of animal husbandry and fisheries, who avail loan through Kisan Credit
Card. Further, in case of timely repayment of loan, they will also get an additional three per cent
interest subvention”, Piyush Goyal, Union finance minister said in his interim budget speech

The fisheries and aquaculture production contribute around 1% to India’s Gross Domestic Product
(GDP) and over 5% to the agricultural GDP. According to Food and Agriculture Organization
(FAO) report “The State of World Fisheries and Aquaculture 2018” apparent per capita fish
consumption in India [average (2013-15)] lies between a range of 5 to 10 Kg.

21
Keeping in view of the potential fisheries resources in the aquaculture, inland fisheries, coastal &
marine fisheries and substantial scope of export augmentation, The Fisheries division of
Department of Animal Husbandry, Dairying and Fisheries, Ministry of Agriculture and Farmers
Welfare, Government of India is implementing various developmental schemes under the umbrella
of “Blue Revolution Scheme” for overall development of fisheries sector, including enhancement
of production and productivity, improving the livelihood of the fishers and welfare of fishermen
for realizing “Blue Revolution” in the country. Besides, Cabinet Committee of Economic Affairs
(CCEA) has also approved the setting up of a dedicated Fisheries and Aquaculture Infrastructure
Development Fund (FIDF) worth Rs.7,522 crore on 23rd October, 2018 to fill the large
infrastructure gaps in fisheries sector in the country through developing infrastructure projects
such as fishing harbors/ fish landing centers, fish seed farms, fish feed mills/plants, setting up of
disease diagnostic and aquatic quarantine facilities, creation of cold chain infrastructure facilities
such as ice plants, cold storage, fish transport facilities, fish processing units, fish markets, etc.

The funds released under the various schemes supported by the fisheries division of the
Department of Animal Husbandry, Dairying and Fisheries, Ministry of Agriculture and Farmers
Welfare, Government of India to to promote fisheries in the country during the last three years and
current year as below;

Financial Year Funds Released (In Rs. Crores)

2015-16 416.80
2016-17 424.11
2017-18 337.53
2018-19 (till date) 312.80
Total 1491.24

The objectives of National Fisheries Development Board (NFDB) are as below; -

i. To provide focused attention to fisheries and aquaculture (production, processing, storage,

transport and marketing).
ii. To achieve sustainable management and conservation of natural aquatic resources.
iii. To apply modern tools of research and development including biotechnology for
optimizing production and productivity from fisheries.
iv. To provide modern infrastructure mechanisms for fisheries and ensure their effective
management and optimum utilization.
v. To train and empower women in the fisheries sector and also generate substantial
employment.
vi. To enhance the contribution of fish towards food and nutritional security
22
National Fisheries Development Board (NFDB) is being implementing various schemes and
components since its inception in the year 2006 for development of Fisheries in the country namely
Intensive Aquaculture in ponds and tanks, reservoir fisheries development, Coastal Aquaculture,
Mari culture, Seaweed cultivation, Infrastructure: Fishing harbor and Fish Landing Centres, Fish
dressing centers and solar drying of fish, Domestic marketing, Technology upgradation Projects,
Human resources development programs in fisheries sectors, Deep sea fishing and tuna processing,
Ornamental Fisheries, Innovative Projects Quality seed dissemination program, Cage and pen
culture in open water bodies etc. However, from 2016-17 onwards the NFDB scheme has been
subsumed in umbrella scheme of the Centrally Sponsored Scheme on “Blue Revolution: Integrated
Development and Management of Fisheries” and National Fisheries Development Board (NFDB)
has become one of the major components of the said restructured scheme. Further, there is no
component-wise specific outlay made including for Inland Fisheries and Aquaculture as the
schemes are demand driven. However, Under the Centrally Sponsored Scheme on “Blue
Revolution: Integrated Development and Management of Fisheries” an amount of Rs. 3000 Crores
has been approved towards budget outlay for a period of five (5) years from 2015-16 to 2019-20.

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 PRODUCTS

PRAWN & FISH FEED PRODUCTS

Avanti produces the following international quality feeds for Prawn and fish in collaboration
with worlds renowned Prawn & Fish feed manufacturers Thai Union Feed Mill Co.Ltd.,
Thailand and Pingtai Enterprises Co.Ltd., Taiwan.

PRAWN FEED

• PROFEED
• TITAN
• MANAMEI
• CHAMP

SCAMPI FEED

• CLASSIC
• SCAMPRO

FISH FEED

• MERMAID

24
At Avanti the following measures are undertaken to ensure that the products meet the international
quality standards:

• Qualified and Experienced Team

• Stringent tests for evaluation of raw material quality.
• Close monitoring and testing at every stage right from the raw materials to the finished
product
• Proper Storage facilities
• Stringent Process Controls
• Excellent Packing & Handling facilities
• Transportation of finished product with proper handling and timely delivery.
• Resolving farmer Complaints within 48 Hrs.
• Adequate Traceability System
• Culture Record, assisting farmers to maintain periodical records and advising farmer for
better results.
• Constant interaction with farmers to take feedback and improve performance.

Technical and other Support services to the farmers

• Avanti Feeds Limited is serving shrimp and fish farmers through its highly equipped
quality testing Labs in the coastal regions Kakinada, Amalapuram, Malkipuram &
Gudivada for Shrimp Seed Quality Analysis, PCR testing and Water & Soil tests for
Shrimp Culture

• Guiding the farmers in Seed Selection, Culture Practices through Qualified and
Experienced Technical staff

• Option to farmers to supply shrimps to Avanti's processing plant.

25
 BUSINESS MODEL

• We can see that the company has its major revenue from domestic market contributing
about 85% and export revenue stands around 15 % of total revenue.
• The major export market has been the US followed by Europe, Japan and South East Asia
during 2017-18 for shrimp
• Company operates majorly in domestic market India having two major part one Fish feed
manufacturing and second Export processing unit.
• They cater to domestic farmer by providing them High quality fish feeds and also provide
market for selling premium quality shrimps.
• The Business model greatly impacted by the input cost associated with fish feeds and the
Farm gate prices for farmers.
• The farm gate prices motivate the farmers to cultivate shrimp farming and impacts the
Shrimp Feeds sales.
• The major input cost associated with fish feeds is the soya, the input cost of soya directly
impacts the margins of the company.

26
The Company has investment in the following power projects:
• The 3.2 MW Wind Mill Project in Chitradurg, Karnataka State is operational and has
generated 49.13 Lakh units during the year.
• Srivathsa Power Projects Pvt Ltd. is a 17.2 MW gas-based independent power project in
which Company holds 49.99% of equity shares. During the year 2017-18, the gas supply
was drastically reduced by GAIL to 37,172 SCMD as against the nominated quota of
65,000 SCMD. As a result, the power generation was limited to 549.26 Lakh units as

27
 against a capacity of 911.04 Lakh units. During the year 2017-18, the Company reported
a turnover of ` 1738.70 Lakh and a profit of ` 32.51 Lakh after charging interest,
depreciation and tax.
• Patikari Power Private Limited, the 16 MW Hydel Power Project in Himachal Pradesh
with the Company’s investment of 25.88% in equity shares, was commissioned in
February 2008. During the year 2017- 18, the Company generated 502 Lakh saleable
energy units, yielding a gross sales income of ` 1129.37 Lakh and resulted in a profit of `
372.32 Lakh after charging interest, depreciation and tax.

28
29
 SWOT ANALYSIS

Strengths:

The Company has marked its presence in the field of aquaculture by engaging in manufacturing
high-quality feed for shrimps, operating the Vannamei hatchery and processing and exporting
shrimps. The Company also has a well-trained technical team to provide technical support to the
farmers, assist them with information and knowledge of global standard aquaculture practices
and also update developments in culture methods and processes. Presence of a strong dealership
network, farmer base and committed work force stands in good stead for sustained growth of
Company’s business. Added to this, the Company has a strong technical and marketing tie-up
with the THAI UNION Group of Thailand to strengthen its capabilities in the field of
aquaculture. The global shrimp consumption is also expected to increase in future, assuring
consistent market. The expansion of the feed plant at andapuram, West Godavari District,
Andhra Pradesh with an additional capacity of 1,75,000 MT per annum has commenced
production from March 2018.The Company has started the construction of 400 million shrimp
seed hatcher at Village Gudivada, near Visakhapatnam, Andhra Pradesh for setting up 400
million shrimp seed hatcheries, which will be implemented in two phases of 200 million each.
The commercial operations of the 1st phase of the project is scheduled in early 2019.
Weakness:
Although shrimp production has tripled in the past 7 years, the shrimp culture industry is
continued to be concerned about inadequate infrastructure facilities, particularly inadequate
power supply to aquaculture farms and inadequate cold store chain available for farmers to store
their products. Though aquaculture is similar to produce agriculture in many aspects, the
recognition of aquaculture on par with agriculture is evading the Government’s approval in order
to avail some of the benefits available to the agriculture sector, such as insurance.
Opportunities:
The seafood consumption is increasing all over the world as compared to other forms of meat.
With its long coast line, India is ideally suited for development of the seafood industry. A
planned development would provide abundant opportunities for the seafood industry. The
successful adoption of Vannamei Species shrimp culture has to be replicated for other species of
exportable fishes such as sea bass, krouper, red tilapia, halibut and crab for broad basing the
export basket and gaining recognition in the international market.

30
Threats:
The aquaculture activity is dependent on the unpredictable climatic conditions that differ from
season to season Natural calamities like floods and cyclones, during the culture season can have
a serious impact on the prospects of successful culture. In spite of technical advancement and
development of Specific Pathogen Free (SPF) seed, the possibilities of the shrimps getting
affected by virus and diseases cannot be ruled out. Volatility of international prices of shrimps
and fluctuating foreign exchange rates, US anti-dumping duty and US Countervailing Duty
continue to be the major areas of threat for the industry. However, development of the potential
domestic market to support exports, strict adherence of traceability, scientific pond management
and a judicious approach to prices and forex management are expected to reduce the impact of
threats to a great extent.

31
 GLOBAL SCENARIO

There has been heavy inventory pile up in the US in Q3. Following which production of shrimp
was higher in China, Thailand, and Vietnam as well as in India. This production growth has been
achieved by taking effective disease control measures adopted by EMS affected countries. As a
result, there was an oversupply. The season for shrimps in India was also preponed by a month
and started early this year, when the farmers went in for an early harvest due to the panic cause by
the fall in prices adding to the problem of oversupply.

The 2030 Agenda for Sustainable Development (2030 Agenda for short) offers a vision of a fairer,
more peaceful world in which no one is left behind. The 2030 Agenda also sets aims for the
contribution and conduct of fisheries and aquaculture towards food security and nutrition, and the
sector’s use of natural resources, in a way that ensures sustainable development in economic, social
and environmental terms, within the context of the FAO Code of Conduct for Responsible
Fisheries (FAO, 1995). A major challenge to implementation of the 2030 Agenda is the
sustainability divide between developed and developing countries which has partially resulted
from increased economic interdependencies, coupled with limited management and governance
capacity in developing countries. To eliminate this disparity while making progress towards the
target for restoration of overfished stocks set by the 2030 Agenda, the global community needs to
support developing nations to achieve their full fisheries and aquaculture potential. Global fish
production1 peaked at about 171 million tons in 2016, with aquaculture representing 47 percent of
the total and 53 percent if non-food uses (including reduction to fishmeal and fish oil) are excluded.
The total first sale value of fisheries and aquaculture production in 2016 was estimated at USD 362
billion, of which USD 232 billion was from aquaculture production. With capture fishery
production relatively static since the late 1980s, aquaculture has been responsible for the
continuing impressive growth in the supply of fish for human consumption (Figure 1). Between
1961 and 2016, the average annual increase in global food fish consumption2 (3.2 percent)
outpaced population growth (1.6 percent) (Figure 2) and exceeded that of meat from all terrestrial
animals combined (2.8 percent). In per capita terms, food fish consumption grew from 9.0 kg in
1961 to 20.2 kg in 2015, at an average rate of about 1.5 percent per year. Preliminary estimates for
2016 and 2017 point to further growth to about 20.3 and 20.5 kg, respectively. The expansion in
consumption has been driven not only by increased production, but also by other factors, including
reduced wastage. In 2015, fish accounted for about 17 percent of animal protein consumed by the
global population. Moreover, fish provided about 3.2 billion people with almost 20 percent of their
average per capita intake of animal protein. Despite their relatively low levels of fish consumption,
people in developing countries have a higher share of fish protein in their diets than those in
developed countries. The highest per capita fish consumption, over 50 kg, is found in several small
island developing States (SIDS), particularly in Oceania, while the lowest levels, just above 2 kg,
are in Central Asia and some landlocked countries. Global capture fisheries production was 90.9
million tonnes in 2016, a small decrease in comparison to the two previous years. 3 Fisheries in
marine and inland waters provided 87.2 and 12.8 percent of the global total, respectively

32
33
34
SHAREHOLDING PATTERN

35
COMMON SIZE STATEMENTS AND ITS ANALYSIS

36
• We Can see from above that total current assets have increased from past year which was
72% to 2018 76% which mainly due to increase in Financial asset Investments held by
company which is form of Mutual funds it indicates a positive sign that liquidity position
of the company has increased. The Current liabilities have reduced from 27% in 2016-17
to 21% in 2017-18 which is mainly due to reduced trade payables. Although in relative
amount it has increased but the size as a percentage have reduced which tells company has
not taken much of credit from suppliers.
Hence if have look at the working capital maintained from year 2016-17 to 2017-18 has
increased, the excess funds are well managed by the company by not keeping it idle, they
are invested in marketable securities which carry returns. A high working capital of the
company is considered a sign of well-managed company with great potential. Hence one
can say that the liquidity position is highly favorable for the year 2017-18.

• We can see company has increased its Non-controlling interest as the subsidiaries
performance have improved and resulted in an increase in non-controlling interest.
(a) Avanti Frozen Foods Private Limited (AFFPL)
During the year, AFFPL reported a turnover of ` 58,117.96 Lakh and Profit before Tax of
` 7383.89 Lakh. The Profit after Tax reported by AFFPL is ` 4994.02 Lakh for FY 2017-
18. Further, AFFPL completed the implementation of a 15,000 MTA capacity shrimp
processing plant at Yerravaram in East Godavari District of Andhra Pradesh with a Capex
of 12,159.38 Lakh and started operations from 31.08.2017.
(b) SVIMSAN Imports and Exports Private Limited: No business activity.
37
• The percentage spend on non-current Assets has reduced as percentage of total Assets as
company has increased its operations with maintaining hinger working capital to support
the increased volume of sales
• Although there has been increase in capex for 2018 nearly twice as much as it was in the
earlier year which reflect the company’s expansion phase for shrimp feed manufacturing
capacity expansion. We can also note that company has raised the working capital in line
with the increased capacity of capex which reflect a healthy liquidity position.
• The cost of material consumed has decreased as percentage of revenue in year 2018 which
shows the improvement in margins as reduced input cost
• Employee expense has been maintained at the level of revenue at 3% although there has
been increased in absolute amount due to increase operations.
• Other expenses which include Admin, selling and distribution expense have increased
marginally by 1% which says there has been increase in Marketing expenses and discounts.

Ratio Analysis

38
39
40
41
Industry Average Ratio: -
Year 2015 2016 2017 2018 Latest
Key Ratios
Current Ratio 2.59 2.57 2.54 2.41 2.37
Fixed Assets 5.07 3.84 4.01 1.35 4.55
Inventory 7.46 7.29 8.92 2.61 7.11
Debtors 12.63 10.47 10.09 3.05 10.45
Interest Cover Ratio
3.69 3.97 6.02 13.42 4.2
PBIDTM (%) 7.64 8.73 8.43 11.22 7.97
PBITM (%) 5.92 6.76 6.78 10.14 6.35
PBDTM (%) 6.03 7.03 7.3 10.47 6.46
CPM (%) 4.75 5.13 5.44 7.37 4.79
APATM (%) 3.04 3.16 3.79 6.28 3.16
ROCE (%) 14.72 14.38 15.39 7.26 14.62
RONW (%) 13.99 11.59 14.05 7.11 12.33
Source- Capitaline

Activity/ Efficiency Ratio: -

Particulars
F16 F17 F18
58.23 89.61 92.39
Receivable turnover times
6.08 6.55 5.64
Inventory turnover times
13.72 11.06 9.90
Payables turnover times
6.29 4.07 3.95
Receivables (days)
60.20 55.71 64.66
Inventory (days)
26.67 33.01 36.87
Payables (days)
13.8 13.1 12.1
Fixed Asset Turnover
39.82 26.78 31.74
Cash conversion cycle
(days)

42
 • The receivable turnover times is increasing which implies the firm converts its debtors into cash
or quickly collects its receivables. A higher turnover implies lower days of receivables, as we can
see there is been increase in receivables turnover over the years means goods sold on credit is
being realized earlier which is a good sign for the company from liquidity point of view. We can
see that the receivables turnover outlies the industry standards hence sets a new benchmark.
As the business model is based more on domestic market where feeds are sold mostly to
farmers who mostly rely on cash basis of payments hence, we see higher receivables turnover.
• Inventory Turnover improved in the year 2017 from 2016 but slightly fall back in 2018. Inventory
turnover signifies the shelf life of inventory, as its aquaculture industry the shelf life of the
products would be less but since companies main operating business is in fish feeds which has a
longer shelf life hence it is higher.
• The company has a high payables turnover ratio which indicates it is taking short time to pay its
creditors which is a good sign. Low payable days indicate a long relationship with its suppliers
and creditors. The company has improved its credit policies and has improved over the years.
• Fixed asset turnover is Higher than the industry average which shows a good sign but there has
been a marginal decline trend over the years. It shows the firm efficiency to put the asset
efficiently to produce sales.
• A company's cash conversion cycle is the amount of time it takes to convert inventory purchases
into cash flows. It measures how quickly and efficiently a company extracts cash from
operations. To calculate the cash cycle, add days of outstanding sales to days inventory
outstanding, and then subtract day’s payable outstanding. A low number means that the
company has positive cash conversion cycle uncollectible accounts and boast higher asset.

Liquidity Ratio: -

F16 F17 F18

Current Ratio 1.81 2.65 3.56

Quick Ratio 0.46 1.37 1.89

• Current ratio measures the short-term solvency of firm as current asset would be utilized
to pay the short-term liabilities. The company current ratio is more than industry average
thus it is view favorable for the firm. The current ratio had decrease in 2016 on account of
increase in current liabilities but it increases again in the year 2018.
• Quick Ratio is on the same trend with the current ratio. Increases a year and then decrease
next year and increases again next year.

43
 F16 F17 F18
Gross Profit 24% 20% 28%
Margins
PBT Margin 11.94% 12.87% 20.76%
PAT Margin 7.89% 8.24% 13.16%
EBITDA Margins 10.78% 12.62% 20.12%
ROA 28.63% 25.50% 34.41%
ROE 48.47% 42.29% 53.57%
ROCE 44.26% 39.91% 49.15%
• The gross Margins is increasing and is a high number which indicates the company
operates efficiently. The gross profit margin is increasing marginally over the years.As
the firm is no leverage firm it has a good PBT margin which a sign of good firm. PBT
margin is usually in the range of 20-28%
• The difference between PAT margin and PBT margin indicates the effective tax
management policy of the firm. The PAT margin is high above the industry average
which is a sign of great and bright future company.
• EBITDA is calculated before any interest, taxes, depreciation and amortization, the
EBITDA margins measure’s how much cash profit a company made in a given year. A
company’s cash profit margin is a more effective indicator than its net profit margin,
because it minimizes the non-operating and unique effects of depreciation recognition,
amortization recognition and tax laws. The EBITDA margins of the company is more
than industry average which is good.
• There is an increase in the ROA of the firm from 28.63% in 2016 to 34.41% in 2018. This
implies that the firm is using its assets efficiently.
• ROE has increased from 48.47% in 2016 to 53.57% in 2018 which implies the company
is generating good returns for its equity investors. The ratio is above the industry average
which implies a healthy firm.
• ROCE has increased from 39.91% in 2017 to 49.15% in 2018. A high ROCE indicates
that a larger chunk of profit can be invested back into the company for the benefit of
shareholders. The reinvested capital is employed again at a higher rate of return, which
helps to produce higher earnings-per-share growth. A high ROCE is, therefore a sign of a
successful growth company. So, looking at profitability ratio overall the company looks a
good and healthy firm almost all its ratio is above the industry average ratio.

44
 DUPONT ANALYSIS
DuPont analysis is an approach that can be used to analyze ROE in detail. The DuPont
method is only a way to decompose ROE to evaluate what changes are driving the
changes in ROE.

It is a mathematical expression which breaks ROE into three fundamental parts i.e.: -

• Profitability (Profit Margin)

• Operating Efficiency (Asset Turnover)
• Leverage (Financial leverage)

Return on Equity= Profit margin * Asset turnover * Financial Leverage

Particulars F16 F17 F18

7% 8% 13%
Profit Margin

Asset turnover 3.63 3.09 2.62

Financial Leverage 1.69 1.66 1.56

Return on Equity 42.94% 41.04% 53.13%

The increase in ROE for the year 2018 is on account of increase in profit margin and increase in asset
turnover. We can also see there is decrease in Financial leverage as company is moving towards to be
unlevered Firm.

45
 PEER COMPARISON
Avanti Feeds Coastal Waterbase Zeal Aqua
Aggregate
Ltd. Trawlers
Key Ratios
Debt-Equity 1.03 1.17 0.14 2.15 1.1
Ratio
Current 1.14 1.18 2.02 1.08 1.4
Ratio

Turnover Ratios

Fixed Assets 3.57 2.62 1.33 1.315 2.2

Inventory 7.78 7.78 4.14 5.18 6.2

Debtors 170.9 10.83 3.99 25.05 52.7

Interest 506.9 4.95 13.47 2.61 132.0

Cover Ratio
PBIDTM (%) 8.34 8.34 17.25 13.23 11.8

PBITM (%) 7.84 7.84 15.46 8.55 9.9

ROCE (%) 28.61 28.61 17.87 25.17 25.1

RONW (%) 31.26 31.26 19.98 10.22 23.2

• Debt -equity ratio of Avanti is low compared to industry average hence it has got option
to expand its operation raising debt to levered the earnings in future.
• Current Ratio is also close to industry average but lower.
• Avanti has highest Fixed asset turnover compared to industry which means the are more
efficient in generating sales per rupee invested in fixed asset.
• Inventory turnover is also far above than industry benchmark which says the inventory is
fast moving of the shelf than others.
• Debtors turnover is also way above than industry standards which says the debtors are
repaying way earlier

46
 FORCASTED BALANCE SHEET
Note 2018 2019E 2020E 2021E 2022E

Assets
Non-current Assets
Property, plant, and
31197.65 38,000.51 42,560.58 47,667.85 53,387.99
equipment
Capital work-in-progress 197.29
Intangible assets 16.64 5.32 5.96 6.67 7.47
Investments accounted for
3,120.76
using the equity method
Financial assets
Investments 15.77
Loans 61.69
Other financial assets 620.64
Non-current tax assets (net) 864.43
Other non-current assets 298.33
Total Non - Current
36,393.20 41,800.57 46,816.63 52,434.63 58,726.79
Assets
Current Assets
Inventories 52,481.44 54,150.73 60,648.82 67,926.68 76,077.88
Financial assets
Investments 55,308.56 71,901.13 93,471.47 121,512.91 157,966.78
Trade receivables 5,003.45 5,603.86 6,276.33 7,029.49 7,873.03
Cash and cash equivalents 685.41 62,852.87 121,129.46 182,144.21 245,042.31
Other Bank balances 750.13
Other financial assets -
Loans 123.7
Other current assets 1,880.40 2,106.05 2,358.77 2,641.83 2,958.85
Total Current Assets 116,233.09 196,614.65 283,884.85 381,255.11 489,918.84
Total Assets 152,626.29 238,415.21 330,701.48 433,689.74 548,645.63
238,415.21 330,701.48 433,689.74 548,645.63
Equity and Liabilities 0.00 0.00 0.00 0.00
Equity
Equity share capital 908.3 908.30 908.30 908.30 908.30
Other equity 102239.67 180,068.97 266,883.17 363,742.71 471,834.42
Equity attributable to
103,147.97 134,892.38 181,886.58 235,924.31 298,062.12
owners
Non-controlling interest 11837.32 11,837.32 11,837.32 11,837.32 11,837.32
Total equity 114,985.29 192,814.59 279,628.79 376,488.33 484,580.04
Non current liabilities
Financial liabilities
Borrowings 183.68

47
 Other financial liabilities 374.50
Provisions 361.32
Deferred tax liabilities (net) 2,611.36
Other non-current liabilities 1,486.32
Total Non-current
5,017.18 7,600.10 8,512.12 9,533.57 10,677.60
Liabilities
Current liabilities
Financial liabilities
Borrowings 364.25 546.38 819.56 1,229.34 1,844.02
Trade payables 28,654.83 32,861.74 36,805.15 41,221.76 46,168.37
Other financial liabilities 494.16
Provisions - 30.41 34.05 38.14 42.72
Current tax liabilities (net) -
Other current liabilities 3,110.58 4,562.00 4,901.81 5,178.60 5,332.88
Total Current Liabilities 32,623.82 38,000.51 42,560.58 47,667.85 53,387.99
Total Equity and
152,626.29 238,415.21 330,701.48 433,689.74 548,645.63
Liabilities

2016 2017 2018 Average

NCL/Sales 1% 2% 1% 1%

CL/Sales 9% 11% 9% 10%

NCA/Sales 10% 11% 11% 11%
Total Asset / Sales 31% 41% 45% 39%

• For forecasted balance sheet we have calculated on the basis of percentage of sales.
• I have forecasted for total non-current liability, non-current asset and total asset.
• Current assets are calculated as difference between total asset minus non-current asset.
• For PPE I have assumed 12% growth Y-o-Y basis.
• Share capital is assumed constant over the years. The result of Asset-liability value is
included in the reserve and surplus to make the balance sheet balance for the forecasted
years.
• The others figures are to be calculated in the proportion of total non-current liability, total
non-current asset and current asset respectively

48
 VALUATION - DCF MODEL

(All figures in Lakhs rupees)

F18 F19E F20E F21E F22E
339290.31 407148 488578 586294 703552
Net revenues
240968.03 285004 342005 410406 492487
Raw material costs
98322.28 122145 146573 175888 211066
Gross profit
11087 12214 14657 17589 21107
Employee expenses
19267.05 23120 27745 33293 39952
Other expenses
30354.05 35335 42402 50882 61059
Total expenditure
67968.23 86810 104172 125006 150007
EBITDA
Depreciation & 6777
2375.75 3922 4706 5647
amortization
65592.48 82888 99465 119359 143230
EBIT
4824.82 5066 5319 5585 5865
Other income
70417.3 87954 104785 124944 149095
Profit before tax
21338.26 23391 27811 33102 39438
Provision for tax
49079.04 64563 76974 91842 109657
Profit after tax

Assumptions and Calculation for the above table: -

• For the year 2019 I have expected growth in revenue to be around 20% Y-O-Y basis as
the CEO has mentioned growth would be expected near it and analyst have given a
recommended sales growth in that range based on the industry outlook.
• I have assumed the terminal growth rate at 4 % based on the industry global outlook and
domestic growth potential in future years.
• COGS are assumed to be maintained at margin of 70% all though COGS in 2017 were
around 68% where as I have assumed to be 70 % as there has been increase in the input
material cost of soya which has increased from 32/kg to 39-42 /kg in 2018 hence
increased the cogs and maintained at higher level.

49
 F18 F19E F20E F21E F22E
Cost of material 492487
240968.03 285004 342005 410406
consumed

Y-O-Y growth % 20% 20% 20% 20% 20%

% of Revenue 70% 70% 70% 70% 70%

• Total expenditure is the addition of employee benefit obligation and other expense. The
forecasted value of employee benefit obligation and other expense is both of the basis of
common size i.e. percentage of revenue.

F18 F19E F20E F21E F22E

Employee benefit 11087 12214 14657 17589 21107
obligation

Y-O-Y growth - 20% 20% 20% 20%

%

% of Revenue 3% 3% 3% 3% 3%
19267.05 23120 27745 33293 39952
Other expenses

Y-O-Y growth - 20% 20% 20% 20%

%

% of Revenue 6% 6% 6% 6% 6%

• Depreciation is calculated is using the formula depreciation for the year divided
the sum of previous year tangible and intangible asset. So, using this formula we
derived to 12 %. So, for the forecasted year we found out depreciation and
amortization by multiplying 12% rate into sum of previous year tangible as well
as intangible assets.
• Provision for tax is calculated dividing tax expense by profit before tax to get the
rate. So, with this formula I got rate as 34% so for the forecasted year I multiplied
the tax rate with profit before tax value to arrive the tax expense for the
respective year.
• So, in this way we arrive to profit after tax or net income for the forecasted years
using simple forecasting method and doing few assumptions and using formula
50
to achieve the net income.

Assumptions and Calculation for Working Capital: -

(All figures in Lakhs rupees)

Current Asset
F18 F19E F20E F21E F22E
52481.44
Inventories 54,150.7 60,648.8 67,926.7 76,077.9

5003.45 5,603.9 6276.3 7029.5 7873.0

Trade receivables

1880.4 2106.0 2358.8 2641.8 2958.8

Other current
assets

(All figures in Lakhs rupees)

Current Liabilities
F18 F19E F20E F21E F22E
Total outstanding dues 28,654.83 32,861.7 36,805.1 41,221.8 46,168.4
of creditors
494.16 593.0 711.6 853.9 1,024.7
Other Financial
liabilities
3,110.58 4,926.9 5,748.3 6,652.1 7,613.8
Other Current
liabilities

• No cash item is included while calculating working capital i.e. Cash and cash
equivalent, short term investment is not included. This is because cash,
especially in large amounts, is invested by firms in treasury bills, short term
government securities or commercial paper. While the return on these
investments may be lower than what the firm may make on its real investments,
they represent a fair return for riskless investments. Unlike inventory, accounts
receivable and other current assets, cash then earns a fair return and should not
be included in measures of working capital
51
• Inventories for the forecasted period is calculated using formula i.e. Inventory
days* COGS divided 365. Inventory days are calculated for past 3 years which
comes to near to 60 days so for the forecasted years 60 days have been assumed
to calculate inventories.

% of Revenue
F18 F19E F20E F21E F22E
Inventories 19% 19% 19% 19% 19%

Trade receivables 10% 10% 10% 10% 10%

Loan 0% 0% 0% 0% 0%

Other Financial current 0.1% 0.1% 0.1% 0.1% 0.1%

assets
Total outstanding dues of
creditors 12% 12% 12% 12% 12%

Other current liabilities 1% 1% 1% 1% 1%

Provisions 0.1% 0.1% 0.1% 0.1% 0.1%

• Similarly, receivables and trade payable (outstanding dues of creditors) are

calculated. For forecasted receivable formula used is Receivables days *
Revenue divided by 365. Receivables days for past 3 years are around 5 days so
for the forecasted period 5 days is assumed as receivable days. For trade payable
35 days are assume and the formula is Trade payable days * COGS divided by
365.
• For other current asset, short term loan and advance, other current liabilities and
current provision the forecasted is done of the basis of percentage of revenue.
The following table below will give an idea how I have assumed and calculated
the forecasted values.

52
 (All figures in Lakhs rupees)

F18 F19E F20E F21E F22E

82,173.73 95,659.76 119,096.26 150,541.13 188,349.38
Total Working Capital
51,887.4 13,486.0 23,436.5 31,444.9 37,808.3
Change in Net Working Capital

F18 F19E F20E F21E F22E

Net block 31,197.7 48,857.8 58,629.4 70,355.2 84,426.3

Capex 3,756.8 17,660.2 9,771.6 11,725.9 14,071.0

• Most of the companies usually keep their working capital in the same range over
the years. As you can see from the above almost all the items are in the same
range as you can see even though inventories, receivable and trade payable we
calculated using formulas still we have achieved it in near the same range of
percentage of revenue.
• Working Capital is the difference between current asset and current liabilities.
• Net working Capital is the difference between current year working capital and
previous year working capital.
• For forecasted capex I have assume a growth of 12% of sales as the company
need to invest in Factories and capacity expansion to produce more feeds and
storage for processed fish foods, hence it is carried in proportion of Sales output
expected over years.
Terminal growth Rate (g) 4%
Risk Free Rate (Rf) 7.50%
Beta (β) 1.06
Market Premium (Rm) 11.90%
Equity risk premium (Rm- Rf) 4.40%
Cost of equity (Ke) 9%

• In this cost of equity is equal to Weighted Average Cost of Capital (WACC) i.e.
Ke=Ko since there is no debt so there is no cost of debt (Kd).
• Beta is calculated from Capitaline for the period of 1 year.
53
• Risk free rate is noted from the investing.com chart of 10 year bond of India shown below:
-

Year Rolling 10-year Premium Returns

2001-11 16.80%
2002-12 19.10%
2003-13 13.70%
2004-14 15.30%
2005-15 10.80%
2006-16 6.80%
2007-17 5.30%
2008-18 7.32%

Simple Average (Return) 11.90%

I have assumed 11.90 % market premium for the simplicity.
• Cost of Equity (Ke) = Rf+ β (Rm-Rf) therefore, Ke= 7.5 + (1.29 *(11.9-7.50)) which
gives the value equal to 10.47%.

I have assumed risk free rate average around to 7.50% as seeing the chart above it
seems mostly the rate is the range of 7.50%.

54
 • For calculating the present value of free cash flow for the firm we use above
method to find it.
• Free cash flow = EBIT + Depreciation-Working Capital-Capex.
• I have calculated Free cash flow till year 2021 but company is not going to shut
down but it will continue to grow so I have assumed a growth rate at which it
will go is 5% which is nothing but a terminal growth rate.
• Beyond 2021 the free cash flow of the firm is calculated using the formula; -
Continuity Value = Last Year FCF * (1 + Terminal growth) / (WACC –
Terminal Growth)
• Using this formula, we got the Terminal value as Rs 2790459.758.
After finding FCF for the present year, forecasted year and for the Terminal value
then we calculate the discounted cash flow using WACC=Ke i.e. 9%. for the
forecasted year and terminal value.
DCF= FCF for the respective year / (1 + WACC) ^ year
DCF for terminal value= FCF for the terminal / (1 + WACC) ^ 4

F18 F19E F20E F21E F22E

EBIT 70,417.30 87,953.93 104,784.80 124,943.86 149,094.83

Add- 2,375.75 3,921.73 4,706.08 5,647.30 6,776.76

Depreciation
Less-WC 51,887.4 13,486 23,436.5 31,444.9 37,808.3

3769.4 17700.5 9783 11739.6 14087.5

Less-Capex
30,924.46 65,039.74 81,234.24 93,091.28 110,512.97
FCF

30,924.46 59869.1 68831.6 72607.5 79343.3

DCF
Terminal Value 2478883.792 Total DCF 2790459.758

55
 2790459.758
Sum Of DCF
1,435.54
Add – Cash
5270779.089
Total Equity Value
454
No. of Equity Shares
(in Million)
580
Value per share

• Sum of Discounted Cash flow = Sum of DCF of all the forecasted year plus
DCF of terminal value.
• Cash is addition of non –current investment, cash and cash equivalent and
short-term investment.
• Therefore, Equity Value of the firm is equal to Sum of DCF plus Cash.
• Number of Equity Shares of the company is 453 million shares.
• Value per share is therefore equity value of the firm divided by number of
equity shares.

Conclusion from DCF Model: -

• Intrinsic Value Per share = Rs 545

• Price as of 28th March 2018= Rs 420

Therefore, Stock is UNDERVALUED

56
 RELATIVE VALUATION

Relative valuation, also referred to as comparable valuation, is a very useful and effective tool in
valuing an asset. Relative valuation involves the use of similar, comparable assets in valuing
another asset.
Tools for the Relative valuation of stocks:
There are a number of financial ratios that you can use to do the relative valuation of the Indian
stocks. Few of the most common ones are described below:
• Price to earnings (PE) ratio
• Price to book value (P/BV) ratio
• Price to sales (P/S) ratio
• Enterprise-value-to-EBITDA (EV/EBITDA) ratio
• Enterprise-value-to-Sales (EV/Sales) ratio
• Enterprise-value-to-Net worth (EV/Net worth) ratio
Ratios are calculated for individual year and average of ratios of every year is the final value.
Industry Average is taken for the five companies including Avanti Feeds. Though Avanti Feeds
have leading indicators among the five companies Average is taken to value the company.

EV/operating
Aquaculture P/E EV/EBITDA P/BV revenue
Avanti Feeds 21.81 15.67 10.81 3.6
Waterbase 23.55 19.29 7.53 3.33
Coastal Corp 13.99 1.79 0.27 0.18
Zeal aqua 52.95 12.62 5.25 1.65
Industry Average 28.08 12.34 5.97 2.19

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Avanti Feeds MPS Average Weights

P/E Ratio 690 28.08 0.25

EV/EBITDA 641.14 12.34 0.25

P/BV 377.56 5.97 0.25

EV/Sales 433.44 2.19 0.25

Average 535.54 1.00

Hence, we can see the Average Price according to Relative valuation Method
Comes to Rs.535.54

SHARE PRICE CHART

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 CONCLUSION AND REFERENCES

We get the Fair value of the Avanti Feeds share by average of the two model to factor in the
different model outliers.

Basis Price
Rs. per share
DCF Valuation 545
Relative Valuation 535
Average of Two Model 540

We got the Fair value of Rs.540 Per share whereas the current price of the quoted security is
trading around Rs.420 which has potential upside of (540-420) Rs120 i.e. 30%
As the research suggest stock is being undervalued hence Investor / Trader should take positions
accordingly.

So, We conclude that the Stock is Undervalued by 30 %

Disclosure: - Preparer Has invested interest in the security Valued Above (Avanti Feeds
Ltd)
REFERENCES

• www.moneycontrol.com
• www.investing.com
• Annual reports of the company
• Conference Call Transcripts
• IBEF Report
• Edelweiss Research Reports
• Markets.com
• Bloomberg
• www.Equitymaster.com

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