Avanti Feeds Limited saw sharp declines in its stock price, as it released its financial results for the second quarter of the year, which saw a fall with a 6% decline. The aquaculture feed manufacturer made a net profit of ₹68.95 crore in the consolidated financial statements, down by 55% year-on-year, according to the exchange filings made by the company. The net profit for the same quarter of the previous financial year was ₹153.28 crore. The bottom-line decline was despite an increase in consolidated revenue for the company during the period.

Revenue growth and exceptional items

Net profitability took a big hit, while Avanti Feeds posted growth in its consolidated revenue. Revenue from operations grew by 9% in the second quarter of the year to ₹1,752.52 crore, from ₹1,608.86 crore in the same quarter last year.

Revenue growth did not match the decline in net profits, highlighting a typical margin squeeze due to rising operating costs, rising cost of materials used, and external cost adjustments. The financial figures were analysed carefully, with top-line strength amid high operational headwinds.

The company has been facing an exceptional item of ₹17.12 crore for the quarter under review. This was the differential Anti-Dumping Duty liability on Avanti Frozen Foods Private Limited in respect of two changes in the duty rates from 1.35% to 3.76% and 5.53%, respectively.

The company appealed the changes to the Commissioner of Income Tax (USA). This regulatory and duty-related development presented a financial impediment to operational performance for the July to September quarter.

Segment performance and investor sentiment

Avanti Feeds has a well-structured supply chain and vertically integrated farm-to-fork business model that includes aquaculture farms, feed mills, hatcheries, processing plants, and export of feed products to international markets like Sri Lanka and Bangladesh. 

The shrimp feed business has added to the revenue line, with the business revenue of ₹1,372.39 crore in the current year as against ₹1,154.59 crore in the previous year. A combination of rapidly increasing raw material costs and higher operating costs severely constrained operating margins, leading to a lower outcome for the shrimp processing and hatchery divisions as segment results.

Net profit was hit by a massive decline, resulting in a negative response from the stock market, which caused Avanti Feeds shares to drop about 6% on the spot. The margin compression and the exceptional duty liabilities caused a cautious reaction by investors. 

Market experts pointed out that the basic demand for aquaculture feed is not diminishing, with its revenue growing by 9%, though the company’s short-term profitability will greatly rely on the raw material feed input costs stabilizing, as well as export realisations and resolving current trade and anti-dumping duty controversies in foreign markets.

Conclusion

The company’s Q2 FY19 results signify the difficulties of handling increased input costs and regulatory commitments amidst the sustaining demand in the topline. The share price has declined by more than 6% as net profit has dropped nearly in half to ₹68.95 crore, leaving the company with an immediate need to address cost pressures and boost its operating margins. In the next few quarters, the attention of investors will be on raw material trends, export dynamics, and margin recovery as Avanti Feeds is aiming to grow its business with a vertically integrated aquaculture model for domestic and international markets.