Avanti Feeds Limited (512573) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. I am Momita, moderator for the conference call. Welcome to Avanti Feeds Limited Q4 FY '21 Conference Call, hosted by KFin Technologies Private Limited. [Operator Instructions] Please note this conference is recorded. I would now like to hand over the floor to Mr. Sherwin Fernandes from KFin Technologies. Thank you. And over to you, sir.

Thank you, Momita. Good evening to everyone. Welcome to the Avanti Feeds Q4 and FY '21 Post-results Earnings Conference Call. From the management, we have with us Mr. A. Indra Kumar, Chairman and Managing Director; Mr. C. Ramachandra Rao, Joint Managing Director; Mr. A. Venkata Sanjeev, Executive Director; Mr. Alluri Nikhilesh, Executive Director, Avanti Frozen Foods Private Limited; Mrs. Santhilatha, GM, Finance and Accounts; and Ms. Lakshmi Sharma, Company Secretary, Avanti Frozen Foods Private Limited. May I request the management to take over the call? Thank you.

Thank you, Mr. Sherwin. Good evening, ladies and gentlemen. Trust all of you are safe and doing well in these tough times. We extend a warm welcome to all of you for this investors' conference call today to review the audited financial statements and results of Q4 FY '21 as well as the audited financial results for the financial year ended '21. Along with me here are Mr. Venkata Sanjeev and Mr. Nikhilesh Chowdary, both executive directors; along with Santhilatha and Lakshmi; and other accounts -- finance and accounts team member. Mr. Indra Kumar is on the way and he will join shortly. Meanwhile, I think we'll start with a just brief review of the financial results for the quarter as well as for the year. The results of Q4 FY '21 and audited financial results for '21 are already with you for some time now, and we are sure that you will have read -- would have already gone through them. Here are some of the key indicators from the financial results Q4 FY '21 and FY '20 -- consolidated financial FY '21 -- consolidated financial results of -- may I say, for the FY '21. First [indiscernible] it should be [ called ] for the quarter, fourth quarter, FY '21. The compared performance of Q4 FY '21 with that of Q4 FY '20 and Q3 FY '21 have been given in the presentation already circulated. Gross income in Q4 FY '21 is INR 1,116 crores, as compared to INR 944 crores in the previous quarter, Q3 FY '21, an increase by INR 172 crores at 18.22%. Compared to Q4 FY '20 gross income, INR 1,446 crores (sic) [ INR 1,046 crores ], there is a marginal increase of INR 70 crores at 6.69%. PBT is INR 93 crores in Q4 FY '21, as compared to INR 108 crores in Q3 FY '21, a decrease by 13.89%. Compared to Q4 FY '20 PBT of INR 126 crore, there is a decrease by 26.19%. Decrease in PBT year-on-year basis is on account of increase in raw material prices and marketing expenses in Q4 FY '21. Now coming to the annual results for FY '21. The gross income for FY '21 is INR 4,193 crores, as compared to INR 4,186 crores in FY '20, with a marginal increase by about INR 7 crores. PBT in FY '21 is INR 510 crores, as compared to INR 484 crore in FY '20, an increase of INR 26 crores. The PBT percentage increased to 12.16% of gross income from 11.56% for the previous period mainly due to better sales realization, increase in sale prices is a result of -- as a result of increase in sales price in shrimp feed division -- in shrimp feed prices. The PAT in FY '21 is INR 397 crores, as compared to INR 386 crores in FY '20, registering an increase of about INR 11 crores. The PAT increased to 9.47% from 9.22% of gross income. Now we come to the stand-alone financial results of feed and processing divisions. Now I'll take up feed division first. First, we discuss about Q4 FY '21 results. The gross income for the Q4 FY '21 is INR 900 crores, as compared to INR 778 crores in the corresponding quarter of Q4 FY '20, registering an increase of INR 120 crores at 15.68%. PBT for the Q4 FY '21 is INR 91 crores, as compared to INR 96 crores in Q4 FY '20, a decrease of INR 5 crores. Annual results for FY '21. The gross income for the financial year is INR 3,307 crores, as compared to INR 3,223 crores in the corresponding year, registering a growth of INR 84 crores at 2.61%. PBT for the FY '21 increased to INR 404 crores, as compared to INR 376 crores in the financial year '20 with an increase of INR 28 crores at 7.5 -- 7.45%. PAT in FY '21 increased to INR 305 crores when compared to -- compared with INR 286 crores in FY '20, an increase of INR 19 crores at 6.64. And basically the increase -- we tried to analyze the reasons for the margin -- the reduction in the margins. Increase in raw material is one of the major contributing factors of profitability of the feed division is -- as you know very well. Fish meal, soya bean meal, wheat flour are the major raw materials consumed in production of feed, and fish oil and soya lecithin are the related products used in the production. The prices of soya bean meal and soya lecithin are steeply increasing over the past 1 year. The price of soya bean meal went up to 47 per kg in Q4 FY '21, as compared to 43.30 in Q4 FY '20. Fish meal went up to INR 93.05 in Q4 FY '21, as compared to INR 90 in Q4 FY '20. Now the prices of soya bean meal are 77.50, and fish meal is about 103. Exorbitantly high prices of these 2 products definitely contribute to the margins on this -- on the feed. Now the -- now what we have done is the increase in the shrimp feed is the -- one of the measures that we have taken, that the shrimp feed price has been increased in January '20 by INR 80 per kg, which could absorb raw material cost increase to some extent. Thereafter, another price increase of INR 5 [ particularly ] was made in 2 tranches in Q1 FY '22. That is the first quarter now, from April to June. This increase has absorbed further increase of raw material costs to some extent. However, the prices of soya bean meal and fish meal are increasing unabatedly. As you know, the frequent price increase cannot be [ sorted to ], primarily in the interest of the farmers and also for the reason that the government controls are there. So that whenever we will think of increase, the government would immediately step in. So I will say that the company is hoping that RM prices would stabilize at present here for the time being as the new crop of soya is expected to come in October '21. So we hope that, when the fresh crop comes in October, maybe the prices -- but we cannot say certainly. We have to see so many aspects here -- hope that there will be some more -- to some extent, the prices may come down. Similarly, fish meal price is also expected to stabilize whilst the fishing ban is lifted in west coast and the fish catches increase from early August '21. See, one of the reasons for increase in the soya bean meal is the exports, the exports because the American and Brazil soya crop [ failed ]. So there was good demand for exports from India. And that has really made there is a shortage in India, the soya for local consumption; and that has actually made the prices to go up. Then the second aspect which we found is the increase in marketing expenses which has gone up. The company had to spend some additional amount on marketing expenses during Q4 FY '21 as sales promotion and retention of the existing Avanti farmers compared to Q4 FY '20. The competitors resorted to huge discounts on feed prices to increase their sales, as there was general decrease in consumption of feed. Further, imported shrimp feed was available at much cheaper price than Indian feeds, as the import of feed had a concessional duty of 5% against the normal duty of 25%. So in order to retain the farmers shifting to other feeds and to encourage the new farmers to go for Avanti feed, the company spent an onetime incentive of 17.25 crores, which yielded a real -- considerable results and we could retain all our farmers intact without -- and in fact, we added some [ similar ] farmers to our account. Now coming to the shrimp processing division Q4 FY '20 (sic) [ '21 ] results. The gross income for the Q4 FY '20 (sic) [ '21 ] is INR 218 crores, as compared to INR 273 crores in Q4 FY '20, registering a degrowth by INR 55 crores at 20.15%. PBT for Q4 FY '20 (sic) [ '21 ] is INR 1.48 crores, as compared to INR 29.95 crores in Q4 FY, a decrease of INR 28.47 crores. The analysis shows that the impact of withdrawal of MEIS is one of the major reasons for the decrease in the profits. The gross income normally includes incentives of 5% MEIS and 3% duty drawback of FOB value of exports, which were contributing significantly to the PBT of the company. However, the government of India withdrew MEIS in 2 phases: [ firstly ], restricting the MEIS incentive from September '20 through December '20 to 2 crores per 4 months total. And from January '21 onwards, it was completely withdrawn. On account of withdrawing of MEIS incentive, there is reduction in the income by about 14.58 crores. And in addition, the 12.11 crores was taken as MEIS incentive in company's financial statements on accrual basis. However, since there is an uncertainty of receiving this MEIS incentive from the government, the company reversed the company -- the income receivables in the financial statements of Q4 FY '21. We tried to analyze [ more the ] reasons for decrease in the margin. One is steep increase in ocean freight. There was [ an elaborated ] steep increase in ocean freight starting from October '20. Particularly from January [indiscernible], the average container price went from [ USD 3,300 to USD 500 ] during Q4 '21, which continued even now, which is about USD 7,100 per container. The volume of exports during Q4 '21 compared to Q4 FY '20 decreased on account of shortage of container availability. The RM cost also increased in Q4 FY '21 compared to Q4 FY '20. The annual results of the processing division for the financial year '21. The gross income during the FY '21 is INR 888 crores from INR 966 crores in FY '20, decreased by INR 78 crores at 8.07%. The PBT FY '21 is 108 crores, as compared to what is same figure, 108 crores, in FY -- almost equal to the previous year. Had MEIS incentive was continued, the PBT for the full year, FY '20, would have increased by 19.47 crores. The PAT in FY '21 is INR 95 crores, when compared to INR 100 crores in FY '20, a decrease of INR 5. The following were the main contributing factors for the decrease in gross income, profit even though there is a marginal increase in PBT during FY '21 compared to FY '20. One is, of course, withdrawal of MEIS export incentive of 5% on FOB by the government. Second is the increase in ocean freight. The third, which is the, because of the accounting standards, decrease in export volume and corresponding value due to accounting procedure of containers shipped out. As per the Indian accounting standard, the containers of -- containers on high seas, this is in transit or what we call on waters, are taken as stock in transit at cost value. The profits on these shipments are taken into account into quarterly financials -- are not taken into quarterly financial results of the quarter in which they have been shipped. Such containers or -- at the end of Q4 '21 were 105, with sales value of 114 crores, whereas at the end of corresponding quarter of the previous year, Q4 '20, it was 84 containers at a sales value of 90 crores. In this particular, the profits on these containers will be reflected in the following quarter. Industry overview and future outlook. The world has suffered the impact of the first wave. And the effect of second wave appears to have receded to a great extent now, and the economies of countries limping back to normalcy, but [ the effect ] of its third wave, COVID-19, is looming large. And the countries are getting ready to face it to prevent major impact. After the first wave and before serious impact of second wave started, most of the global economies, including India, have succeeded in recovering to a great extent. And during the phase of second wave also, the economy -- economic activity was not disturbed much, though India had higher number of positive cases and fatalities. Industrial growth also picked up in almost all the sectors, except maybe industries like tourism, hospitality, et cetera. The demand for the products and service is picking up fast, supporting the manufacturing sector. The seafood industry is no exception to this. The restaurants, foodservices, et cetera got back to normalcy, with increase in demand for seafood products, including processed shrimps. The first season of the shrimp culture in India started in January; [ and brought ] with a lot of positive developments such as good climatic conditions, remunerative farm gate prices, availability of good-quality feed, et cetera. During the [ first ] of 2021, the shrimp culture has been very good; and expected to continue during the second half also. The demand for the product is also likely to increase in second half due to occasions like Thanksgiving day, [indiscernible], Christmas, new year, Chinese new year, et cetera. Therefore, the future of the industry looks promising. Coming to the shrimp production and feed consumption in 2021. Shrimp feed consumption: The shrimp feed consumption in India declined to about 9.55 lakhs tonnes in 2020 compared to 12 lakh tonnes in 2019, down by 20%, due to impact of COVID-19. However, as the demand for shrimp is expected to increase in 2021 due to return of normalcy and favorable shrimp culture conditions, shrimp feed consumption is expected to grow by about 10% to 15% over the previous year, with an estimated consumption of shrimp feed around 11 lakh tonnes. The company feed sales during 2021 was about 4.55 lakhs metric tons and expected to be around 5.25 lakhs metric tons in 2021 and increase by about 15%. The company is expected to maintain its market share of 48% to 50% on an average. So now I just would like to give about the recall of some of the containers of the shrimp shipment by Avanti Frozen Foods recently. The company has informed the stock exchanges and made a corporate announcement on occurrence of an unexpected incident resulting in U.S. FDA advising Avanti Frozen to recall voluntarily as an abundant caution some of the cooked products suspected to have contamination by presence of Salmonella. This was done on the basis of reported sickness in 6 cases as -- by [indiscernible] U.S. FDA due to Salmonella contamination [indiscernible]. As per the preliminary internal survey, which is actively authenticated, most of the products under recall would have been sold and consumed by now with [ a lower cut of ] sickness, so far, except there were 6 cases related to this particular consignment. The company has product liability incidence coverage which is adequate to meet the claims [indiscernible]. The company has also initiated action to engage services of a -- well-reputed and recognized consultants and advisers, experts in food safety, public health and regulatory requirements and compliances to further strengthen the company's systems and procedures to avoid recurrence of such instances in future. Since the volume of the product for this -- connected with this incident is insignificant, the company does not foresee any impact on the image of the company. Shrimp processing and export. The shrimp production and exports from India in 2020 was 5.75 lakhs metric tons in -- as against [ virtual ] estimate of 6.50 lakh metric tons, a decline by 12.5%. During current year, 2021, the production and export of shrimps is estimated around 6.5 lakh metric tons, a growth of about 10% to 15% over the previous year. The company's shrimp exports in 2020 is about 12.19 -- 12,190 metric tons. The estimated export in 2021 is about 12,700 metrics, maintaining almost the same level as in 2020. As the global markets are gradually recovering from the impact of COVID-19 and the economies are improving, the demand for shrimp consumption is also expected to pick up as customers turnout in [ industrials and malls ] and public eating places is increasing. Policies of the government and the impacts on the industry. In line with the policy announced by the government of India allocating about 10,900 crores to Ministry of Food Processing Industries in 2020, spanning of 5 years, the ministry of food processing has announced their production-linked incentive scheme on incremental exports of seafood products over 6 years commencing from '21, '22. The PLI envisages an incentive of 6% for normal products and 10% for value-added products on incremental sales for 6 years, with a condition [ targeted but ultimately ] depends on minimum investment of 75 crores on CapEx during first 2 years and achievement of 5% minimum CAGR on sales. The company has made an application under this scheme and awaiting response. In the place of discontinued MEIS export incentives, the government announced to introduce RoDTEP, remission of duty and taxes on export products. However, the details of the schemes are yet to be announced. So with this, I would like to conclude with positive note that the aquaculture industry is poised for a promising growth in 2021. Now we will take up the questions from the investors. Okay, Momita...

[Operator Instructions] Sir, our first question, from Mr. [ Ajay Paku from Equinities Capital ].

I had this question about you mentioned about the new schemes, which is -- the date of that is not available. However, any idea on what kind of a date will that be? And once that new scheme is being implemented, will it be implemented retrospectively? Or will it be prospectively implemented? So any idea on that front or -- will be helpful.

[ PLI ]...

This is [ current PLI ] [indiscernible].

I'm talking about that RoDTEP scheme which has been announced.

RoDTEP...

RoDTEP.

RoDTEP...

RoDTEP. The -- what the government has said was it will be beginning from January, January 2021, yes.

So it will be prospectively, but the details on that front is still awaited, right...

Yes, yes. Nothing is available as yet. Nothing is available. The government has not come out with -- yet they are saying "next week." We have to wait for next week.

Okay. And then you have mentioned about that [indiscernible] reversal of MEIS benefit recognized in Q1 and Q2, which was kind of reversed, amounting to INR 12 crores in the presentation. So this reversal is likely to be as in -- so that reversal amount, we haven't -- if I were to assume that, then we wouldn't have benefited on the scheme for FY '21. How -- so there's some confusion on that front. Or we have benefited, but some part of that benefit is being reversed...

So the scheme was available when we accounted it, but we have not received the money, nor is the government giving any clarity. So we have reversed this income.

Because the -- yes, yes. The -- because the government never gave any clarity on that, but we have -- see, we have followed the practice which we were doing [ practically ] earlier. So on the same lines, we've provided, but later on we will -- this -- they restricted it to 2 crores for the first -- the September to December, 4 months, they restricted only to 2 crores; and completely withdrew from 1st January. Then we thought that the -- and whatever the claims that were made were kept on hold. They were not releasing it. They were not allowing even [ to uphold the ] claims. That was the situation. So in consultation with our auditors and we have discussed and we decided to reverse these provisions made earlier.

We thought, as and when it is received, we'll account it for. Because we are not sure when the government would release it. So we had to reverse it.

And when it...

Till April, it was smooth. The things were going on smooth through the -- their site and we are getting the scripts, but from April, the government stopped everything. So they said that it will be cleared. So -- since we have taken the provisions for the first 2 quarters. So we had to reverse it.

Okay. So this, for the September to December, you have accounted for the same as well, you're saying, which is 2 crores each for the September to December months [indiscernible] reverse.

No, no...

No, no...

No, no, no. We have not accounted for it.

So you haven't accounted for that. So in effect, we haven't factored any export scheme benefit for FY '21 [ in that context ], right?

Yes, right, yes. You are right. You are right.

You are right.

Okay. And lastly, I just wanted to check on this Salmonella alert, FDA. So was there any -- because of things, could we have some kind of impact on the business in Q4? And any likelihood of that having implication for FY '22? And what are the steps that we are taking in terms of preventing this kind of occurrences?

So what -- so this impact is already seen. So if you see, the volume has reduced in Q4 '21. So from February, since we received the notification, the shipments were slowed down on one product range, but this is a process. We are working with the FDA and submitting all the information. And this will be reviewed and we will get a response from FDA going forward.

I may add to what Mr. Nikhilesh said that whatever that impact so far has been only that. Well, beyond that, we did not receive much response. And as I mentioned [ to him ] earlier, the products have also been almost sold because they belong to the -- almost in the January, February consignment, so -- distribution set. So it will not be much impacted, but however, we are taking all care to completely get our facilities audited by experts on this in public health and regulatory requirements so that we do not -- such things will do not recur. That is number one. Number two, since the consignment which has been found to be having this kind of a thing is very, very small and negligible and most of our customers overseas understand what our stand is, this has -- in the past 24 years, we never had such kind of instance. So there we -- almost all the customers know our track record, and they have all understood and they are all cooperating. And we do not foresee any impacts, on account of this particular incident, on our image of the company, nor our export. It is only [ a clear ] slowdown because we want to have double check on our quality control measures and see that more care is taken and systems are put in place so that things will not happen again. That's all. Other than that, there is nothing which will really have a long-term impact or -- on the image of the company or the products. [indiscernible].

Sir, our next question comes from Mr. C. Narayanan from BNP Paribas Mutual Fund.

So first is on the inventory and revenue recognition policy. The inventory movement, as far as between last year and this year, between standalone and consolidated kind of [ service ], there is a reasonable amount of inventory increase. So on revenue recognition, just wanted to understand, when do you recognize revenue for the processing business? Do you recognize it when it leaves the -- goes to the port here? Or do you recognize it when it reaches the U.S. or whichever country the material goes?

Yes. We recognize the sales only when it reaches the destination. So the...

Warehouse.

Warehouse, yes. There's warehouse. So the -- we show on the end of the quarter or end of the year as stock in transit. I mean that is the accounting standard that -- we take on the cost value, so it does not -- though the sales have been -- the shipments have been affected on the basis of the sale price -- and practically they are all sold goods only. The only thing is that the accounting standard requires that only -- those consignments which have reached warehouse of the customer, only then it has to be recognized. Till that time, it is only treated as a stock in transit or on high seas or on the transit. It has to be treated as a stock in transit. So what happens is -- so they assume the opening and closing transit value is the same. It does not affect your revenues, the top line. If it is the -- if the closing stock is then higher, the inventory which is stock in transit which is shown -- so to that extent, the revenue really comes down. And profit also, it does not reflect in that particular quarter, but it reflects in the following quarter.

Sure -- no, the question was actually in relation to the -- because the volume in the processing business is actually lower, but when we look at trade data for India, the exports from India have been pretty good. And March [indiscernible] data is also kind of suggesting the same, so that's why -- how much of your -- did you have any impact on your volumes because of the condition of the U.S. ports [ this time around ]?

See, there are a couple of issues really for this quarter. One was that -- as I told you, one, generally there was container availability. There was some sort of stress. So shortage of containers were there in that particular quarter, the Q4. And the second thing is that because the quality issues, the FDA. [ You have seen the ] -- so we took more time to streamline our processes and all. At that particular point of time, we slowed down the -- our exports. So we want to have more checks on all the qualities before we dispatch. This is one of the reasons why the volumes have come down. Because our order book is full. We have got full orders, but the only thing is, because of these reasons, we have slowed down our exports during that quarter.

Okay. Second was with regards to the PLI [ listing itself ]. Our current capacities itself are underutilized, so from a PLI perspective, do you see so much of demand kind of coming up and for you to kind of pick up that capacity? And if at all, when are you looking [ to pick up the ] capacity, this year or next year?

Sure. If you look at the PLI scheme, it is structured in such a way that, the next 6 years, the CAGR 5% is required. That is what the basic, the requirement that -- to get eligibility for the PLI. So [ what is it ] is what we have structured in such a way that, in the first 2 years, we keep the investments on -- the other condition is 75 crores which is [ the goal for ] CapEx. What we have planned is that, in the first 2 years, we'll reinvest all that because we have, we are working on certain expansion plans in the sense that, product, new products and new markets, we are working on that. So what -- these 2 years, what we will do is we'll focus on this, strengthening the or improving the capacity utilization of the existing system and, I mean, while the investment on the new CapEx is taken care of in the 2 years. And then in the process, we'll increase our sales and exports. In the next 4 years, residual 4 years, we have accelerated. See, we have projected an accelerated CAGR so that at the end of this the average CAGR remains at the 5%, which is the condition of the PLI. So we expect that, after 2 years, the -- we'll be able to make the full utilization of the additional capacities also.

Sure, sir. Third is with regards to the capital allocation. Roughly about 70%, 65% to 70%, of our [ net worth ] is in cash. So in the earlier quarters, you mentioned that in the annual results you will kind of consider with regards to possibly how to distribute, whether to [ deferred ] CapEx or whether to look at returning money to shareholders. Given these -- it will also be earnings accretive if you actually consider doing a buyback. So is there -- what does the Board think of this? And if you can throw some light on some of these aspects.

Yes. See, the first thing is that the -- we have been -- the Board, the management have been very seriously considering to start 2 things. One is to the increase the capacity of shrimp feed itself; and also to increase the -- I mean, bringing fish feed into the market, high-quality fish feed. And also we have now that PLI scheme. Not only PLI, we have some plan to expand those activities also. So these are the capital -- CapEx that we are looking for. And of course, the thing is -- the question of buyback has been considered a couple of times in the -- at the Board level, but still we consider that we need to wait for some -- and we need funds, to raise funds we require for our CapEx in the long term instead of completely raising the funds at this point of time in these conditions or market condition. It is very tough, so we thought that it is not time for looking at the buyback of the shares. That was the couple of occasions the decision was taken by the Board, but the issue has been kept open, and issue is kept open. And as and when the occasion arises, we'll be able to take a decision on that, but as far as the present condition, we're still confident that we'll be able to invest in some CapEx, these funds. And moreover, the other important thing which we would like to share with you is that the working capital limits whatever the working capital. If you look at the investment returns, the projects which we are considering and how much returns we are getting on that, we feel that still it is worth doing for -- going for working capital utilization, a portion of this, the results that we have. So still, whatever that is left out which can be considered as a -- long-term investments, that, we are under consideration of the Board that we will take, but definitely we'll take that. Depending upon the opportune time, we will -- as our CMD also earlier told, that we did -- some projects are on the [ hoping ] and, because of this COVID-19, not able to really implement them. We'll [ comment ] those projects as and when the conditions improve.

Sure. So one small request: Whenever there is -- one-offs like changes in accounting policy in terms of recognition of reversal of MEIS or things of that sort, if you can put it in the result notes itself, that will be very helpful. And second, in the results you've kind of mentioned that in -- for the directors [ listing ] achievements, you've mentioned that shrimp feed market share is over 50%, but in the presentation you called out that's 45% to 48%. If you can give better color as to what is our market share and what is the -- in the 2 businesses, that will also help.

See, I'll tell you. See, the 50% is, in fact, we achieved. It is not like that every day changes. It -- I mean it is consistent with 50% from the [ first day to last day ]. It keeps going up and down. So when we present to you on an occasion like this, we'll give you an average percentage of 48% to 50%. It does not mean that we have reduced our share of market. It does not mean. If you'll look at that when -- the total consumption of feed has reduced, but in fact we have increased. That is -- itself is an indicator definitely the market share should have gone up, is it not? So if you just look at the numbers that we have given, the -- our feed shares have gone up. When the whole -- the industry feed consumption has come down, we have increased our feed. It means that definitely the share has gone up, market share.

[indiscernible].

The next question comes from Ashwini Agarwal from Ashmore Investment Management India.

Sir, the Salmonella problem, this is the first time, I believe, that is happening at Avanti Feeds. Have you been able to do a root cause analysis as to why this arose? Is it something that got contaminated in the raw shrimp that you purchased or some other reason? I joined a little late, so if you already commented on it, I apologize for -- to repeat up.

So the root cause analysis or detailed investigation was conducted within the company. And the root cause analysis and corrective action reports were already generated earlier this month. The report was completed and submitted. We are also continuing to engage senior experts.

[ Give customers ]...

[indiscernible].

[indiscernible].

[ Did you find ] the root cause...

So we did complete the root cause and submitted report. So we are also continuing to high -- to put a high level of monitoring on all critical control points in the factory. The -- so till now since the incident has occurred, several shipments have been checked thoroughly within the factory both internally. And we've also given [ to private class ], and everything has come out clean. So we look at it as an isolated event, but however, we continue to do high level of monitoring within the facility.

I mean add to what Nikhilesh said. See, particularly, you know that the country was under severe COVID impact. The people coming and going, [ shippers ], I mean, there could have been some 1 or 2 slippages here and there slipped through that...

Actually, this Salmonella occurs from transmission from human also. Like somebody is -- see, maybe during the period, somebody was not hygienic or something. It may happen, but as per the thing, we have thoroughly checked the facilities [ and health, everything ]. And it has been everything was clear and clean, but we don't know. Maybe the -- what we -- actually what we foresee is maybe, during the peak COVID time, the workers were coming in and we weren't checking them and maybe somewhere it just slipped.

Hygiene.

Hygiene, personal hygiene.

Sir, as per the response that you submit to U.S. FDA, can you share with us what was root cause that you identified?

Alluri?

So at this moment, we cannot disclose the root cause of -- because it is still under evaluation, because the report is not closed yet, but definitely when everything is -- or case is closed, we can then disclose.

Sir, one more question I had, on the industry outlook. I mean you mentioned that the overall feed consumption has declined, so is there a potential supply problem looming ahead in the coming quarters or years? Because [ essentially ], if shrimp feed demand has fallen, then the output of raw shrimp would go down as well. Is that something you're anticipating?

Mr. Agarwal, the actual -- the thing was -- last year because of COVID [ year ]. There was a disruption in the entire supply chain. And also because of the COVID, see, the brood stock was not -- has come [ rare ] from -- the brood stock suppliers from the foreign countries and farmers also, because of lockdowns and all, they could not stock the seed in time. And the situation [ was arise ] like that. So now it has come back to the normal. So we cannot compare the last year, when we had a lockdown of almost 3, 4 -- 3 to 4 months where people were not allowed to move and things were not moving and the farmers could not stock and the hatcheries could not operate. And the factories were also running at lower capacities. So this is the situation, but it has come down. The culture has come down. Automatically, the supply was less for the seed. Culture has come down and demand was less. Now things are becoming normal and it is improving. I hope [indiscernible]...

I mean, when -- from an outlook perspective, you're saying that things are slowly coming back to normal. Is that [indiscernible]?

Yes.

[Operator Instructions] The next question comes from Mr. Punit Mittal from Global Core Capital.

I have 2 questions. The first is you notified the exchanges...

Your voice is not clear.

Mr. Mittal...

Can you hear me now?

Yes.

Yes. So you notified to the investors and exchanges regarding the Salmonella case and the U.S. FDA notification, but you also mentioned that, Q1 results -- or Q4 results, the volumes were down for the shrimp processing business because of this issue. So it looks like the issue happened in Q4. So if you can just give us a time line when that issue happened and then it was closed and whether things are back to normal right now.

So the first notification was given in February. So since then, we have taken several preventive measures and corrective actions, done a root cause analysis. So we did slow down the production, the reason being we wanted to double check. We want to go got it -- got product testified in external lab before shipment. So it did -- we did, reviewed the volumes to be more careful, put in a [ tier-based ] system, so as we go forward, increase volume. So since then, we have been complying and working with the FDA and we are working on that. Apart from that, that is not only the reason for the reduction in volume. There was a significant shortage in the availability of containers; as you are aware, that the number of cases also started going higher from February, March, so we had a lower footfall of workers. So there are multiple reasons why the volume has reduced.

Okay. Just to confirm: Is that incident closed now? Our processing business and shipping is back to normal, except naturally for the container issue, which still is the [ first thing I get ]?

The major problem for the volume down was the shortage of containers. See, we were -- backlog on the container is because of shipping lines could not supply the containers and the shipping space was not there in the vessels. And there was -- in [indiscernible] there was a condition of the [ transition, transit ports ]. There was that we could not ship out in time the vessel, the [indiscernible]. And that's a main reason. And second thing, as you said, we have also slowed down because -- to find out what was the reason for the Salmonella issue. And all those together, the volume has come down. A major was because of shortage of containers.

Okay, understood. My second question, which I think has been raised by an earlier participant and is regarding capital allocation. And from the explanation that you have given me now, given us now and [ historically ], the company is naturally conservative to preserve cash so that it can use the cash for CapEx and working capital and expansion or even to make sure that there is enough cushion when things -- for a rainy day basically. And you don't want to go for debt, but the company is generating really decent cash flows. This year has been free cash flow of 300 crores. So at the end of the day, that cash flow -- and going forward, if you are positive about the business [ keep reaching up ] to really take care of your CapEx and working capital. So could we understand that the company doesn't want to do buybacks because the company thinks that the valuation of the company is not undervalued?

See, as earlier we have been saying, see, we have a CapEx which we have to put in for further expansions and all the things which have been delayed because of the COVID. And second thing, with -- the requirement of working capital is also high. Once we expand our -- the requirement, we are also running short in our requirement, demand. The company has a lot of demand and there is a CapEx requirement. And second thing, whenever -- as and when we see the possibility, we'll look into it [indiscernible] -- yes.

Okay. Just, sir, one straightforward question: Do you think that the company is valued fairly at the moment?

See, we didn't get you.

Do you think the company is valued fairly at the moment? Do you think the company is valued -- is it undervalued? Or is it valued fairly at the moment from what the market is valuing the company?

So this is a conversation I had very recently. It's a very personal opinion. Right now, to build a company with this much exposure in the aquaculture segment, the feed mills, hatcheries, farms, processing facilities, customer base within India and abroad, I think personally it's not -- with the current value, you wouldn't be able to build such a company. It is definitely there's so much more inherent value and strength within the company.

The next question comes from Mr. Sundar S. from Spark Capital.

The first question is with regards to the marketing expenses that you had mentioned in your opening comments. So this, you had based it on the import feed prices being lower, but I thought import feed prices custom duty was increased this particular budget. So what is the situation there? And the question number -- just on the same point is that you also mentioned about the restrictions that we face by the Andhra Pradesh government. So should we assume that we've already hit the upper limit in terms of pricing for the feeds it will purchase?

See, the pricing depends on the raw materials and the -- all the things we work around pricing. I didn't understand your question. Please, can you repeat it again?

Yes, sir. In the earlier comment, you had mentioned that this time we have incurred higher marketing expenses because the imported feed prices were lower and competitors reduced the prices, but I thought imported feed prices increased after custom duty in this budget was increased from 5% to 15% on imported feeds. Logically the imported feeds prices should have been higher this time, right? So I don't get the connection there.

[indiscernible]. Yes, what you said was right. The imported feed, the duties were...

At the time, 25%.

Yes, yes...

Customs duty was 25%.

Yes.

[indiscernible], yes. See, the -- in fact, the customs duty on this product was -- normal duty was 25%, but the government had given a concessional duty of 5% on them. So a lot of imports were coming in, and they were also announcing a lot of discount schemes. With the results, they were much cheaper than Indian feeds. So several representations were made to the government. And [ across ] the -- only the last budget, they revised this thing to increase to 16%. 15.5%, they have increased. So till that time, the prices were very, very low. And because in the -- some sort of [ happen mention ] that they may lose market, many of the other competitor feed [ marks ] just started giving a lot of discounts to their feed. Already there was an impact of this and the feed consumption had come down. And moreover, with this, everybody -- almost all feed [indiscernible] started giving a lot of discounts. So the question was whether -- how to -- first thing is, well, to retain our own farmers customers and also attract the new farmers to maintain our growth rate and our feed sales. This is a challenge before us. So one of the options that we had was to introduce a scheme, a onetime scheme, by which we issued coupons to them. And these coupons were, again, [ followed up ] to be redeemed for purchase of feed itself. So we have fixed a scale such so many tonnes of feed is purchased. We'd used so much amount of coupons, like 10,000, 20,000, 30,000 coupons, again. And this coupons are utilized, the -- to the -- for redeeming the feed again. So that was the advantage we gained by the scheme and with the result we have been able to maintain our customers intact. And moreover, we have added new customers also. The scheme was well accepted. And we had the result of the scheme also under very, very tough conditions in those days. And then of course, the government conceded to our request. And we wanted it, in fact, to bring down to normal rate of 25%, but they said that, "No, no. We'll put it at 15%." So they increased to 15%. This is the background of that additional expenditure on the marketing expenses.

Right, sir. And my second question out there is that, see, last year was a bad year because of lockdown and the other events that we had. And this year also, you've indicated that the season has commenced on a weaker note. So 2 years of washout, so should we take this -- or is it a structural trend that farmers will move out after 2 years of bad crop? Or how are you really seeing the impact on ground sort of 2 years of no big crop coming through into the market from a farmer's perspective?

So I -- see, no, no, I think in my introductory remarks I said that, this year, the culture has really improved. And there is a lot of positive response from the farmers. The growth is good. Climatic conditions are good. Good quality of seed, and everything -- the farm gate prices are good. Everything is good, very encouraging to the farmers. And they have started right from January and February and they are doing well. All the growth is good. Everything is good, but we never said that this year is going to be bad year. This is a good year which we anticipate. And I think CMD would like add to...

Actually, this year, the first crop is very good. I can say the first crop is very good compared to the previous year and of the 2019. I think calendar year. The first crop of this year is quite good. And farmers will, because last year they could not, see, stock their farm, put the seed there because of the availability of the seed and because of various -- because as I told earlier, the brood stock has to come in from Hawaii or Florida. The flights were not there. And hatcheries could not operate in full scale. And the farmers could not get the seed. So last year, there were -- many people could not start in time and they could not do, but this year, first crop, it was very good. And the second -- the harvestings are going on. And the second crop is -- also looks quite good. Now the -- it depends on the climate conditions and the monsoons and all these things. This is the situation. The -- actually the -- more number of farmers have come. They have -- into this. And expansion has also taken place in aquaculture, like [indiscernible] Gujarat, [indiscernible] West Bengal. There is an expansion of aquaculture. Many people are coming into aquaculture than leaving aquaculture.

Right. So just a clarification: As mentioned earlier, the feed consumption has declined. So I presume this was referring to last year and not this year.

Yes.

Yes, last year.

Last year, last year.

Last year.

Thank you, sir. Ladies and gentlemen, due to time constraint, that was the last question. Now I would like to hand over the floor to Mr. Sherwin Fernandes for closing comments.

Thank you, Momita. On behalf of KFin Tech, we thank the entire team of Avanti Feeds for allowing us to host the call. And we also appreciate the interest from the investors and the analysts for their participation. Thank you and good day.

Thank you, sir. Ladies and gentlemen, with this, we conclude our conference call for today. Thank you for your participation and for using Door Sabha's conference call service. You may all disconnect your lines now. Thank you and have a good evening, everyone.

Thank you.

Thank you.

[ Thank you ].

Thank you, sir.