Avanti Feeds Limited (512573) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. I am Momita, moderator for the conference call. Welcome to Q2 FY '22 Earnings Conference Call of Avanti Feeds Limited, hosted by KFin Technologies. [Operator Instructions] Please note this conference is recorded. I would now like to hand over the floor to Mr. Sherwin Fernandes of KFin Technologies. Thank you. And over to you, sir.

Thank you, Momita. Good evening, and welcome to the Q2 FY '22 post-results earnings conference call. On behalf of Avanti Feeds and KFin Technologies, we'd like to send out festive greetings to each one present on the call; and wish everyone a very safe, happy and a prosperous year ahead. We have with us from the management Mr. Alluri 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 ]; and Ms. Lakshmi Sharma, Manager, Corporate Affairs. I now hand the call over [indiscernible]. Thank you. And over to you, sir.

Well, thank you, Mr. Sherwin. Good evening, ladies and gentlemen. We extend a warm welcome for this investors conference call to review the unaudited financial results for Q2 FY '22. Along with me here, Sri Indra Kumar, Chairman and Managing Director; Mr. Venkata Sanjeev, Executive Director; Mrs. Santhilatha, [ General Manager, Finance ] and Accounts; and other team members. Mr. Nikhilesh, Executive Director, will -- have joined through VC call. The results of Q2 FY '22 are already with you for some time now and we are sure that you will have gone through them. However, as usual, I would like to share with you some of the key indicators relevant to -- for our discussions today. Let me take first the consolidated financial results for Q2 FY 2 (sic) [ FY '22 ]. The compares to performance of Q2 FY '22 with that of Q1 FY '22 and Q2 FY '21 have been given in the presentation already circulated. Gross income in Q2 FY '22 is INR 1,252 crores, as compared to INR 1,430 crores in the previous quarter, Q1 FY '22, a decrease of INR 178 crores, down by 12.5 -- 12.45%. Compared to Q2 FY '21 gross income of INR 1,150 crores, there is an increase of INR 102 crores, by 88.87%. The PBT is INR 38 crores in Q2 FY '22, as compared to INR 99 crores in Q1 FY '22, a decrease of INR 61 crores, by -- down by 62%. And compared to Q2 FY '21 PBT of INR 162 crores, there is a decrease of INR 122 crores, by 77%. Decreases in PBT is on account of steep increase of raw material prices in key division, especially soya bean meal and fish meal. [ If we take up ] the stand-alone performance of the key divisions. The gross income for Q2 FY '22 is INR 982 crores, as compared to INR 915 crores in the corresponding quarter of Q2 FY '21, registering an increase of INR 67 crores, which is by 7%. The gross income in Q2 FY '22 reduced to INR 982 crores from INR 1,257 crores in the previous quarter, Q1 FY '22, down by 21.88%. However, the first half year ending 30th September '21 registered a gross income of INR 2,239 crores, as compared to INR 1,710 crores in corresponding half year of the previous year and increased by 30.94%. The PBT for the Q2 FY '22 is INR 20 crores, as compared to INR 93 crores in Q1 FY '22, a decrease of INR 73 crores, by -- which is by 78% down. The PBT in Q2 FY '22 is reduced to INR 20 crores from INR 123 crores in the previous quarter, Q2 FY '21, decreased by 84%. You may observe that, in spite of increase in gross income, the PBT has come down by 84% compared to corresponding quarter Q2 FY '21 due to steep increase in raw material prices. Let me just give you a detail about increase of raw material prices. As in the earlier quarters, continued and uncontrolled steep increase in raw material prices, particularly soya bean meal and fish meal; and in products such as soya lecithin and fish oil have been major contributing factors for drastic fall in the margins in spite of increasing the sale price of feeds. The fish meal price has gone up to INR 105 per kg in Q2 FY '22, as compared to INR 95 per kg in Q1 FY '22. And now it is at INR 95 per kg. The soya bean meal price, which was at 65% -- INR 65 per kg in Q1 FY '22, shot up to INR 110 per kg in Q2 FY '22. The prices of soya bean meal went up so uncontrolled that, at the request of -- the request and persuasion of poultry and [indiscernible] feed manufacturers, the government of India had to intervene to permit import of soya bean meal to control the price increase. 12 lakh tonnes of soya bean meal have been permitted to be imported to stabilize the domestic prices of soya bean meal. Now since the new crop of soya bean started coming into the market, the prices are showing downward trend gradually, though initially soya bean meal price went up -- went down to 48% (sic) [ INR 48 ] per kg but did not last long and went up again. Now it is at about INR 56, INR 57 per kg. In case of fish meal, the price decreased marginally from INR 105 per kg to INR 95 per kg for some reason or the other such as slow arrivals of fish from fishing; climatic conditions such as cyclones, et cetera; export demand; deterioration in the quality of fish, such as [ low fat and oil ] content. With the new soya bean crop coming into the market, it is hoped that the prices of soya bean meal will stabilize gradually, but one of the major factors that have been contributing has been the [ NCDEX ], the [ forward ] trading. We hope that the government would do something about it to keep the soya bean prices stable. The prices of other inputs such as vitamin and mineral premixes, packing materials, et cetera have also been increasing, [ pushing up the ] costs of production of feeds. Now coming to the increase in the sale price of feeds. In spite of increase in the average feed price realization by about INR 7.16, in the first half year, the -- 3 times the prices have been increased, like INR 2 once; [ INR 3.15 ], second time; and [ INR 4.25 ], third time, due to increase in prices of the raw material. The costs of material, raw material, increased by 14.7 paisa per kg, leaving a difference of about INR 7.59 unabsorbed by the feed price. However, with soya bean meal and fish meal prices coming down gradually, it is hoped that the gap between the price and the raw material costs gets gradually reduced. Shrimp processing division [ Q1 FY '21 ] results. The gross income for Q2 FY '22 is 273 crores, as compared to 238 crores in Q2 FY '21, registering a growth by 35 crores at [ 14.71 ]. The gross income in Q2 FY '22 increased 273 crores from 175 crores in the previous quarter, Q1 FY '22, which increased by 56%. However, the first half year ended 30th September '21 registered a gross income of 448 crores, as compared to 427 crores in corresponding half year of the previous year, an increase of 5%. PBT before exceptional items for Q2 FY '22 is 41 crores, as compared to 40 crores in Q2 FY '21, a marginal increase. The PBT in Q2 FY '22 is 41 crores, increased [indiscernible] in the previous quarter, Q1 FY '22; and increased by 24.2 -- 242%. However, the first half year ended 30th September '21 registered a PBT before exceptional item of [ 53 crores ], as compared to 75 crores in the corresponding half year of the previous year, a decrease by 29%. One of the main contributors for the decrease in the margins is increase in ocean freight rates. As in the earlier quarter, the container freight rates have been steeply increasing without any control, resulting in significant decrease in margins. In spite of several efforts [indiscernible] government of India and [ its export instructions in NCDEX ], freight rates are not coming down. Reductions in export incentives. As you know, the government of India had discontinued MEIS incentive scheme, with effect from 1/1/2021, and also had put a cap on MEIS at INR 2 crores for the period from 1st September 2020 to 31st December 2020. However, the government was not releasing the eligible MEIS for a long time, for which no provision was made in the accounts or [ reverse partial ] provisions already made. Now during the quarter, the company has received MEIS income of INR 14.14 crores pertaining to FY '21, which has been [ appropriated for ]. RoDTEP. The government of India had announced a new incentive scheme, remission of duties and taxes on export products, introduced effective from 1/1/2021, in the place of MEIS. As far the scheme announced by the government, the company is eligible for RoDTEP scripts to the extent of 13.58 crores from 1/1/'21 to 30th September 2021, for which no provision has been made and will be accounted for as and when received, the reason being that still the website of the government regulating this RoDTEP is not yet live. Still we are facing problems in uploading the applications. Coming to the status of recalled products, like frozen fruits. As you are aware, the company had to recall cooked shrimp products, [ on ] potential for Salmonella contamination, by [ U.S. FDA ] and CDC, in the recalled products. The recall had to be made twice, in June '21 and August '21. The recalled products have -- not allowed to be brought back to India and they had to be destroyed in the U.S. itself. As a result, the company is liable to compensate its customers for recalled products and related expenses of destruction charges, et cetera to the extent of the products returned and destroyed. The company is also liable for reimbursement of medical and related expenses to the consumers who fell sick and are undergoing treatment after consuming the recalled products. Insurance coverage. The company has product liability insurance covering the medical and related expenditures mentioned above. However, there is no insurance coverage in respect of reimbursement of products returned and destroyed; and also other related expenses such as product destruction, [indiscernible] expenses, storage expenses, et cetera. This cost has to be met by the company. Provisions in the financial statements. In the first half of FY '22, a sum of INR 21.25 crores, and that is Q2 FY '22, INR 17.15 crores, and Q1 FY '22, INR 4.10 crores, has been charged off as an exceptional item towards value of returned and destroyed products and other related expenditures. The provision in the financial statement has been made on the basis of the returned and destroyed value of the products, together with related expenditure [indiscernible] which is of 21.25 crores. Since the recall of products is made more than 4.5 months ago in case of initial recall and 3 months ago in case of expanded recall, further returns of the unsold, unconsumed recalled products is not expected to be in a significant way. Further claims, if any, will be charged off as and when [ received ]. As regards insurance claims, the company is following up with insurance companies for settlement of claims. So far, 14 claims for bodily injury sickness have been reported without indicating any financial claim, which will be obtained in the [ post of ] processing of claims by the insurance companies. Now I come to industry overview, future outlook and plans for the company. The global economic growth trends and forecasts indicate a bright future ahead after undergoing the trauma of COVID-19 first and second waves. Though a third wave is anticipated, the impact is not seen as serious, as most of the world populations have had vaccinations. In India too, robust economic growth is expected in coming years. The [ first crop ] of shrimp culture in the country has been more than previous year; and appears promising in the second half also, as farm gate prices and the climatic conditions are stable for shrimp culture, coupled with stable export prices and sustained growth of exports. Shrimp production and feed consumption in 2021. The shrimp feed consumption in India declined to about 9.55 lakh tonnes in 2020. However, as the demand for shrimp is expected to increase in 2021 due to return of normalcy and favorable shrimp 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's feed sales during 2020 was about 4.55 lakhs metric tons; and is expected to be around 5.25 lakhs metric tons in 2021, an increase by about 15%. The company is expected to maintain its market share at 48%, 50%. CapEx plan for shrimp feed plant. It is encouraging to note that in the adverse conditions of COVID-19 the company has been able to not only keep intact its farmers base but also significantly succeeded in getting the farmers of competitor's feed converted to company's feed. Moreover, with stabilized export prices and continued climatic conditions, the area under shrimp farming is also likely to increase, resulting in increase in demand for feed. [ To tack it to the ] increasing demand for company's feed, it has been decided to expand shrimp feed manufacturing capacity from existing 6 lakh tons -- metric tons per annum to 7 lakh 75,000 metric tons per annum by setting up a new shrimp feed plant at Bandapuram with a capacity of 1 lakh 75,000 metric tons per annum at an estimated CapEx of 125 crores, the construction and commissioning scheduled to be completed and commenced commercial production from June 2022. The shrimp processing and export -- the shrimp production and exports from India in '22 -- 2020 was 5.75 lakhs metric tons. And however, during the current year, 2021, the production and export of shrimp feed is estimated around 6.50 lakhs metric tons, a growth of about 10% to 15% over the previous year. The company's shrimp exports in 2020 is about 12,192 metric tons. Estimated exports in '22 is about 12,700 metric tons, maintaining almost same level in 2021. I would like to conclude with a positive note that aquaculture industry is poised for a relatively much improved performance in 2021 compared to 2020. Thank you. Now we will take up the question-and-answers...

[Operator Instructions] Our first question, from Mr. Depesh Kashyap from Equirus Capital.

Sir, on the RM prices. Since -- so MEIS [ corrected ] very sharply again. I just wondered your thoughts. Is there [ any pressure on the ] Andhra Pradesh government to roll back the price hikes that you have taken?

Depesh, yes, the government has asked us to reduce the prices because the farmers were making a little bit -- were requesting a further price reduction, but we explained to the government [ and said ] the prices have not really come down. And in general, on our overall situation, the costs of all the raw materials and even the electricity [ and all of these ] have been -- have gone up, so we said we have to wait and see and -- the situation of the raw material, how it is going to move. And what all -- we have explained to them that we have imported soya meal from other countries because the government has given onetime permission. We have stocks and now we cannot reduce the prices, but we have to sit down with the government and again discuss with them and turn the structural situations of industry.

Okay, right now you have not decreased the prices. You are still...

No, we have not decreased the price, yes.

Understood, sir. And sir, how many days of soya meal inventory are you holding? And at -- what is the cost of that inventory, sir?

[ Sir ], actually the -- we have covered the soya meal till now. We have imported some soya meal and we have also bought soya meal. And we have almost around 12,000 tonnes...

[ 12,000 tonnes ].

12,000 tonnes of soya meal [ with us ].

See, the average price, Depesh, the -- as of now, it will be around INR 60.

INR 60.

It will -- we are expecting [ a bit the ] very, very highly volatile situation, what we are seeing in the market, as far as the soya is concerned. So we thought that it is coming down, but again it is going up. And today also it has gone up. The thing is that, [ till it stabilizes ], the new crop comes. I think, the raw material prices, we have to keep our fingers crossed...

Basically, see, [ fact is ] crop -- soya crop is very good. The crop is really, you can say, [indiscernible], but unfortunately, since it is in the commodities exchange, [ more then, the fiscal stock moment ], it is growing the stock commodity, still the prices are being artificially [indiscernible] by some traders [indiscernible], yes...

I think it's just that always going for premiums. It's the problem.

Got it, sir. The second question, on the feed sales. Feed sales seem to have slowed down in this quarter. So any reasons why -- what happened? And is there any shortage of supply for your processing plant that you're seeing in this? And also you have announced a CapEx increase, right? So what kind of demand visibility you have for the next year.

See, basically you have to still look at -- see, this is a seasonal -- this thing. Now already winter has dropped in. And like see, actually it is a time for harvest where people harvest and get ready for the next crop, which will be -- they'll be readying for the next crop by January, February. So it is a general trend. It has [indiscernible] this is [indiscernible].

And Depesh, I can add to what CMD said, that what you are referring to is the first -- [ this comes ] quarter 2. Q2 [ is it -- not ]. So if you take actually Q1, Q2 together, compared with the earlier year, the first half year, there is a significant increase in the volume of sales...

[indiscernible].

[ Yes. That -- actually ] that indicates that we have been able to really keep our farmers base intact. And moreover, we have been able to -- we have -- kind of get conversions from other feeds also very much in the first half year of the year, at the half year of the -- see, this financial year. So basic reason is, as CMD said, it's a seasonal factor. So what happens is, if you compare the last year corresponding quarter, the feed sales was more. And the Q1 FY '21 was more and Q1 FY '22 was less. And the -- if you -- and that is reversed in the second quarter. It means, the first season's spillover from Q1 to Q2, there is -- as said, takes place according to the culture situation. So overall, if you look at the entire 6 months period, we have registered a significant increase in our volume of sales.

Got it, sir. Sir, I was just asking. It was one of the...

Mr. Kashyap...

Just a continuation [indiscernible] if I can continue. Sir, I was just asking. That other listed entity, they just announced in their conference call that there was some [ disease-related ] risk. And the early harvesting happened, right? So you don't -- saw any such kind of a thing for -- which led to a slowdown.

No, no. See, actually there was -- as you see, the second half, there was a lot -- the cyclonic climate was -- we had triple cyclonic -- cyclones which have come in, mild cyclones. Definitely, see, the farmers were afraid of any damage. They harvested in a very premature harvest.

The next question, from Mr. Nitin Awasthi from InCred Equities.

My first question will be the Thai Union Feedmill had just recently got listed. And in their listing, they had recently released a press release post listing in which Avanti was also mentioned as a partner in the future investments that they will do. So has the relationship now changed? Or how much is the royalty that we will now continue to pay to Thai Union Feedmill [ instead of ] Thai Union? And what are the opportunities that this brings out, the separate entity Thai Union Feedmill?

Thai Union Feedmill is a technical collaborator with the Avanti Feeds Limited. The royalty is being paid [ from beginning to prior the treatment ].

Okay. And that will continue at the same rate.

Yes.

And no new royalties will be incurred to be paid to Thai Union Feedmill. Is that correct?

Yes, correct.

Okay. And they also spoke about opportunities in fish feed and in India, so is the company is -- collaborating with them for fish feed?

Yes, yes...

Is this a particular species or a generic fish feed?

No. [ This is specific species ]. Like earlier meetings or conference call, the investors, caller, we were talking about sea bass. The -- in the sea bass feed, Thai Union is a leader in the world. So we are -- in India also, the culture of sea bass is going up. We are working out on -- the sea bass feed and other fish feed for tilapia and other feeds.

And tilapia, you mentioned.

Tilapia also [indiscernible] culture of tilapia in India, but that also [indiscernible].

Okay, okay, noted, sir. And the second question will be there is a Gujarat-based entity which got permission for SPF black tiger. And they [ club ] their products very well. They [ club ] their SPF black tiger feed along with their shrimp feed for black tiger, and they've got a substantial market. At least that's what the news indicates, that a lot of farmers started to do black tiger, using their feed. So did this impact us in any manner, specifically in Gujarat?

No, no. So the feed is being supplied by them, but the feed is being used by [indiscernible]. Their feed has not been successful, as far as the market information is -- what -- [ the record ] of the market information.

Okay, okay, noted, sir. Sir, lastly from my side, has all the price increase been reflected into the current price? Because what I'm getting when I do calculate the current price of feed is realization is INR 75.36. And the price increase is a little more than that, so could I see more realization increase in the coming quarters?

No, we have not increased the -- yes. We -- actually we have not increased the price [ of late ]. We have increased the price in August.

[ August ]...

We have increased the price in August. That is...

[ 3 phases ]...

We've increased in 3 phases, around [ INR 11.55 ] we have increased...

Yes, but it's not completely captured, right, in the current quarter's realization...

[indiscernible] that total what raw material prices have increased. We have not captured the entire increase of raw materials because this is the same as soya bean meal. So it was a fluctuating market. Actually it is -- unless it is removed from the commodity exchange, the -- there are people playing in the exchange.

Noted, sir, but what I was asking was the realization. So should the realization go up to [ 78 ]?

Mr. Nitin, see, what you said is correct because, since we have, yes, taken the increase in price in 3 phases, that particular quarter will not completely take the realization. It will -- actually it will get the full impact in the current quarter.

[Operator Instructions] Our next question from [ Mr. Nisarg Vakharia from Lucky Investment ].

Yes. I have 1 question. That 1 question is that what is the effective price increase of feed for the farmer after the raw material price inflation and the price hikes that we have taken on the feed? And secondly, since you have mentioned about fish feed on sea bass, sea bass is a very premium commodity, very premium fish. Is there any cultivation of sea bass that happens today in India? Or is this something which Avanti will take the lead with the new setup of fish feed, if you could give some insights on this.

Yes. I would answer the fish feed. The sea bass culture has started in India in a slow way in -- slowly it has it has started in India and the culture is being done. The feed now is being imported from Australia and other countries, and there's no feed, much feed in India for the sea bass. And definitely, Avanti is going to encourage the sea bass culture in -- because India has a vast fish culture, to convert it to sea bass because the farmer makes a higher profit and also the farmer will -- the sea bass is a premium variety.

So in answering the other question, what is the price increase for the farmer, the feed price. It will be around INR 7 to INR 7.5 is the increase of the feed. But whereas our cost is about INR 16 where the difference is being met by the company. The farmer gets only an increase of somewhere between INR 6 to INR 8, that is the range. Range but...

Sir, how much does it hurt the farmer when he has to pay INR 7 more? And how relevant is the cost price or the cost of feed in the overall cost of production? And does India also enjoy favorable conditions for [ meeting ] and cultivating sea bass like we endear for tiger shrimp?

No. No, actually, the feed cost is around 49% to 50%. It remains the same because the prices of the shrimp also has gone up.

Okay.

The farmer -- farm grade price of shrimp has also gone up. The price...

Okay. Okay. There is no government price control on this, right?

There's no -- government requests companies to like request the companies to take care of the farms.

Okay. Okay. Right. And sir, I've asked 1 more question that does India enjoy also climatic advantage to cultivate sea bass like we enjoy in tiger shrimp?

Yes. Yes.

The next question from Mr. Aman Madrecha from Augmenta Research.

Yes, sir. So my question was like currently, we are operating on the shrimp side business, we are operating at almost 0% margins. So how are you seeing the situation? Will it persist or how long it will persist or when it will go away? And the other question was, like I just want to understand, why can't we raise the feed prices despite of being a market leader in feeds, like...

Yes. Your question, see here the raw material prices have gone up. It is a season like a , it depends on the catches so the -- in the ocean, the fishmeal catch, fish catch in the ocean and also the crop situation of soybean and the beat in the country. See since after COVID, all these costs have gone up almost 30% to 35%. And also, since there was shortage of soybean meal and fish meal, the prices have gone up and now as I told earlier, the soybean crop this year is a bumper crop. But as long as it is in the exchange, commodity exchange, the physical transaction is much less. The prices should come down. And the fishmeal arrival also is -- the fishmeal arrival also is good compared to the previous year. And I think we are expecting the prices to come down. But definitely, the prices are not going to come down. We have to increase the feed prices.

And sir, can you just give me the capacity utilization for this quarter and previous quarter?

Capacity utilization of the previous quarter, we were almost more than 110% -- 115% to 120%.

And [indiscernible] we are at 85%, right?

Yes, 85%.

The next question from [ Mr. Deepak Shah from Sevarth ].

My question is regarding the shrimp feed part. So on a half yearly basis, we have seen significant increase in the overall sales volume. So is the demand trend really looking good? And if the demand trend is looking good, then is it sustainable for second half of the quarter -- second half of the year? And my second question is regarding the margins that we have -- margin pressure we are seeing on the shrimp feed part, so we have not taken the price hikes to a significant extent. So that is why the rise in commodity prices and the end prices of our product is kind of disproportionate. So are we planning any kind of price hike in the second half of this particular year? This is my first question, yes.

Yes. To answer your question, this is shrimp culture and the aquaculture is a seasonal business actually agriculture. The first half is the peak season and I mean the harvest takes place. It's slow stock. So you have to take -- it's a seasonal business, basically it's a seasonal business. And regarding the feed prices, as I said, we were anticipating the feed price to come down with the raw material price to come down. But unfortunately, it didn't come down. So the government of India has allowed us to import the soybean meal. So the prices have stabilized. And the new crop has come, which is a good crop. And if the raw material prices goes up, we will definitely increase the price.

And sir, as we have not increased the prices in that extent in this particular quarter, has it benefited us in gaining any market share compared to with the competitors?

See, we have gained the market share. We have the gained market share, and you can see from the results, that our sales have gone up. Our sales have gone up but we have gained the market share, and we are running almost full capacity of the plant. And since we are not able to supply to the requirement, we are expanding. And see as you said, see we -- see the -- because these are commodities, we expect the markets to come down or go up. See, we -- unfortunately, the market of -- the raw material prices have gone up. But to the extent we could not increase the price because we have to see the farmers are [indiscernible] now since the raw material price, the shrimp prices have gone up and the feed prices are -- the raw prices are coming down, there's no necessity -- we don't find any necessity now to think of any increase. And if the raw material price go up, we will definitely do it.

Okay. Okay. And sir, my second question is regarding the products that we have recalled due to the quality issues. Sir, what is the exact compensation amount that we have incurred in this particular quarter? And what are the measurements that we're taking? Because we believe this is the second time we have done this activity, and it might also weigh heavily on our brand image. So what are the mitigatory measurements that we're taking so that this kind of thing does not happen in future? And what is the exact compensation that we have incurred in this particular quarter?

To answer your first question of the compensation, see the -- we have made a provision of INR 21.25 crores on the basis of the products, recalled products, which have been returned and destroyed and also the related expenditures like storage, like destruction cost and all, which is the basic liability of the company. So that is the -- we have taken care of that because that is the liability of the company. See, as far as the insurance coverage for the body injuries is concerned, we have received about 14 claims. But none of these claims have really given the amount of compensation they are anticipating or expecting. But still under process. The insurance company sought some information from the claimants. Said, what is the incident, what is -- how it -- when did you consume? When did you file whether there is any doctor's report and all? All these things, when we get, we'll be able to exactly know what the claim amount is. We do not expect that much more than around INR 21 crores, INR 22 crores will be the total liability as far as the both the recalls are concerned. As far as the image is concerned, we do not foresee any big impact of this because we've taken all steps. I think Nikhilesh would be able to explain the steps that we have taken to improve the system's procedures according to -- in accordance with the FDA regulations and I gave the services from some experts. And I think he'll be able to explain. Nikhilesh, can you explain this?

Yes, sir. So in terms of what we are doing to ensure that we don't -- or this doesn't occur we have done multiple food safety audit which we've rerun the whole -- we rerun the whole asset plan. We visited -- strengthened it further to ensure that the incident does not occur again. And we've also increased the testings at the factory, and we have increased the number of microbiologists in the factory, and we -- one of the most advanced food safety system in the world in the facilities. And we are thoroughly looking at it every day, and the results have been quite -- very good actually. All loads now with FDA have tested and passed. So we can see that the system is working. On the brand image, as we have been in the business for a very long time, over 2 decades now. So our customers are confident about the product. And they have been -- we have explained what are the new initiatives we have taken in the factory to arrest the recurrence of such a problem and they are convinced and they are supportive. So I don't think in the long term that any significant impact on the brand image or customer base.

The next question is from Mr. Chockalingam Narayanan from BNP Mutual Fund.

This is with regards to the PLI scheme. Any progress there? And what are we expecting in terms of -- what plans do we have with regards to that scheme?

Yes. The -- we have made the application to the government PLI scheme. That is under process still. We have to get the clearance from them because it has got 3, 4 levels. We have answered all their queries, and it is under process. I think it's premature to give any specific idea about how much we are going to get and all, but we'll -- we are awaiting the processing by the government of India commerce department.

So not about the sort of incentives, but more about the quantum of investment that you're envisaging under this. And what sort of end products are you looking at? And with regards to fish also, along with fish feed, would you have to put in money or set up a capacity towards fish processing as well?

No, no. Fish processing is not there. The fish is sold domestically. Fish processing is not on the -- right away, it's not on the cards. But definitely, the investment for the processing expense is around INR 82 crores what we have committed, INR 82 crores.

Understood, sir. And in regards to the...

Mr. Narayanan? If you don't mind coming back in the queue for more questions.

Sure. Just 1 question if I can just ask with regards to the raw material cost versus the quarter that has gone by, how much has it reduced at a -- if you can probably index it? And if you can give a commentary on at spot levels, how much has it come down to? That will be helpful.

We have [indiscernible], GMV, has already informed in his this thing. See, the fishmeal has gone up to INR 105 and now it's come down to INR 95. And soy has gone up to INR 110 and now it is around INR 60.

Sure. So those are the averages that we are talking about, sir? Or those were the range that we were talking about. That is what was not clear, hence the question.

Yes, it is a range.

Yes. See, it keeps changing almost every day, almost every hour. It is very difficult to exactly index it saying that average is so much. What we do is that we keep monitoring the prices of the soybean meal. From time to time on a day-to-day basis, we book orders depending upon our stock levels and also as our consumptions. So it is very difficult because nowadays, the last 1 year, 6 months to 8 months, it has been undergoing a very, very severe volatility, this soybean meal. So what you might have definitely observed this based on what's happening in the market of soy. So we are -- it's very difficult to tell. See, as I mentioned in my initial this address, I told that it was INR 40, INR 50, it has went up to -- it came down and again went up now at INR 60. We don't know what is going to be the rate tomorrow morning. We are really surprised which never happens. So every year, what happens is when the new crop comes then in the month of October, the -- gradually, it comes down and because the fresh crop is available in the market, the prices come down. And it's almost like under 6 months, the prices are very stable. That what has been happening for so many years. But last 3, 4 years, the predominant has completely undergone change. Maybe as the CMD said, it is because of NCDEX coming in the way, because they keep some sort of futures booking in anticipation of prices going up, coming down. And that gives -- the farmers today, the situation is that though crop has come into the market, it is available, but it is not being released for sale, because they are anticipating the prices are going up, because future prices trading, they are showing -- indicating the prices will go up. So they are not selling. They're just holding it. It is not coming into the mundi. That is the situation now.

Our next question from Mr. Punit Mittal from Global Core Capital.

I have just 2 or 3 simple questions. One is that the feed expansion that we're taking next year. Is it under the PLI scheme? Two, the sea bass import of feed that you mentioned, do you have -- can you give us some color on what's the quantum in terms of your volume and the value that maybe is India importing today? And 3 is regarding the cash pile up, and you may be aware that investors are wary of the situation because many companies in India after such a large cash pile up has gone into diversification or related party discissions. Given Avanti's historical reputation, it doesn't look like that will be the case. But [indiscernible] feed -- sorry?

Your voice is not clear.

Is it clear now?

Yes.

Yes. So my third thing was about the cash pileup...

What is about the second question?

Mr. Mittal...

Did you get all my questions?

No. Second question. We couldn't -- you were not clear.

Okay. My second question was regarding the sea bass import of the feed that you mentioned about. Can you just give us the volume and the value that India is importing currently?

No, we don't have exact value of the feed, because the sea bass culture has just started. It's just starting, and the small quantity of feed is being imported from Australia and Vietnam. And most of the [Audio Gap] they're using the crude method of feeding the raw fish.

Okay. And the feed expansion that you're undertaking, is it under the PLI scheme?

Feed is not under PLI, so it's only for crossing is the PLI.

Okay. And my last question was regarding the cash pile up...

We are expanding right now. We're expanding the shrimp feed.

Yes. Yes, I got that. But I was just...

And we are going in for fish feed in the second stage. And right now, as your question of sea bass feed, as to the exact quantities, we don't have right away. And most of the farmers are using a crude method of feeding it.

Traditional.

Traditional method of feeding it.

I got that. My last question was regarding the cash pile up in the balance sheet. I was asking because the cash is piling up and naturally investors are wary of this kind of situation of cash piling up on the balance sheet. So if you can give us what the plan of the company is regarding that?

As you know, we are going in for an expansion, and we are not in this thing. We are using our own funds for the expansions. For the shrimp feed, we are going with INR 125 crores this thing. And again, the fish feed is going to cost us. And see, we are going to use the working capital requirements. The working capital requirements will go up much higher. Since it is a seasonal business, we require much more working capital and we don't want to get into the situation of raw material purchasing when the raw material price is low we have to purchase at a much higher quantities and to keep inventories.

The next question from [ Mr. Omkar Gungadhare from Sri Consultant ].

Hello?

Hello.

Yes. Is my voice reaching you?

Yes.

Yes. My question was more to do with the expansion, which you have done. So what kind of sales you are expecting -- asset turn you are expecting from this expansion?

Sir, actually, see, because we are utilizing the [indiscernible] it is a seasonal business, and we are utilizing the capacity almost at 125% to 130% in the peak season. And in the low season, we have had a 80% capacity we are utilizing. We are -- we would be -- like we are running at a very in -- we are well in short of the -- we are not able to cater our customers.

Healthy demand.

On the demand, the demand, what we have, we are not able to meet up. See, now we are expecting this year around 5,25,000 tonnes. We are expecting another 1,250,000 tonnes in the current year.

So, I mean I have to say that the peak season starts in the month of -- starts from March and April, May, June. That's the peak season. And every year, we are facing a severe shortage in supply because of the higher demand. So we have to -- and also any -- the -- to mitigate the risk supposing we are able to get some machinery problem and there is a stoppage for processing in 1 unit or 1 line, then it gives real problem in the peak season. So what we were earlier doing is we used to pile up the stocks of finished goods by end of February, March so that it can be distributed in a subsequent year, but we do not want to expose to any other such unknown situations. And we want to see that we are comfortably all our farmers or dealers and farmers get the feed on time without any disturbance in our supplies. That is one of the major reasons which we want to go for expansion. Added to that, as we are expecting the increase in demand also but what we have seen in the last 6 months is the number of new -- the farmers getting converted into our feed because of our quality of feed and our services and we expect that our demands may go up even more than 50% of the market. So to cater to that also, we are keeping in mind we are expanding the capacity.

Okay. So as far as the competitive scenario in the market is concerned, what's the total tonnage, the yearly it's going on for the current year you are expecting? And what...

10.5 to 11 lakh tonnes.

Okay. And what would be the capacity utilization approximately on to that?

Pardon me?

What would be the capacity utilization companies who would be working on? I mean, how much is actually sold to the -- in the system?

See, as we have been telling that this is a seasonal industry, the season, if you ask me the capacity utilization, it has to be average or a particular one. In the month of May, if you ask, it will be 140% capacity utilization. If asked in December, it will be 6%.

6%.

So what we consider is an ideal capacity on an average, it should be around 85%. You take 85% and think we average the capacity utilization. If we can achieve that, it's a good. Is it not the total installed capacity, the average, if you look at 7 lakh tonnes, let's say, 7 lakh tonnes is installed capacity, if you look at 80%, it is about 5,40,000 tonnes, is it not? So that's how it works.

Okay. See, in the peak season, we are operating at, as earlier said, 125% to 130%. So 130%.

Right. Yes, so the last question of mine is that as you can see from the last 3, 4 years, the return on equity and return on capital employed because of the cash pile, which is going on and the capital allocation being done by the company is automatically going down, so now it's in single digits. So I mean, what exactly is the plan? I mean last time you said that around INR 400 crores to INR 500 crores, you would be requiring for the working capital. And now you are saying that on top of that INR 125 crores for capacity expansion and around INR 80 crores to INR 100 crores for the other things. So still, you have sufficient amount of cash on your balance sheet. So I mean what will be the...

The increase in capacity with the increased capacity of working capital will go up.

Yes, correct. But still, it is not -- it won't go up that much, right?

It will go up. Now the situation -- we have seen the situation. See, we have to keep the inventory much higher stocks.

Yes. But apart from that, still you will be having a lot of cash on the balance and you will be generating a lot of cash because of the higher production you will be generating, right? So higher revenues, higher profits, higher cash.

We have been given the dividends also good dividends also.

Ladies and gentlemen, due to time constraints, that was the last question for this call. I would now like to hand over the floor to Mr. Sherwin Fernandes for closing comments.

Thank you, Momita. We'd like to thank the management of Avanti Feeds [ for giving us the opportunity to host the call ]. And I'd like to thank the investors and the participants for their time on the call. Thank you, and have a nice day.

Thank you, Sherwin.

Thank you. Thank you.

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.