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Alluri Indra Kumar, Avanti Feeds and Forbes of India

 

The November 24, 2017, issue of Forbes India magazine contains a long article on Avanti Feeds and its founder Alluri Indra Kumar.  Avanti and Kumar have been providing Indian shrimp farmers with feeds for over twenty years.  Here are some excerpts from the article.

 

In the early 1990s, Alluri Indra Kumar, 55, chairman and managing director of Avanti Feeds, spotted an opportunity in the shrimp feeds market.

 

He foresaw the boom in aquaculture and believed that, like a ripple effect, the market for shrimp feed would expand.  He started meeting fish and shrimp farmers to understand their requirements.  “Farmers want quality feed.  Over the years, we have supplied farmers quality products, and thus our market share has kept increasing,” he says.  In 1993, Avanti had a 7 percent share of the Indian shrimp feed market.  Today, it’s 45 percent!

 

In 2008-2009, Kumar also decided to expand into the state of Gujarat, to cater to shrimp farmers along the west coast, by setting up a 50,000 metric ton manufacturing plant at Pardi in Valsad District.  Most other feed manufacturers had their plants in Andhra Pradesh and Tamil Nadu.  Avanti Feeds’ other plants are in Kovvur, Vemuluru and Bandapuram in the West Godavari District of Andhra Pradesh.

 

While Kumar is known for his compassion for his employees, his customers (the farmers) know him as the man who rescued them from the clutches of credit.  Avanti Feeds changed the way feed companies worked with farmers.  Earlier, distributors would take the feed from the companies on credit and give it to the farmers on credit.  This led to problems because when diseases struck and farmers lost their earnings, they were not able to repay the company.

 

Avanti Feeds decided to do away with credit in its transactions with distributors and switched to cash.  This meant that even in the case of a disease outbreak or a natural calamity, Avanti Feeds’ earnings would not be affected.  “We have a simple theory.  Credit kills.  It tempts people and allows them to take their business casually,” says Kumar.  Farmers can now make better estimations of their yield and adjust their costs accordingly, since they know that they can’t rely on credit.

 

In 2015, Avanti Feeds set up Avanti Frozen Foods, with 40 percent equity from Thai Union, and is working on a new export-focused shrimp processing plant in the village of Yerravaram in the East Godavari District of Andhra Pradesh.

 

Presently, Kumar’s focus continues to be on the end user.  The farmers invest around $9 thousand per hectare in ponds to create infrastructure for shrimp farming; shrimp feed comprises 45 percent of the total costs.  The company is working towards reducing the cost of the feed.  “Feed is the single largest expense for farmers.  Earlier, this expense was around 55 percent [of total cost], which we have brought down to 45 percent over the last eight years,” says Kumar.

 

Avanti Feeds also wants to reduce feed conversion ratios (the amount of feed given to the shrimp compared to their increase in weight).  At present, 1.5 kilograms of feed produce a 1-kg shrimp; the company is trying to generate the same amount of shrimp with 1.3 kg of feed.  Thai Union is involved in the formulation of this feed.

 

In fiscal year 2017, Avanti Feeds reported total revenues of $422 million and a net profit of $35 million.  While revenues grew at 35 percent, net profit went up by 42 percent over FY2016.  Also, over the years, Avanti Feeds has maintained a very high return on equity (RoE) of close to 40 percent, and investors feel it can sustain this for quite some time.  “We believe we will grow at around 20 percent for the next few years to come.  That should keep our RoEs in a comfortable position,” says Kumar.  The stock market too believes the company can maintain its growth rate; the price-to-earnings (P/E) ratio of the stock works out to 31 times its FY17 earnings.

 

Avanti Feeds’ share price has clocked an annual growth of 122% in the last ten years.  In the last year, it shot up 400%.

 

Source: ForbesIndia.  Avanti Feeds: Harvesting High Values.  Pravin Palande.  November 21, 2017.

 

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