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This hidden gem has rallied 164% in 5 months; do you have this stock in your portfolio?

Updated : January 17, 2020 06:18 AM IST

This year, the small-cap stock has already jumped 26 percent in just 11 trading sessions.

The rally this year was supported by India Ratings and Research that affirmed the company’s credit ratings.

In August last year, this small-cap stock stood at its six-year low, and today it has bucked the trend by climbing 164 percent. Avanti Feeds is the leading manufacturer and exporter of fish feeds like shrimp and prawns. Established in 1993, this company was first listed in 2010 at around Rs 26 per share and rallied up to Rs 3,395 in 2015.

This year, the stock has already jumped 26 percent in just 11 trading sessions. The rally this year was supported mainly by India Ratings and Research that affirmed the company’s credit ratings on January 1.

Avanti Feeds trades on a P/E ratio of 26.9x, which is above its market average of 13.8. Its net cash position supports a higher P/E ratio, as does its solid recent earnings growth. With net cash of Rs 9.7 billion, the company has a very strong balance sheet. Having said that, at 11 percent of its market capitalisation, the cash hoard would contribute towards a higher P/E ratio.

In Q2FY20, the company reported consolidated sales of Rs 1,064 crore, up 41.1 percent year-on-year (YoY) on account of 51 percent growth in Avanti’s shrimp feed business and 15 percent sales growth in the shrimps processing business.

EBITDA (earnings before interest, tax, depreciation, and amortisation) rallied 79 percent YoY to Rs 129 crore with the margin expansion of 260 bps YoY at 12.1 percent. This was primarily due to the expansion in the operating margin of the feeds business. The consolidated net profit of the company more-than-doubled to Rs 127 crore from Rs 55 crore in the year-ago quarter. The company has taken the benefit of the corporate tax rate cut.

The shrimp exporter’s valuations are also very comfortable allowing the investors’ entry point, with P/E at 26.95x, return-on-equity of 23.11 percent and the debt-to-equity ratio at zero.

Edelweiss in its recent report on Avanti Feeds said, “We expect the company to achieve sales volume of 14,300 MT with the improvement in its capacity utilisation to 65 percent in FY20.”

It further stated that in Q2FY20, the average shrimp prices (Mexican Shrimp -30 count) in the international markets have reached $13.1/kg (up 10 percent YoY) resulting in the domestic farm gate prices at an elevated level of Rs 430-450/kg, benefiting the sector.

The brokerage firm has revised its earnings estimates by 12 percent/13.5 percent for FY20E/FY21E, respectively.

This hidden gem has rallied 164% in 5 months; do you have this stock in your portfolio?

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