Avanti Feeds Ltd Management Discussions

Caveat

This section of Annual Report has been included in adherence to the spirit enunciated in the code of Corporate Governance approved by the Securities and Exchange Board of India ("SEBI"). Though, utmost care has been taken to ensure that the opinions expressed by the Management herein contain its perceptions on most of the important trends having a material impact on the Companys day-today operations, no representation was made that the following presents an exhaustive coverage on and of all issues related to the same. Further, the discussion following herein reflects the perceptions on major issues as on date and the opinions expressed here are subject to change without notice. The Company undertakes no obligation to publicly update or revise any of the opinions or statements expressed in this report, consequent to new information, future event, or otherwise.

Global Economy

The good news is that Global Growth is holding steady having slowed for 3 consecutive years. Inflation has been cut to a 3 year low. The Financial conditions have brightened. The World Economy, in short, appears to be in a final approach for a "soft landing".

Global growth is stabilizing at a rate of 2.7% a year on average through 2026, despite geopolitical tensions and high interest rates, well below the 3.1% average in the decade before COVID-19. This modest improvement in growth follows a couple of years of post COVID-19 pandemic, continued Russia- Ukraine War, its fallout of pushing up inflation in developed economies, the recent Israel invasion of Gaza and conflict with Hamas and the consequence of Red Sea crisis are all putting pressure on the Global Economy.

Despite an improvement in near- term growth prospects, the outlook remains subdued by historical standards in advanced and Emerging Markets and Developing Economies (EMDE) alike.

There are, of course, notable bright spots in the Global Economy. The US Economy, in particular, has shown impressive resilience. Growth has remained buoyant in the teeth of fiercest Monetary Policy tightening in 4 decades.

Among the EMDEs India and Indonesia are two additional examples of robust performance. Indias economy has been buoyed by strong domestic demand, with a surge in investment, and robust services activity. It is projected to grow at an average of 6.7% per fiscal year from 2024 through 2026 - making South Asia the Worlds fastest growing region. Indonesia is expected to benefit from a growing middle class and generally prudent Economic Policies, expanding by an average of 5.1% over the next two years.

Aquaculture And Seafood Industry Overview

World fisheries and aquaculture production has hit a new high, with aquaculture production of aquatic animals surpassing capture fisheries for the first time, according to a new report from the Food and Agriculture Organization of the United Nations (FAO).

The State of World Fisheries and Aquaculture features, the "Blue Transformation" in action illustrated by activities, initiatives, led by FAO in collaboration with, partners and key stakeholders, to integrate Aquatic Foods into Global Food Security and Sustainability, enhance Policy advocacy, scientific research and capacity building, disseminate sustainable practices and technological innovations, and support community involvement.

The aquaculture market size is expected to see strong growth in the next few years. It will grow to $340.3 billion in 2028 at a compound annual growth rate (CAGR) of 6.5%. Forecasted growth is driven by increased seafood demand, a health-conscious consumer base, rising fish oil demand, and global population growth combined with urbanization.

The key trends observed in the sector include IoT connectivity, technological advancements, aquaculture drone use, research and development, artificial intelligence integration, climate change- resistant species adoption etc.

The global population is on the rise and is projected to reach 10 billion by 2050, leading to an increased demand for food. "The Agricultural Outlook" by the OECD and FAO predicts a 13% growth in global cereal production by 2027 to meet the needs of the expanding population. Consequently, companies in various markets, including seafood manufacturing, are poised to benefit from the growing demand for food and beverage products as a result of the increasing population during the forecast period.

According to the UN FAO, in the next 10 years, aquaculture must expand sustainably to satisfy the gap in global demand for aquatic foods, especially, in food- deficit regions, while generating new or securing existing sources of income and employment. The demand for aquatic food is expected to be ever green.

The 2030 Agenda of ("UNFAO") for Sustainable Development continues to shape the strategies for development of Fisheries and Aquaculture.

The "Blue Transformation", is a vision for transforming Aquatic Food Systems. Aquatic Foods offer highly accessible and affordable sources of animal proteins and micro nutrients, playing a vital role in the food and nutrition security of many, particularly, vulnerable coastal population.

Aquaculture and Seafood Sector-Indian Scenario:

Indias Seafood exports touch all time high with 17,81,602 MTs worth $ 7.38 Bn of Seafood during 202324 despite several challenges in major export markets USA, EU and UK, with Frozen Shrimp remaining the major export item in Quantity and Value, while the USA and China are the major importers of Indian Seafood. However, there is decline by 5.38% in value terms.

The Indian aquaculture sector is poised to grow in the financial year 2024-25 with the Union government announcing a slew of measures in its interim budget presented in February. Accordingly, under the PMMSY, the government aims to double the aquaculture exports to nearly rupees one lakh crore and generate over 50 lakh job opportunities.

Aquaculture continues to be an important sector in Indian Economy, contributing to not only for Food Security but also providing employment to large scale coastal habitants while earning valuable Foreign Exchange to the country. The Govt. of India recognized transformation of Shrimp Culture in India as "Blue Revolution", wayback in late 80s and early 90s. Large coastal region of India has been brought under Shrimp Culture since then and the export of processed shrimp is growing year after year. The production of seafood and Shrimp over the past 4 years i.e. from 2019-20 to 2022-23 is given below:

Exports during the Year	Total Seafood		Frozen Shrimp
	Qty (in Mts)	Value (Rs in Crores)	Qty (in Mts)	Value (Rs in Crores)
2022-23	1735286	63969.14	711099	43,135.58
2021-22	13,69,264	57,586.48	7,28,123	42,706.04
2020-21	11,49,510	43,720.98	5,90,275	32,520.29
2019-20	12,89,651	46,662.85	6,52,253	34,152.03

Indian Shrimp production 2023-24 reduced by nearly 8% compared to previous year. In 2023-24 shrimp Production was 850 thousand MT, compared to 920 thousand MT in 22-23, The major factor for reduction in shrimp WSA, Increase in Disease outbreak (WSS, EHP, White feases), Unstable and fluctuating prices, Limited cash flow with farmers and channel partners, Increasing cost of Inputs, unfavorable weather conditions.

There was increase in Black Tiger culture, totally Indian farmers (Gujarat and South AP) produced 42000 MT of BT shrimp in 2023-24, Most of the BT farmers earned better profits compared to Vannamei culture.

Andhra Pradesh accounts for approximately 75-85% of Indias shrimp production. While other states, such as Odisha, West Bengal, and Gujarat, have expanded production over the past decade and still have great potential, it has become clear that producers outside AP struggle to compete under the current market conditions. The main reasons are AP offers relatively low electricity, PL, and feed costs.

Shrimp Feed Consumption:

On the basis of estimated shrimp production of about 8 Lakh Mts in 2023, the Feed consumption is estimated to be about 10.5 - 11 lakh Mts.

The Companys feed sales during the FY 2024 was about 5.31 lakh MTs as compared to 4.97 Lakhs MTs in FY 2023, an increase of 34,000 MTs.

The Indian shrimp feed market reached $1.7 billion in 2023. It is expected to reach $7.1 billion by 2032 at a growth rate of 17.21% CAGR during the period, according to researchandmarkets.com.

The changing dietary patterns and a rising preference for seafood, particularly shrimp, among consumers are stimulating the shrimp farming industry and, consequently, the shrimp feed industry. As India becomes more health-conscious, the high protein content and low fat in shrimps make them an attractive choice for many. This shift in consumption patterns is encouraging aquaculture farmers to increase their production to meet this demand, hence boosting the demand for shrimp feed. Along with this, the escalating shift towards sustainable and intensive shrimp farming practices to increase yield while reducing environmental impacts is positively influencing the market, it said.

Shrimp Processing and Export:

The Countrys Shrimp exports, in terms of value, declined in FY 23 compared to FY 22 by 8.11% from US$ 5,234 million to US$ 4,809 million.

The Countrys overall export of frozen shrimps, in quantitative terms, for FY 23 was 7,11,099 MTs as compared to 7,28,123 MTs in FY 22, a decline of 17,024 MTs representing 2.34%.

The Companys Shrimp exports during the FY 24 was about 13,443 MTs as compared to 12,497 MTs in the FY 23, an increase by 946 MTs. It is estimated that the exports during FY 25 would be around 16,000 MTs.

The major factors for the slight decline in the exports are the high inflation rates ruling in most developed economies that is impacting the purchasing power of the consumer; the increased production and export from Ecuador at a lesser cost; issues of supply chain management and rising costs of logistics. The demand from the Chinese market has also been sluggish. With Ecuador competing in the US market, India is pushing into other markets and also concentrating on exports of value added Products to increase its market share. In addition to the EU, new markets include, Canada, Japan, Russia, and the UK.

Strengths, Weaknesses, Opportunities and Threats:

Strengths

Avanti Feeds is pioneer in Indian Shrimp Industry having over three decades of operations. The company has strong and long lasting collaboration with Thai Union, a multi- national company in Global Seafood Industry. The Company is in constant interaction with Thai Union in exchange of developments in Aquaculture industry, bringing into India and to the door step of the Indian farmer to reap the best results in Aquaculture. The Feed formulation, Disease Management, Global market developments are exchanged periodically and Strategies are formulated to be the best provider of services to the farmer. This has resulted in a strong base of loyal farmers to the Company. The Company has ventured into research & development projects for sustainable growth in Shrimp Farming.

Avanti is well-equipped to meet the comprehensive needs of farmers. It has built a strong PAN-India feed dealership network and established partnerships with channel partners, processing units, and hatcheries. Regular interactions with stakeholders ensure seamless integration of operations. The company maintains constant communication with aqua-farmers, offering outreach programs and round-the-clock services through its qualified and experienced technical staff.

These initiatives have propelled Avanti to achieve a dominant position with a nearly 50% market share in the shrimp feed sector. The company is taking further steps to not only maintain but also increase its market share. Its subsidiary, Avanti Frozen Foods Private Ltd., focused on shrimp processing and export is expected to experience significant growth in both traditional and value-added products. The processing facilities are being expanded, with a particular focus on cooked and value-added products. Avanti is strategically focusing on exploring new export markets for both shrimp feed and shrimp exports.

To achieve these goals and more, Avanti has devised a strategy that allows for rapid scaling up of production through high-value capital expenditure (CAPEX) investments. This strategy positions the company to capitalize on the growing demand and opportunities in the shrimp industry.

Weaknesses

Despite being a significant sector in the Indian economy, the aquaculture industry faces several challenges and weaknesses. These include high production costs, inadequate infrastructure facilities, power supply issues, unregulated cost of raw materials, and shortage of cold storage facilities, and rising cost of ocean freights.

In addition, highly fluctuating raw material costs, dependence on climatic conditions and international developments on Shrimp prices, the Company is put to severe hardship, more often than not, due to factors beyond its control.

While the aquaculture industry and its stakeholders are aware of these challenges and taking measures to address them, government policies are slowly coming into play to help overcome some of these issues. For instance, in the Union Budget 2023-24, the government announced a reduction in customs duty on key inputs for producing shrimp food, which is expected to boost marine exports gradually. Similarly, the ongoing "Productivity Linked Incentive Scheme" for the marine products industry, which provides incentives based on increased sales year after year, has also proven beneficial. Avanti Frozen Foods has been granted this incentive scheme.

Furthermore, the Government of India is offering grant-in-aid for new processors to cover technical civil works and plant and machinery costs, up to 35% of the total cost with a cap of Rs 10 crores. AFFPL has been granted this aid.

Avanti Feeds is aware of these weaknesses and challenges and is pro-actively preparing to overcome them through sustained measures. The company remains confident in its ability to address these issues and mitigate their impact on its operations.

Opportunities

The global seafood market has been witnessing a continuous uptick in recent years riding on recognition of its benefits to health. The growing awareness of the health benefits of seafood, with its nutritional and protein content, presents a favorable environment for increased consumption.

Health experts promoting seafood as a healthier alternative to red meat, which is being associated with challenges to human health, further contributes to the markets potential. Additionally, the rising purchasing power of the middle class and their desire for diverse food choices create opportunities for the seafood industry, including shrimp.

India, with its long coastline, farming community, and availability of land and labor, has emerged as a major player in the global shrimp industry. The Marine Products Export Development Authority (MPEDA), under the Union Ministry of Commerce, has drawn up a plan to achieve marine products exports worth Rs 1 Lakh Crore by 2025, showcasing the governments commitment to supporting and promoting the industrys growth.

However, recent international market challenges, such as high inflation in developed nations, the Russia- Ukraine conflict, and lock downs in China, have posed supply chain and price challenges in the short term. As a result, the rapidly growing shrimp export industry in India has come under pressure.

To mitigate the risks associated with excessive reliance on exports, there is a need to focus on promoting and expanding domestic consumption and markets. Avanti Feeds has recognized this need and is preparing itself accordingly. According to data from the Food and Agriculture Organization of the United Nations, the per capita world shrimp consumption is estimated to be around 6.4 kilograms per person per year. This figure can vary by region, with some countries consuming more shrimp than others. The Company believes a that there is huge opportunity to increase domestic market.

The company has taken proactive steps, including product innovations, exploring new distribution channels, embracing e-commerce and home deliveries, and optimizing supply chains. These measures have strengthened the companys position and demonstrated its preparedness in anticipation of market trends. The companys performance over the past two years, with increased top-line growth, is a testament to its readiness to tap into domestic opportunities and adapt to market dynamics.

Threats

The aquaculture industry, including shrimp farming, faces various threats and challenges that need to be addressed for sustainable growth. These threats can be categorized into climate-related risks, production costs and disease control, market volatility, and external factors.

1. Climate-Related Risks: Aquaculture is highly dependent on favorable climatic conditions, and events like floods, cyclones, and other natural disasters can disrupt production. Climate change poses long-term risks to the industry, including changes in water temperatures, ocean acidification, and rising sea levels, which can impact shrimp farming.

2. Production Costs and Disease Control: Farmers face challenges related to the cost of production, including feed costs, availability and quality of seeds, disease prevention and control measures, and ensuring food safety standards. Disease outbreaks can cause significant economic losses and affect the overall sustainability of the industry.

3. Market Volatility: The international shrimp market is subject to price volatility, which can impact the profitability of shrimp farmers and exporters. Fluctuating foreign exchange rates and increasing raw material costs, including feed ingredients, can further add to market uncertainties.

4. External Factors: Factors such as high inflation in importing nations, restrictions due to the COVID-19 pandemic, and continued Russia-Ukraine War, its fallout of pushing up inflation in developed economies, the recent Israel invasion of Gaza and conflict with Hamas and the consequence of Red Sea crisis and increasing ocean freights can impact international trade and export opportunities. Dependence on imported Specific Pathogen-Free (SPF) Vannamei brood stock raises concerns about the long-term impact if international cargo movements are restricted.

To mitigate these threats and achieve sustainable growth, Avanti Feeds focuses on the following:

Diversification and Domestic Market Opportunities: Explore and tap into the potential of the domestic market to reduce reliance on volatile international markets. Developing strategies to meet the growing demand for seafood within the country can help de-risk the industry.

Also diversify into production of formulated Fish Feed for mainly domestic market.

Traceability and Pond Management: Implementing strict traceability systems and adopting scientific pond management practices can enhance productivity, reduce disease risks, and ensure compliance with food safety standards. This can help build consumer trust and confidence.

Forex Management: Managing foreign exchange risks through effective forex management strategies can help mitigate the impact of fluctuating exchange rates on profitability.

Research and Development: Continued investment in research and development is crucial to developing disease-resistant shrimp varieties, improving feed formulations, and implementing sustainable farming practices.

By addressing these threats and implementing necessary measures, Avanti minimises risks and works towards long-term growth and sustainability.

Future Outlook for Indias Aquaculture and Seafood Sector:

In line with Global forecast of moderate recovery of Fisheries Sector in 2024 over 2023, the stockings of seed for first crop of Shrimp Culture in India commenced during 2^nd half of Jan-2024 with an increase of about 10% to 15% over the corresponding period of the previous year, with a positive outlook for a successful first crop season. However, unfortunately, due to uncertain and unfavourable climatic conditions, white spot disease affecting the culture in some of the areas and fluctuations in farm gate price, the culture did not progress as expected and there were forced harvesting in some of the areas, impacting the overall production of shrimp securing the first quarter.

However, with climatic conditions being more stable, after a severe summer, the farmers are looking forward to commence fresh stockings from first week of June24. Hopefully, this crop survives full season of 90 days to 120 days and the farmers will be able to make it a profitable quarter. The company will also be in a position to increase feed sales in ensuing two quarters.

The processing and export of Shrimp division is also expected to increase exports to about 16,000 MTs for the current year, considering commencement of commercial production by the new processing plant at Krishnapuram. The company is focusing on increasing the processing & export of value added products during FY 25. As mentioned before, the companys value added products exports have gone up by 142% in FY 24, compared to previous year. The company while strengthening the exports to US and Canada market, also exploring other markets like Japan, Korea, etc.

At this juncture, we would like to share with you two important events that have impact on Aquaculture Industry.

The First one, the levy of Countervailing Duty (CVD) @ 4.36% on export of shrimps by US Dept. of Commerce effective from 01^st April, 2024. The USDOC has made preliminary determination of CVD rate on the basis of compliant lodged by US domestic Shrimp industry against imports from India and preliminary data analysed by the USDOC. In the next step, USDOC will determine final rate basing on the objections raised by the Seafood Exporters Association of India and on the basis of data provided by Govt. of India. The final determination is scheduled to be announced on first half of October,2024. In the meantime, the exporters are required to deposit the CVD @ 4.36%, subject to adjustment after final determination. Along with India, other countries Ecuador, Vietnam and Indonesia have also been levied CVD at different rates. The Seafood Exporters Association, MPEDA, EIA and Govt. of India are making efforts to get CVD withdrawn at the time of final determination in October24.

The Industry considers these upheavals are part and parcel of the business activity and they do not hinder the sustainable growth of the Industry.

The Govt. of India has been focusing and encouraging Aquaculture Sector by extending promotional schemes like PLI Scheme, Operations Green, etc. which the company is availing. It is heartening to note that in the Budget for 2024-25 presented by the Honourable Finance Minister on 1st February 2024 announced "Pradhan Mantri Mastya Sampada Yojana (PMMSY)" is being stepped up to enhance Aquaculture productivity from existing 3 to 5 Ton/Hectare, doubling exports to Rs. 1 Lakh Crore and generate 55 Lakhs employment opportunities along with big infrastructural changes of establishing 5 integrated Aqua parks. Further details of the scheme are expected to be notified after the General Elections, while presenting the Regular Union Budget.

To conclude, the stake holders of the industry look forward for a bright future for the Aquaculture industry in 2024 and thereafter, unless any unforeseen developments in climate condition or changes

in global market scenario impacts the Industry.

POWER

The Company has investment in the following power projects:

a) The 3.2 MW Wind Mill Project in Chitradurg, Karnataka State installed in the year 2005 is operational and has generated 47.95 Lakhs units during the year.

b) Srivathsa Power Projects Private Limited.

Srivathsa Power Projects Private Limited, is a 17.2 MW gas based independent power project situated in Andhra Pradesh.

During the Financial year 2023-24, Plant was stopped generating power due to increase in APM-gas price and non-availability of APM-gas since May,2022. In addition to that in the month of July,2022, Gail India Limited - a Government of India undertaking - a Maharatna Company, who is a natural gas supplier to Srivathsa, had informed that, as per the Ministry of Petroleum and Natural Gas guidelines and directives, the APM gas from KG basin allocated to power plants will be diverted to CGD (City Gas Distribution) entities outside KG basin w.e.f 01^st August,2022. As per the above guidelines, Srivathsa is not getting APM gas from Gail India Limited. As a result, there is no power generation during the financial year. During the year 2023-24, the Company reported Other Income of Rs 23.74 Lakhs and a loss of (Rs 161.42 ) Lakhs after charging interest and depreciation, as per audited financials.

(c) Patikari Power Private Limited

The Company holds 25.88% equity shares in PPPL which has a 16 MW Hydel Power Project in Himachal Pradesh, India. During the Financial year 2023 24 as per audited financials the Company generated 36.13 Million saleable energy units, yielding a gross sales income of Rs 693.15 Lakhs which resulted in a net profit of Rs 82.71 Lakhs after charging interest, depreciation and tax. For the FY 2023-24, the Company has not declared any dividend to the shareholders during the financial year 2023-24 as the plant was shutdown from 12^th August, 2023 to 24^th February, 2024 due to heavy rains with unexpected floods and land slide the project was heavily damaged. The plant was restored and the damaged was recovered thru Insurance.

Internal Control Systems and their Adequacy

The company has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorized use or disposition and that all transactions are properly authorized recorded and reported correctly. Further, the internal control system is designed to ensure that all the financial and other records are reliable for preparing financial statements and for maintaining accountability of the assets.

The Company has engaged an Independent Chartered Accountant firm as Internal Auditor responsible to ensure compliance of all the statutory requirements by the Company. The finance department in co-ordination with Internal Auditor is also responsible for periodical risk appraisal, internal as well as external, of all the functional departments in the organization is being taken up. On the basis of the appraisal, potential risks are identified and preventive measures are initiated depending on the perceived gravity of the risk.

Discussion on Financial performance with respect to operational performance.

(i) Operational Performance

The financial statements have been prepared in compliance with the requirement of the Companies Act, 2013 and Indian Accounting Standards in India. During the year under review, your company reported Profit Before Tax of Rs 40,700.13 Lakhs as compared to Rs 30,680.90 Lakhs in the previous year.

(ii) Segment-wise Performance

The segment-wise performance of the Company during the Financial year 2023-24 is disclosed in the Notes to Accounts at Schedule No. 34.

Key Financial Ratios

Pursuant to Schedule V(B) to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015:

Particulars	2024	2023
Operating Profit Margin (%)	7.48%	6.06%
Net Profit Margin (%)	7.18%	5.76%
Debtors Turnover - (No of	12.56%	15.13
times)
Inventory Turnover	7.00%	6.33
Current Ratio	6.25%	5.88
Return on Net worth (%)	16.44%	13.78%

Notes:

Debtors Turnover ratio has been computed for both years on the basis of Gross Sales Value (net of rebates and discounts) instead of Gross Revenue.

Net Profit Margin and Return on Net worth ratios have been computed based on Profit After Tax (before exceptional items).

Interest Coverage Ratio and Debt Equity ratio are not relevant for the Company as it has negligible debt.

Human Resources / Industrial Relations

The process of Shrimp Feed production involves specialization in procurement of suitable raw materials, feed formulation, production to suit the needs of Shrimp Culture, which needs qualified and trained staff for these operations. The marketing staff has to be well trained in techniques of shrimp culture to assist to the farmers. In this direction, the Company imparts expert training in the respective field and develops Human Resource capabilities. The periodical trainings, incentives, increments and other welfare measures ensure healthy industrial relations. The total number of employees as on 31^st March, 2024 are 1542 employees.

	For and on behalf of the Board AVANTI FEEDS LIMITED
Place : Hyderabad Date : 22nd May, 2024	A. Indra Kumar Chairman & Managing Director DIN: 00190168