Avanti Feeds: Chasing growth beyond shrimp dominance

Amidst market turbulence, Avanti Feeds is quietly making new 52-week highs. The company has long dominated India's shrimp feed industry, navigating an essential but unpredictable business that thrives on the fortunes of shrimp exports. When global prices rise, shrimp farming flourishes, boosting feed demand. But when prices crash, as they did in recent years due to Ecuador flooding the market, the entire ecosystem suffers.

Despite these challenges, the company finds itself at an inflection point. It isn't merely weathering the storm - it's actively reshaping its future. By tapping into new growth engines and expanding its portfolio, Avanti Feeds is attempting to transform from a shrimp feed specialist into a diversified aquaculture player. But can it sustain its momentum and replicate past successes in uncharted territories?

A resilient recovery - but for how long?

Despite headwinds in the shrimp sector, the company has managed to remain consistently profitable, reflecting its dominant position in the market. Its shrimp feed market share has climbed from 43 per cent in FY18 to 50 per cent in FY24, even as industry growth has remained subdued. Yet, weak shrimp prices and lower farming activity have inevitably taken a toll on growth and margins.

But something changed recently. A critical reason behind the company's recent outperformance lies in its improving financials. Falling raw material prices - fishmeal, soybean meal, and wheat - have eased margin pressures. In Q3 FY25, the operating profit margin rebounded to 10.6 per cent from 6.6 per cent a year earlier, giving a welcome boost to profitability.

However, it would be misleading to view this as a fundamental shift. The company's recent margin recovery owes much to short-term tailwinds, which are inherently fragile. Commodity prices, particularly of raw materials like fishmeal and soybean meal, are notoriously volatile, driven by unpredictable global supply dynamics and geopolitical factors. Basing long-term growth assumptions on these temporary gains could set investors up for disappointment.

Moreover, the stabilisation of shrimp prices, driven by Ecuador moderating its supply, may not last. Ecuador's slowdown stemmed from weaker demand from China and the US, energy shortages and countervailing duties - none of which represent structural changes to the global supply landscape. A revival of demand or easing of supply constraints could quickly reverse these favourable conditions.

You should therefore focus less on temporary margin boosts and more on Avanti Feeds' inherent strengths. The real test is whether the company has built enduring cost advantages and operational efficiencies that allow it to remain profitable even when industry cycles inevitably turn. Without these, the current performance may prove fleeting rather than foundational.

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Beyond shrimp feed: Chasing new growth

Betting on fish feed

With shrimp production accounting for just 15-20 per cent of India's total aquaculture output, Avanti Feeds sees an opportunity to tap into the vastly larger fish feed market, which is dominated by carps - widely consumed freshwater fish farmed in local ponds. To establish itself in this space, the company has partnered with Thai Union Feedmill, leveraging the latter's advanced feed technology and expertise. Thai Union Group's strategic 24 per cent stake in Avanti Feeds reinforces the credibility of this move. This collaboration was instrumental in its earlier success in shrimp feed, particularly in formulating high-quality feed for Vannamei shrimp.

Yet, replicating that success in fish feed may not be straightforward. Fish feed is fundamentally a commodity business characterised by fierce price competition and low profit margins. Unlike shrimp feed, where Avanti Feeds secured an early-mover advantage, fish feed caters to a fragmented, cost-sensitive market. The majority of Indian fish farmers prioritise affordability over quality, opting for low-cost, low-nutrition options. While the company's focus on premium feed appears strategic, it risks overestimating the willingness of farmers to pay a premium for better nutrition.

The challenge, therefore, is not just about product quality but also about achieving cost leadership and distribution efficiency. Replicating the shrimp feed success story in fish feed will require more than technological superiority - it will demand the kind of scale and pricing power that are hard to establish in a market driven by thin margins and aggressive price competition.

Pet food: A bold foray into retail

If fish feed is a logical extension of Avanti Feeds' aquaculture expertise, pet food marks a bold leap into an entirely new domain. The Indian pet food market has been growing at 20 per cent annually from FY18 to FY23 (per Agriculture and Agri-Food Canada), driven by rising pet ownership and a shift towards scientifically formulated diets. The market, now worth over Rs 5,000 crore, offers significant potential for growth.

Avanti Feeds is targeting the cat food segment first, which accounts for 15-20 per cent of the market, before moving into the dominant dog food category. It has partnered with Bluefalo Pet Care from Thailand to develop specialised formulations and committed Rs 130-150 crore to set up in-house manufacturing, which could enhance control and improve margins over time.

However, this strategy is fraught with challenges. The Indian pet food market is dominated by established brands like Pedigree and Drools, which together command around 76 per cent market share. These players have built formidable brand loyalty through aggressive marketing, celebrity endorsements, and extensive distribution networks. By contrast, Avanti Feeds, a traditional B2B feed manufacturer, lacks experience in retail brand-building and consumer engagement.

Competing on product quality alone may not suffice, given the entrenched presence of major players. Building a consumer brand from scratch requires deep marketing investments, robust retail distribution, and a long-term commitment to customer engagement. The company's ambition to become a significant player in pet food will depend not just on product innovation but on brand perception - an area where it remains significantly underdeveloped.

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Can Avanti Feeds diversify profitably?

While the company's diversification strategy appears promising on paper, the challenges it faces are formidable. Expanding into fish feed, a low-margin, commodity-driven market, will test its ability to achieve cost efficiencies at scale. Meanwhile, entering the pet food segment without an established consumer brand poses substantial execution risks and calls for heavy investments in marketing and distribution.

You should also be wary of the valuation narrative. A P/E ratio of 25 appears optimistic for a business so deeply rooted in cyclical commodities. Margin improvements, largely driven by falling raw material costs, could prove ephemeral. Pricing in long-term earnings stability on the back of short-term margin expansion risks overvaluing the business.

The real question is not just whether Avanti Feeds can grow, but whether it can do so profitably while maintaining its core strength in shrimp feed. Expansion should not come at the cost of diluting the company's competitive advantage or sacrificing capital allocation discipline.

In the end, the company's strategic evolution is both ambitious and risky. Investors must remain vigilant and scrutinise not just the company's growth narrative but also its ability to sustain profitability across diverse and challenging markets. The answer to whether Avanti Feeds can truly reinvent itself lies not in expansion but in execution.

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Also read: Here's why the shrimp industry has crashed lately

This article was originally published on March 22, 2025.