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September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/ Harshit Patel (+91 9825406497) Page 1 of 31
Before reading this report, you must refer to the disclaimer on the last page.
Apex Frozen Foods Absolute : LONG
Relative :Outperform
Initiating note Lite Coverage 28% ATR in 16 months
Value shrimp meal for nutrition and growth, initiate with LONG Consumer Discretionary
© 2017 Equirus All rights reserved.
Rating Information
Price (Rs) 212
Target Price (Rs) 290
Target Date 31st Dec'18
Target Set On 4th Sept'17
Implied yrs of growth (DCF) 15
Fair Value (DCF) 365
Fair Value (DDM) 91
Ind Benchmark SPBSMIP
Model Portfolio Position NA
Stock Information
Market Cap (Rs Mn) 6,628
Free Float (%) 27.90 %
52 Wk H/L (Rs) 212/175
Avg Daily Volume (1yr) 17,11,162
Avg Daily Value (Rs Mn) 363
Equity Cap (Rs Mn) 313
Face Value (Rs) 10
Bloomberg Code APEX IN
Ownership Pre-issue Post-issue
Promoters 99.9% 72.1%
DII - 13.3%
FII - 0.0%
Public 0.1% 14.6%
Price % 1M 3M 12M
Absolute NA NA NA
Vs Industry NA NA NA
Avanti Feeds 3.3% 30.3% 242.5%
Waterbase 18.8% 37.1% 23.5%
Consolidated Quarterly EPS forecast
Rs/Share 1Q 2Q 3Q 4Q
EPS (17A) NA NA NA NA
EPS (18E) 1.8 3.8 2.3 1.2
India’s shrimp industry is still at a nascent stage and has large, untapped potential.
India is also a major exporter of shrimps to the US, with its share in US shrimp imports
more-than-doubling from ~13% in 2011 to ~31% at 2016. With growing global demand
for Indian shrimps, we think large, integrated players such as Apex Frozen Foods
(APEX) are on a strong footing. The company’s new processing capacity of 20,000MTPA
(to be set up by Apr’18) would include 5,000MTPA for high-value cooked products. This
along with higher captive RM sourcing would serve as margin levers. We estimate APEX
to post a 25%/44% revenue/EBITDA CAGR over FY17-FY20E. We initiate Lite coverage
on the stock with a LONG rating and a Dec’18 TP of Rs 290, set at 20x Dec’18 TTM EPS.
New capacity to drive 25% revenue CAGR over FY17-FY20E: APEX has a processing
capacity of 9,240MTPA. Due to excess demand, the company has taken 3,000MTPA of
capacity on lease from Royale Marine Impex Private Limited (Royale Marine), which
it has further topped up by another 3,000MTPA in Apr’17. As the order book remains
strong, APEX is setting up an additional processing capacity of 20,000MTPA. We are
building in 30% utilization from this new plant in FY19 and 53% by FY20. We estimate
revenue CAGR of 25% over FY17-FY20E.
Multiple levers to aid ~350bps expansion in EBITDA margins over FY17-FY20E:
APEX has ~1,338 acres of owned/leased farms, which help meet 15-20% of the
company’s raw material requirement. To bring down its procurement costs, the
company further plans to increase its farming land. Besides, APEX paid processing
charges of Rs 100mn to Royale Marine in FY17; APEX shall discontinue the lease once
it has set up in own capacity, thereby lowering its operating expenses. Besides, of
the 20,000MTPA of increased capacity, 5000MTPA is for value-added products which
have 15-20% higher realizations. We estimate an EBITDA CAGR of 44% over FY17-
FY20E.
Initiate coverage with LONG rating and a Dec’18 TP of Rs 290: At CMP, APEX is
trading at 23x/14x on our FY18/FY19 EPS estimates. We estimate a PAT CAGR of 45%
over FY17-FY20E, and arrive at a Dec’18 TP of Rs 290 by ascribing a target multiple
of 20x on our Dec’18 EPS estimate. Our target multiple is at a ~25% discount to the
TTM PE multiple of Avanti Feeds as it derives 87% of revenues from the feed business
which is highly cash-generative.
Downside risks: (1) Sharp fall in global shrimp prices, (2) Any labour issues may disrupt
the processing business as it is highly labour-intensive, (3) Any major disease may affect
the shrimp culture in India.
Consolidated Financials
Rs. Mn YE Mar FY17A FY18E FY19E FY20E
Sales 6,991 8,337 9,907 13,557
EBITDA 453 606 897 1,351
Depreciation 63 72 121 133
Interest Expense 112 129 116 104
Other Income 106 23 41 37
Reported PAT 244 283 463 760
Recurring PAT 249 283 463 760
Total Equity 968 2,396 2,804 3,473
Gross Debt 1,072 963 863 863
Cash 46 408 406 373
Rs Per Share FY17A FY18E FY19E FY20E
Earnings 8.0 9.0 14.8 24.3
Book Value 40 77 90 111
Dividends 1.0 0.9 1.5 2.5
FCFF -3.3 -15.6 9.7 6.2
P/E (x) 26.6 23.5 14.3 8.7
P/B (x) 5.3 2.8 2.4 1.9
EV/EBITDA (x) 16.9 11.9 7.9 5.3
ROE (%) 29 % 17 % 18 % 24 %
Core ROIC (%) 14 % 14 % 15 % 21 %
EBITDA Margin (%) 6 % 7 % 9 % 10 %
Net Margin (%) 4 % 3 % 5 % 6 %
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 2 of 31
Company Snapshot
How we differ from Consensus
- Equirus Consensus % Diff Comment
EPS FY18E 9.0 - - There is no other coverage on the stock
currently FY19E 14.8 - -
Sales FY18E 8,337 - -
FY19E 9,907 - -
PAT FY18E 283 - -
FY19E 463 - -
Our key investment arguments:
1. Shrimp industry in India still has huge untapped potential, which should benefit
large, integrated players like APEX. 2. APEX is increasing its processing capacity, which should to drive 25% revenue
CAGR over FY17-FY20E. 3. Backward integration and focus on high-margin value-added products should act
as margin levers for the company. We estimate an EBITDA CAGR of 44% over
FY17-FY20E.
Risk to Our View:
1. Sharp fall in global shrimp prices
2. Any labour issues may disrupt the processing business as it is highly labour-intensive
3. Any major disease may affect the shrimp culture in India
Key Triggers:
Government participation in resolving infrastructural problems like poor power
supply and lack of cold storages
Shrimp realization improving in export markets
DCF Valuations & Assumptions
Rf Beta Ke Term. Growth Debt/IC in Term. Yr
6.7 % 1.0 12.7 % 4.0 % 19.7 %
FY18E FY19E FY20-22E FY23-27E FY28-32E
Sales Growth 19 % 19 % 22 % 11 % 10 %
NOPAT Margin 4 % 5 % 6 % 6 % 6 %
IC Turnover 2.64 2.82 3.33 3.46 3.60
RoIC 13.6 % 15.4 % 21.0 % 21.5 % 22.2 %
Years of strong growth 1 2 5 10 15
Valuation as on date (Rs) 48 97 208 261 312
Valuation as of Dec'18 57 114 244 306 365
Based on DCF, we derive a fair value of Rs 365 as on 31 Dec’18.
Company Description:
Apex Frozen Foods Limited (APEX) is one of India’s integrated producers and exporters of
shelf stable quality aquaculture products. The company supplies ready-to-cook products
to a diversified customer base of food companies, retail chains, restaurants, club stores
and distributors spread across developed markets such as the US, the UK and various
European countries.
Comparable valuation Mkt Cap
Rs. Mn.
Price
Target
Target
Date
EPS P/E BPS P/B RoE Div Yield
Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E
Apex Frozen Foods LONG 212 6,628 290 31st Dec'18 8.0 9.0 14.8 26.6 23.5 14.3 40.3 2.8 29 % 17 % 18 % 0.5 % 0.4 %
Avanti Feeds Ltd LONG 1,840 83,564 2,450 31st Dec'18 47.1 93.8 92.4 39.1 19.6 19.9 141.0 8.7 40 % 53 % 37 % 0.5 % 1.0 %
Waterbase Ltd NA 130 5,026 NA NA 3.3 - - 40.1 - - 28.8 - 12 % - - 0.0 % -
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 3 of 31
Exhibit 1: Business process
Source: Company, Equirus Securities
Pre-processing facility at
Tallarevu and pre-processing
arrangement at Bapatla
Cold storage facilities at
own facility in Kakinada
& at the processing
arrangement in Bapatla
Units located at
Kakinada & Bapatla
with an aggregate
capacity of ~15,240
MTPA
Consignment exported to US, UK and
various EU countries. Products
exported through Kakinada (~20kms)/
Vishakhapatnam (~150kms) ports
Controlled movement of materials – quality, time & measured environment
Numerous
associate farmers
are dedicated
suppliers to APEX
Own controlled
hatchery
Own and leased farming
land of 1,338 acres with
several ponds
Sourcing Seeds Farming
Pre-processing
Processing Cold
Storage Exports
Reefer Trucks
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 4 of 31
Contents
Investment Rationale ......................................................................... 5
Indian shrimp industry still has huge, untapped potential ......................... 5
Rising processing capacity to drive revenue growth................................. 6
Multiple levers to aid margin expansion ............................................... 8
Focus on procuring raw materials from its own or leased farms ............... 8
Production from owned capacity will reduce costs ............................... 9
Focus on value-added products to be margin-accretive ......................... 9
High WC requirements due to global service model .................................. 10
Shrimp processing industry is highly fragmented ...................................... 11
Valuation and risks .......................................................................... 15
Not an exact peer of Avanti Feeds ................................................... 15
Scenario analysis: Three likely ways forward ......................................... 16
Annexure 1: Feedback from a leading processing company ......................... 18
Annexure 2: Global shrimp prices, FX volatility passed on to farmers ............ 18
Annexure 3: Industry Overview ........................................................... 19
Increasing demand from US and new demand from China ....................... 19
Rising per capita fish consumption to open up domestic shrimp market ...... 21
Economics of shrimp farming remains attractive for farmers ................... 21
Investments by both corporate and farmers pick up pace ....................... 22
Government push on developing aquaculture in India ............................ 22
Annexure 4: Company overview .......................................................... 23
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 5 of 31
Investment Rationale Setting up of a new processing capacity will make APEX, one of the largest shrimp
processing companies in India and shall drive 25% revenue CAGR over FY17-FY20E.
Backward integration and focus on high-margin value-added products shall act as margin
levers for the company. We initiate with a Long rating and Dec’18 TP of Rs 290.
Indian shrimp industry still has huge, untapped potential
India’s shrimp aquaculture has already gained momentum with the introduction of P.
Vannamei species. Brackish water aquaculture presents another opportunity to accelerate
the growth witnessed in last 4-5 years as it is mostly based on P. Vannamei farming. India
has ~1.2mn ha of brackish water area which is suitable for shrimp farming, but currently
only ~0.12mn ha (or ~10.2%) is under shrimp cultivation. Among coastal states, West Bengal
and Gujarat have a majority of this brackish water area (~66%) with current utilization
levels only at 8.6% and 0.9% respectively. We hence see significant scope for farmers in
these states to take up shrimp aquaculture as their main source of earning.
Exhibit 2: ~90% of India’s brackish water area lies unused, and can be used for shrimp
farming
Source: Government of Gujarat; Equirus Securities
Exhibit 3: India’s large coastline offers huge untapped potential for shrimp farming
Source: Equirus Securities, CAA, No. of farms and farm area for Vannamei shrimps from 2009 to 2014.
1% 1% 4% 5% 5% 9% 23%
33% 35% 44%
10%
99% 99% 96% 95% 95% 91% 77%
67% 65% 56%
90%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Mahara
shtr
a
Guja
rat
Goa
Pondic
herr
y
Tam
il N
adu
West
Bengal
Kera
la
Andhra
Pra
desh
Ori
ssa
Karn
ata
ka
Tota
l
% area under cultivation % unused area
ArabianSea
Bayof
Bengal
Indian Ocean
Maharashtra
AndhraPradesh
Tamil Nadu
Odisha
Lakshadweep
Goa
Puducherry
Andaman
and
Nicobar
Islands
Madhya PradeshWestBengal
Bihar
Jharkhand
Uttar Pradesh
Uttarakhand
Assam
Arunachal
Pradesh
Nagaland
Manipur
MizoramTripura
Sikkim
Meghalaya
Rajasthan
Gujarat
Haryana
HimachalPradesh
Punjab
Delhi
Chandigarh
Jammu
andKashmir
Daman
and Diu
Dadra and Nagar Haveli
Map not to scale
Lowest (White) to Highest (Blue)
www.indzara.com
Colour Gradient
Telangana
No. of farms:1 Farm area: 3 Ha
No. of farms: 79 Farm area: 488 Ha
No. of farms: 585 Farm Area: 5655 Ha
No. of farms: 123 Farm Area: 1044 Ha
No. of farms: 18 Farm Area: 56 Ha
No. of farms: 36 Farm Area: 1138 Ha
No. of farms: 51 Farm Area: 652 Ha
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 6 of 31
Exhibit 4: Indian shrimp exports have grown at CAGR of ~21% over FY13-FY17
FY13 FY14 FY15 FY16 FY17
CAGR
( FY13-17)
Indian shrimp exports
(Rs mn) 97,064 193,683 224,681 200,455 249,967 20.8%
Indian shrimp exports
(MT) 228,620 301,435 357,505 373,866 434,484 13.7%
Realization (Rs /kg) 424.6 642.5 628.5 536.2 575.3 6.3%
Apex shrimp exports
(MT) 6,384 79,30 9,534 9,898
Market share of Apex
(%) 2.1% 2.2% 2.6% 2.3%
Source: MPEDA, Company filings; Equirus Securities
Indian shrimp exports have grown at CAGR of 21% over FY13-FY17, with volume CAGR of
14% and realization CAGR of 6% over this period. APEX has been consistently gaining
market share for the last few years. However, in FY17 it saw a drop in market share due
to its own capacity constraints.
India’s shrimp exports are being projected to grow at similar rates going forward, and
APEX, with an increase in processing capacity, should be able to capture incremental
market share.
Rising processing capacity to drive revenue growth
APEX currently has a shrimp processing capacity of 9,240MTPA, and has tied up with
Royale Marine for another 3,000MTPA of processing capacity. With utilization already at
80% levels (considered almost full), APEX has taken 3,000MTPA of additional capacity on
lease from Royale Marine in Apr’17. Since this lease contract expires in Mar’18, APEX’s
total capacity would stand at 15,240MTPA in FY18. Going forward, with APEX embarking
on a 20,000 MTPA capacity expansion (likely to be operational by 1QFY19), we assume it
will not renew its arrangement with Royale Marine. Therefore, on a capacity of 29,240
MTPA, we estimate capacity utilization at 46% in FY19 and 61% in FY20. Overall, we
estimate volume/realization CAGR of 22%/2% over FY17-FY20E, resulting in revenue CAGR
of 25% over this period.
Exhibit 5: AFL’s own shrimp processing capacity will reach ~29,240MT by 1QFY19
Source: Company filings, Equirus Securities
7821 9240 9240 9240 9240
9240
9240
1500 3000 3000
6000
15000
15000
82%
74%
78%
81%
76%
46%
61%
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
0
5000
10000
15000
20000
25000
30000
FY14 FY15 FY16 FY17 FY18e FY19e FY20e
Owned capacity(MT) Arrangement with Royale Marine(MT)
New capacity for frozen shrimps Capacity utilisation (%) (RHS)
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 7 of 31
Exhibit 6: Estimate a ~22% volume CAGR for APEX over FY17-FY20E
Source: Company filings, Equirus Securities
Exhibit 7: Estimate a ~2% realization CAGR for APEX over FY17-FY20E
Source: Company filings, Equirus Securities
Exhibit 8: Estimate a ~25% revenue CAGR for APEX over FY17-FY20E
Source: Company filings, Equirus Securities
24%
20%
4%
17% 16%
34%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
FY14 FY15 FY16 FY17 FY18e FY19e FY20e
Total export volumes ( MT) YoY (%) (RHS)
-7%
-16%
11%
0% 2% 2%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
0
100
200
300
400
500
600
700
800
900
FY14 FY15 FY16 FY17 FY18e FY19e FY20e
Export realisations ( Rs/kg) YoY (%) (RHS)
17%
1%
16%
19% 19%
37%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
FY14 FY15 FY16 FY17 FY18e FY19e FY20e
Revenues ( Rs mn) YoY (%) (RHS)
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 8 of 31
Multiple levers to aid margin expansion
APEX has ~1,338 acres of owned/leased farms, which help meet 15-20% of the company’s
raw material requirement. APEX further plans to increase its farming land to lower
procurement costs. Besides, the company paid Rs 100mn of processing charges to Royale
Marine in FY17; APEX would discontinue this lease once it has set up in own capacity,
thereby lowering its operating expenses. Lastly, of the 20,000MTPA of increased
capacity, 5,000MTPA is for value-added products which have higher realizations. We
estimate an EBITDA CAGR of 44% over FY17-FY20E.
Below we discuss the margin levers for APEX in detail:
Focus on procuring raw materials from its own or leased farms
Owned (~106 acres) and leased farms (~1,232 acres) contribute 15-20% of APEX’s raw
material requirement, with owned farms giving a strong cost advantage to the company.
Our channel checks suggest that the cost of production for a shrimp farmer is ~Rs 250-
300/kg whereas the harvested crop (shrimps) fetches a price of Rs 500-600/kg, depending
on shrimp export prices. Exhibit 9 depicts the trend in ex-farm shrimp prices over the
years.
Exhibit 9: India Vannamei ex-farm prices (Head On Shell On (HOSO) 30pcs/kg) much
higher than cost of production for farmers
Source: Bloomberg, Equirus Securities
Exhibit 10: Focus on having own farms has lowered APEX’s procurement costs
Source: Company filings, Equirus Securities
The shrimp procurement cost for APEX has reduced over the last two years (Exhibit 10)
due to higher procurement form in-house farms. Note that the reduction in procurement
costs has been partially compensated by higher costs in own farming and hatchery, due
to which APEX’s gross margins are broadly similar to peers such as Avanti Feeds.
Exhibit 11: Costs related to in-house farming and hatchery have been on higher side
Source: Company filings, Equirus Securities
300
350
400
450
500
550
600
650
700
750
week 1
week 3
week 5
week 7
week 9
week 1
1
week 1
3
week 1
5
week 1
7
week 1
9
week 2
1
week 2
3
week 2
5
week 2
7
week 2
9
week 3
1
week 3
3
week 3
5
week 3
7
week 3
9
week 4
1
week 4
3
week 4
5
week 4
7
week 4
9
week 5
1
2014 2015 2016 2017
300
350
400
450
500
550
FY14 FY15 FY16 FY17
Avanti's shrimp procurement cost ( Rs/kg)
AFFL's shrimp procurement cost ( Rs/kg)
23.6
147.1
322.7
563.6
780.6
0
100
200
300
400
500
600
700
800
900
FY13 FY14 FY15 FY16 FY17
Costs in Farms & Hatchery ( Rs mn)
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 9 of 31
Currently, the company only procures ~20% of raw materials from in-house farms, but as
the contribution increases, so shall the gross margins.
Exhibit 12: Contribution of in-house farms estimated to increase
Source: Company filings, Equirus Securities
Exhibit 13: APEX to continue increasing farm area as its processing capacity increases
Source: Company filings, Equirus Securities
Production from owned capacity will reduce costs
APEX currently has owned processing capacity of 9,240MTPA to meet the high demand
from its customers; the company has further taken 3,000MTPA capacity on lease from
Royale Marine. As the new processing plant is expected to be ready by 1QFY19, APEX has
also taken an additional 3,000MTPA on lease since Apr’17. The arrangement with Royale
Marine for these capacities shall be in force till Mar’18.
As per management, they are yet to decide on the renewal of lease contracts with Royale
Marine. In our view, since APEX’s new plant would be ready next year, it is unlikely to
renew this tie-up given the high processing charges it needs to pay under the
arrangement. APEX would instead focus on improving utilization levels of its own
processing plant.
APEX paid processing charges of Rs 100mn (or Rs 39/kg) to Royale Marine in FY17. We
expect these to increase to ~Rs 168mn in FY18 but fall to nil in FY19 and FY20 as the
arrangement with Royale Marine ends in Mar’18.
Focus on value-added products to be margin-accretive
Currently, India is mainly focused on frozen shrimp exports, and prepared (cooked)
shrimp exports constitute only 6% of overall exports. On the other hand, other Southeast
Asian countries like Thailand, Vietnam and China focus on exporting prepared (cooked)
shrimps. Most small processing companies in India export frozen shrimp to exporters in
Vietnam who, after the value addition, re-export it to the US, EU and Japan.
Exhibit 14: Prepared shrimps as a percentage of total shrimp exports to US
2010 2011 2012 2013 2014 2015 2016
India 6.1% 5.7% 4.0% 6.4% 7.4% 5.8% 6.0%
Thailand 39.9% 42.7% 41.6% 46.5% 52.9% 54.8% 44.6%
Indonesia 15.1% 15.5% 13.3% 15.4% 15.8% 19.6% 17.9%
Ecuador 1.2% 1.6% 1.9% 2.1% 2.1% 2.6% 1.8%
Vietnam 25.1% 32.7% 28.3% 38.4% 35.6% 43.3% 46.9%
China 68.1% 68.2% 72.5% 74.9% 79.3% 82.7% 77.8%
Source: US Department of Commerce, Equirus Securities
Of the new capacity of 20,000 MTPA that APEX is in the process of setting up, 5,000 MTPA
would focus on value-added products, which typically fetch a ~15-20% premium over
frozen shrimps (exhibit 15).
20% 20% 22% 24%
80% 80% 78% 76%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY17 FY18e FY19e FY20e
Own and leased farms Third party farms
7.9% 8.0%
9.0% 9.0%
7.2%
7.4%
7.6%
7.8%
8.0%
8.2%
8.4%
8.6%
8.8%
9.0%
9.2%
0
500
1000
1500
2000
2500
3000
FY17 FY18e FY19e FY20e
Owned farms Leased farms Proportion of owned farms:
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 10 of 31
Exhibit 15: Prepared shrimps have 15-20% premium pricing over frozen shrimps
Source: US Department of Commerce, Equirus Securities
Focus on creating a value-added portfolio should be margin accretive for the company,
going ahead. We expect the company to clock a 44% EBITDA CAGR over FY17-FY20E, with
EBITDA margins improving to ~10% in FY20E (vs. 6.5% in FY17).
Exhibit 16: We expect EBITDAM to steadily improve to ~10% by FY20E
Source: Company filings, Equirus Securities
High WC requirements due to global service model
The shrimp processing business is a high asset turnover business, but requires significant
working capital on account of the global delivery service model. Nearly 80% of APEX’s
revenues come from exports to the US, leading to receivable days of ~30 days. Also,
processing companies typically have to maintain ~30-40 inventory days to ensure
continuous availability of raw materials in case of any urgent orders from customers.
Overall, the cash conversion cycle for the business is ~60 days. Due to high WC
requirements, cash conversion (CFO/EBITDA) for APEX is ~45-50%.
An increase in the scale of the business would push up APEX’s working capital needs as
well, requiring it to maintain adequate cash flows to fund these requirements.
Exhibit 17: Cash conversion cycle of the business at ~60 days
Source: Company filings, Equirus Securities
3.9
5.0
5.7
4.2 4.4 4.1
5.5
6.1
5.2
5.0
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
2012 2013 2014 2015 2016
Frozen Prepared
8.7%
6.3%
5.5%
6.8% 6.5%
7.3%
9.1%
10.0%
4%
5%
6%
7%
8%
9%
10%
11%
0
200
400
600
800
1,000
1,200
1,400
1,600
FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e
EBITDA EBITDA margin (%) (RHS)
0
10
20
30
40
50
60
70
FY14 FY15 FY16 FY17 FY18e FY19e FY20e
Receivable days Inventory days
Payable days Cash conversion cycle
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 11 of 31
Exhibit 18: Cash conversion low due to high WC requirements
Source: Company filings, Equirus Securities
Exhibit 19: Return ratios to improve as utilization levels & margins pick up in FY20E
Source: Company filings, Equirus Securities
Shrimp processing industry is highly fragmented
India’s seafood processing industry is highly fragmented with several small processing
companies across various cities of India. In FY17, India exported 4,30,000 tons of shrimp
but APEX exported just 9,898 tons, implying only a 2.3% market share.
Exhibit 20: Sea-food processing in India highly fragmented industry
Centre No. of processing plants Capacity (MT/day)
Chennai 34 1,459
Kochi 100 3,386
Kolkata 40 1,271
Mumbai 58 4,372
Veraval 84 4,242
Vizag 14 605
BBR 27 879
Bhimavaram 37 1,861
Goa 14 923
Mangalore 44 3,278
Porbandar 26 1,446
Quilon 16 534
Tuticorin 35 945
Total 529 25,202
Source: MPEDA, Equirus Securities
Typically, most shrimp processing companies in India do basic processing and sell the
stock to exporters in other countries, who further export it after some value addition.
However, bigger processing companies such as Avanti Feeds, CastleRock Fisheries, Devi
Sea Foods, and APEX maintain the required quality standards and have all certifications
in place to export shrimps directly to food companies in the US and Europe. Avanti Feeds
sells 80-85% of its processed shrimp to retail chains like Walmart and restaurants like Red
Lobster, which maintain very high quality standards.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
50
100
150
200
250
300
350
400
450
500
FY15 FY16 FY17 FY18e FY19e FY20e
Cash flow from operations ( CFO ) ( Rs mn)
Cash conversion (%) ( CFO/EBITDA)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
FY15 FY16 FY17 FY18e FY19e FY20e
Core RoIC RoE
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 12 of 31
Some of the differentiating factors between large/mid-sized processors and other small
processing companies are as follows:
Procurement only from shrimp farms: Large/mid-sized processing companies
mostly procure raw materials from shrimp farms only, whereas smaller
processing companies largely procure shrimps directly from the sea.
Certifications & quality standards in place: All big players maintain certain
quality standards and have all certifications in place from US and EU bodies. In
contrast, for smaller processing companies, quality standards are not that high.
Price realization higher for larger players: If a company is selling to importers
in the US, price realization is ~US$ 8-10/kg; this is against ~US$ 10-12/kg in case
of direct sales to retailers. Most small processing companies sell via importers
only, whereas larger exporters sell directly to retail chains and restaurants.
Exhibit 21: Major players focusing on increasing processing capacity
Source: Company filings, Forbes India, Equirus Securities
In FY18, most large-sized shrimp processors are focusing on increasing their processing
capacities with an intention of garnering an incremental market share of healthy Indian
exports. All these new capacities shall come into play in FY19.
In the following charts, we do a historical comparison of all major shrimp exporting
companies in India.
9240 6000
15000
20000
15000
10000
0
5000
10000
15000
20000
25000
30000
35000
Apex frozen foods Avanti Devi Sea foods
MT/annum
Existing capacity New capacity
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 13 of 31
Competitive Analysis of Major Shrimp Exporters (FY14-FY16)
Exhibit 22: APEX’s revenue growth is in-line with peers
Source: Company, Equirus Securities; Revenue CAGR for Apex and Avanti is for FY14-17
Exhibit 23: APEX has maintained modest EBITDAM over the years
Source: Company filings, Equirus Securities
Exhibit 24: APEX’s average ROIC between FY14-FY16 is broadly in-line with peers
Source: Company filings, Equirus Securities
Exhibit 25: APEX’s Return on Equity (ROE) has been better than peers
Source: Company filings, Equirus Securities
10.8%
3.9%
-10.3%
17.7%
5.4%
12.3%
-15%
-10%
-5%
0%
5%
10%
15%
20%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Apex frozen foods
Devi seafoods
Castlerock fisheries
Gadre marine exports
Uniroyal marine exports
Avanti frozen foods
Revenue (
in R
s. m
n)
FY14 FY15 FY16 FY17 Revenue CAGR (FY14-16)
9.5%
1.6%
13.5%
5.2%
6.5%
8.2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Apex frozen foods
Devi seafoods
Castlerock fisheries
Gadre marine exports
Uniroyal marine exports
Avanti frozen foods
EBIT
DA M
arg
in (
%)
FY14 FY15 FY16 FY17
19%
22%
10%
15%
2%
19% 21%
11%
14%
-2%
18% 17%
7%
19%
8%
18%
-5%
0%
5%
10%
15%
20%
25%
Apex frozen foods
Devi seafoods Castlerock fisheries
Gadre marine exports
Uniroyal marine exports
RO
IC (
%)
FY14 FY15 FY16 FY17
43%
31%
25% 27%
-16%
40%
28%
14%
24%
-40%
30%
21%
1%
35%
1%
29%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Apex frozen foods
Devi seafoods Castlerock fisheries
Gadre marine exports
Uniroyal marine exports
RO
E (
%)
FY14 FY15 FY16 FY17
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 14 of 31
Exhibit 26: Apex Frozen Foods performance has been better than peers
APEX Devi Sea Foods Gadre Marine Exports Comments
FY13 FY14 FY15 FY16 FY17 FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Revenue (Rs. mn) 2,553 5,143 5,994 6,035 6,991 4,405 7,906 8,805 8,541 4,226 5,161 6,192 7,142 Due to a sharp fall in shrimp prices,
revenues were subdued in FY16
Growth (%)
101% 17% 1% 16%
80% 11% -3%
22% 20% 15%
EBITDA (Rs. mn) 222 325 332 408 453 355 743 900 814 689 631 561 966
Margin (%) 8.7% 6.3% 5.5% 6.8% 6.5% 8.1% 9.4% 10.2% 9.5% 16.3% 12.2% 9.1% 13.5%
PAT (Rs. mn) 94 134 184 193 244 240 437 522 493 324 255 289 572
Margin (%) 3.7% 2.6% 3.1% 3.2% 3.5% 5.5% 5.5% 5.9% 5.8% 7.7% 4.9% 4.7% 8.0%
CFO (Rs. mn) -108 94 123 374 116 473 81 260 525 482 261 135 691 Cash flows from operations are low due
to high WC requirements
Receivable days 51.9 24.9 25.6 27.7 32.4 60.1 50.7 58.6 63.0 47.8 44.8 44.7 41.4
Payable days 10.6 9.9 10.4 10.8 15.6 1.1 0.4 1.1 1.4 23.5 24.8 23.7 18.4
Inventory days 31.2 32.9 37.6 42.9 41.0 8.6 4.8 4.8 11.9 39.1 38.2 40.0 48.4
Cash conversion cycle 72.6 48.0 52.9 59.8 57.8 67.6 55.0 62.4 73.5 63.3 58.2 61.0 71.5 Cash conversion cycle is on a higher
side, in line with the industry
Gross fixed asset turnover 11.0 14.6 11.2 9.5 8.3 5.5 10.4 10.3 8.0 3.8 3.7 3.6 3.6 Asset turns are high in processing
business
Net working capital turnover 4.7 8.2 7.4 6.8 7.0 4.9 6.8 5.9 5.1 5.7 5.8 5.4 5.3
Total debt (Rs. mn) 615 770 880 773 1,072 629 929 521 924 1,284 1,519 1,708 1,673
Total cash (Rs. mn) 38 34 16 18 46 528 505 626 848 497 345 260 423 APEX has been buying its own shrimp
farms due to which cash on B/S is low
Net debt/Equity 2.4 1.9 1.5 1.0 1.1 0.1 0.3 0.0 0.0 1.6 1.7 1.7 1.0
RoCE (%)
18% 17% 16% 14% 11% 21% 20% 15% 23% 16% 14% 22%
Source: Company, Equirus Securities
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 15 of 31
Valuation and risks
At CMP of Rs 212, APEX trades at 23x/14x our FY18/FY19 EPS estimates. There are no
direct comparative companies as APEX is the only listed player that is exclusively into
shrimp processing. Avanti Feeds and Waterbase are two listed companies but derive a
majority of their revenues from the shrimp feed business.
Not an exact peer of Avanti Feeds
Avanti Feeds derives 87% of its revenues (FY17) from the feed business, which is
domestic-focused and where it is the market leader with a 45% share. Feed business has
higher EBITDA margins than the processing business (excl. value addition), and is highly
cash-generative with low working capital requirements (cash conversion cycle: 15-20
days). On the other hand, processing business has high working capital requirement which
stresses the cash flows. Avanti Feeds would also focus on growing its processing business,
going ahead; however, there are certain differences between Avanti Feeds and other
processing companies:
Avanti’s main business is production of shrimp feed which generates a lot of
cash whereas APEX is only into processing where significant working capital
requirements strain the cash flows.
With Thai Union (TU) as a selling partner, Avanti Feeds has a clear advantage
over other shrimp exporters in India. Most food companies in the US, which
import shrimps from India, are group companies of the Thai Union. Chicken of
the Sea is a subsidiary of Thai Union. Moreover, Thai Union has a 49% stake in
Red Lobster restaurants.
Avanti Feeds follows an asset-light model and is therefore able to generate
better return ratios than other processing companies which are also focusing on
backward integration.
At CMP of Rs 1,840, Avanti Feeds is trading at 27x on TTM EPS of Rs 68. Due to the
reasons mentioned above, we apply a ~25% discount to its current multiple to arrive at
our target multiple of 20x for APEX.
We derive our Dec’18 TP of Rs 290 for APEX by applying a multiple of 20x to our Dec’18
TTM EPS. We initiate the coverage with a LONG rating.
Exhibit 27: APEX’s valuation comparison with listed industry players
P/E RoCE (%)
Mcap (Rs.
mn)
Price
(Rs) FY17a FY18e FY19e FY17a FY18e FY19e
Apex Frozen Foods 6,628 212 26.6 23.5 14.3 14% 14% 17%
Avanti Feeds Limited
(AFL) 83,564 1840 39.1 19.6 19.9 38% 51% 37%
Waterbase (TWL) 5,026 130 40.0
11%
Source: Company, Equirus Securities
Investment risks and concerns
APEX generates most of its revenues through shrimp exports to customers in US
and Europe; hence, any upheaval in these markets may hurt the company’s
financial profile and cash flows.
APEX does not have long-term contractual arrangements with its major customers;
therefore, any reduction in demand or deterioration in the financial condition of
clients could adversely affect APEX.
APEX’s business is highly dependent on smooth supply, transportation and timely
delivery of products from farms to customers and regular supply of raw materials.
Uncertainties, delays or non-delivery of products could affect the company’s
production and sales.
Shrimp exports are subject to strict quality requirements and customer
inspections. Any failure to comply with quality standards may lead to cancellation
of existing and future orders, negatively impacting the company’s reputation.
Karuturi Global Exports Private Limited, a group entity, is authorized to engage in
a similar line of business. In case it does so, the resultant conflict of interest could
adversely affect APEX.
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 16 of 31
Scenario analysis: Three likely ways forward
The key variables on which we have built our estimates are:
Capacity utilization from the new plant
Contribution of value-added products in the mix
Shrimp prices in the export market
Taking cognizance of the fact that these variables are volatile and difficult to predict, we
have analyzed following three scenarios in which we move these variable differently:
Base case scenario
We estimate a PAT CAGR of 45% over FY17-FY20E in our base scenario, based on the
following assumptions:
In FY18, we have assumed 76% utilization of the 15,240MTPA capacity.
In FY19, out of total capacity of 29,240MTPA, we have built 46%
utilization, with 15% utilization of the 5,000MTPA (value-added) capacity.
In FY20, we assume 61% utilization with 30% utilization of the value-added
capacity.
On the realizations side, we assume shrimp prices with a 2% CAGR over
FY17-FY20E.
Bull case scenario
We estimate a PAT CAGR of 65% over FY17-FY20E in our bull scenario, based on the
following assumptions:
In FY18, we have assumed 79% utilization of the 15,240MTPA capacity.
In FY19, out of total capacity of 29,240MTPA, we have built 51%
utilization, with 30% utilization of the 5,000MTPA (value-added) capacity.
In FY20, we assume 71% utilization with 60% utilization of the value-added
capacity.
On the realizations side, we assume shrimp prices with a 4% CAGR over
FY17-FY20E.
Bear case scenario
We estimate a PAT CAGR of 20% over FY17-FY20E in our bear scenario, based on the
following assumptions:
In FY18, we have assumed 72% utilization of the 15,240MTPA capacity.
In FY19, out of total capacity of 29,240MTPA, we have built 42% utilization,
with 10% utilization of the 5,000MTPA (value-added) capacity.
In FY20, we assume 54% utilization with 20% utilization of the value-added
capacity.
On the realizations side, we assume shrimp prices with a -2% CAGR over
FY17-FY20E.
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 17 of 31
Exhibit 28: Scenario Analysis
Bull case Base case Bear case
FY17a FY18e FY19e FY20e FY18e FY19e FY20e FY18e FY19e FY20e
Volumes ( Frozen shrimps MTPA) 9,898 12,008 13,388 17,888 11,588 12,638 16,388 10,988 11,888 14,888
YoY (%)
21% 11% 34% 17% 9% 30% 11% 8% 25%
Volumes (Value added, MTPA) - - 1,500 3,000 - 750 1,500 - 500 1,000
YoY (%)
100%
100%
100%
Blended realization (Rs/kg) 666 686 717 744 666 685 702 653 644 633
YoY (%)
3% 5% 4% 0% 3% 2% -2% -1% -2%
Revenues ( Rs mn) 6,991 8,898 11,535 16,775 8,337 9,907 13,557 7,747 8,611 10,860
YoY (%)
27% 30% 45% 19% 19% 37% 11% 11% 26%
Gross profit ( Rs mn) 1,499 2,034 2,805 4,207 1,880 2,315 3,227 1,730 1,934 2,406
YoY (%)
36% 38% 50% 25% 23% 39% 15% 12% 24%
Gross margins (%) 21.4% 22.9% 24.3% 25.1% 22.5% 23.4% 23.8% 22.3% 22.5% 22.2%
Employee costs ( Rs mn) 249 274 315 378 274 315 378 274 315 378
YoY (%)
10% 15% 20% 10% 15% 20% 10% 15% 20%
Other expenses ( Rs mn) 797 1,060 1,321 1,918 1,000 1,103 1,498 930 972 1,180
YoY (%)
33% 25% 45% 25% 10% 36% 17% 4% 21%
as % of sales 11.4% 11.9% 11.4% 11.4% 12.0% 11.1% 11.0% 12.0% 11.3% 10.9%
EBITDA ( Rs mn) 453 700 1,169 1,911 606 897 1,351 525 646 848
YoY (%)
54% 67% 63% 34% 48% 51% 16% 23% 31%
EBITDA margins (%) 6.5% 7.9% 10.1% 11.4% 7.3% 9.1% 10.0% 6.8% 7.5% 7.8%
Depreciation (Rs mn) 63 72 122 136 72 121 133 71 120 131
EBIT (Rs mn) 390 628 1,047 1,775 534 776 1,218 454 526 717
YoY (%)
61% 67% 69% 37% 45% 57% 16% 16% 36%
EBIT margins (%) 5.6% 7.1% 9.1% 10.6% 6.4% 7.8% 9.0% 5.9% 6.1% 6.6%
Other income/expenses (Rs mn) -7 -112 -88 -81 -106 -74 -66 -108 -80 -71
PBT (Rs mn) 384 516 959 1,693 428 702 1,152 346 447 646
Taxes (Rs mn) 135 175 326 576 146 239 392 117 152 220
Tax rate (%) 35% 34% 34% 34% 34% 34% 34% 34% 34% 34%
PAT (Rs mn) 249 341 633 1,118 283 463 760 228 295 427
YoY (%)
37% 86% 76% 13% 64% 64% -8% 29% 45%
Source: Company, Equirus Securities
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 18 of 31
Annexure 1: Feedback from a leading processing company
Annexure 2: Global shrimp prices, FX volatility passed on to farmers
Global shrimp prices are volatile and depend on the global demand-supply scenario. A
bumper seasonal product by any shrimp producing country could put downward pressure
on global shrimp prices, with vice versa also true. Shrimp exports are generally priced in
US$, so USD/INR volatility brings in another uncertainty. However, exporters have
historically passed price on and FX volatility to farmers. As shown in Exhibit 36, shrimp
farming is a highly profitable business with shrimp farmers generally affluent; also,
farmers are aware of shrimp export prices and enter into negotiations accordingly.
Exhibit 30 below indicates that the ex-farm shrimp prices generally moves in tandem
with the export price. Further, our channel checks suggest that processing companies do
not take much hit on their margins even if global shrimp prices fall drastically. Only in an
year, where there is a double trouble of falling shrimp prices and rising feed prices,
margins of processing companies may take a hit as profitability of the farmer needs to be
maintained in order for shrimp culture to grow.
Exhibit 29: Global shrimp prices, while always volatile, have been broadly stable for
last one year
Source: Bloomberg, Equirus Securities
6
8
10
12
14
16
18
20
Apr-
11
Jul-
11
Oct-
11
Jan-1
2
Apr-
12
Jul-
12
Oct-
12
Jan-1
3
Apr-
13
Jul-
13
Oct-
13
Jan-1
4
Apr-
14
Jul-
14
Oct-
14
Jan-1
5
Apr-
15
Jul-
15
Oct-
15
Jan-1
6
Apr-
16
Jul-
16
Oct-
16
Jan-1
7
Apr-
17
US shrimp prices (USD per pound)
There are several small players in the shrimp processing industry in India, with Devi
Sea Foods and Castle Rock Fisheries amongst the largest players.
Thai and Indonesian companies are major players in the global sea-food market.
Besides these, India competes with Vietnam, Ecuador and Mexico in the sea-food
export market.
India has been gaining market share in the export market and should continue to do
well ahead too. Indian products are sold at a slight premium to products from other
countries. In processed shrimps, India sells medium-sized shrimps as against larger-
sized shrimps sold by Vietnam and Indonesia.
India encourages marine exports and gives an incentive of 5% of FOB (Freight on
board), even as such incentives are typically given at the end of the year. Indian
exports have done well despite the fact that the Thai government gives higher
incentives to its exporters as sea food exports account for ~5% of the country’s GDP.
Almost 100% of processed seafood is exported to US, EU and Japan, as the domestic
market is small. Shipments take about 1 month for the US market, 2 weeks for EU
and 10 days for countries in Asia.
The freight cost is borne by the seller and if the buyer is not satisfied with the
quality of shipment, it has to be brought back with all cost borne by the seller.
The selling price (usually in USD) is fixed at the time of dispatch, and money is received
when the goods reach the buyer. Companies typically hedge exposures to curtail the FX
risk.
Industry entry barriers mainly stem from the expertise required for processing and
certification required from various agencies like USFDA.
A company is required to send at least 5-6 good/high-quality shipments to gain the
trust of the buyer.
For a processing company, it's the per day processing capacity that matters the most
as it's a seasonal industry. The number of days it can be used differs every year.
Every processing company has to maintain a cold storage facility. Frozen shrimps can
be stored for a period of two years without any impact on quality.
It is an advantage if a company is selling feed to farmers as this helps in better
procurement and establishes a strong relationship with farmers in the long run, which
also helps in exports of processed shrimps. The company that we met recently
started importing small amount of feed and selling it to farmers.
Shrimp farming in India is picking up and many new farmers are entering the
business, especially on the western coast (regions like Gujarat). The momentum is
unlikely to slow down in the near term given that's the business is highly profitable
for farmers.
Margins in value-added shrimps are much higher than normal processed shrimps.
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 19 of 31
Exhibit 30: Ex-farm shrimp prices move in tandem with shrimp export prices
Source: Company filings, Equirus Securities
Annexure 3: Industry Overview
Increasing demand from US and new demand from China
Exhibit 31: USA is India’s biggest shrimp export market (FY17 share of exports)
Source: MPEDA, Equirus Securities
India has highest market share in US for frozen shrimp imports
US shrimp imports (~US$ 4.46bn in CY2016) have grown at a ~2.9% CAGR over 2011-2016
and India’s exports to US at a ~23.2% CAGR over the same period (from ~US$ 490mn in
2011 to ~US$1,394 in 2016). India’s share in US shrimp exports more than doubled from
~13% in 2011 and to ~31% at CY16-end – the highest among all shrimp-exporting countries
to the US. In the last 5 years, India and Indonesia have gained market share mainly from
Thailand, Vietnam and Malaysia.
Exhibit 32: US frozen shrimp imports have grown at a CAGR of ~2.9% in last 5 years
Source: United States Department of Agriculture, Equirus Securities
38%
18%
24%
7%
5%
2% 6% USA
EU
South East Asia
Japan
Middle East
China
Other Countries
3,870
4,460
0
1,000
2,000
3,000
4,000
5,000
6,000
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
USD
Million
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Avanti's shrimp export price ( Rs /kg) Avanti's shrimp RM prices ( Rs/kg)
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 20 of 31
Exhibit 33: India’s share in US shrimp imports has risen from 13% to 31% in last 5
years
Source: United States Department of Agriculture, Equirus Securities
Rise of China as a shrimp importing country
With rise in seafood consumption, China has become a net importer of shrimps. China’s
per capita fish protein intake is ~9gm/day against the world average of
5.4gm/day (in CY13). Although its shrimp production in 2015 stood at ~1.4mn tons, it had
to import ~59,000tons of shrimp during that year. China’s shrimp imports have grown at a
staggering CAGR ~42% between 2012 and 2015. Among shrimp exporting countries to
China, Ecuador and Argentina have grown at a CAGR of ~65% while India has lagged
behind with a growth rate of only ~39%. India has huge scope of improvement on this
front as its shrimp exports to China form only ~2% of India’s total shrimp exports.
Exhibit 34: China’s shrimp imports have grown at a ~42% CAGR over 2012-15
Source: UN Comtrade Database, Equirus Securities
172
65 60
52
39
53
83
25 32
150
37 41
0
20
40
60
80
100
120
140
160
180
200
Ecuador Indonesia India Argentina Thailand Others
USD
Million
2012 2013 2014 2015 2016 (Jan to Oct)
31%
20% 13%
10%
9%
6% 0%
11% 2016 India
Indonesia
Ecuador
Thailand
Vietnam
Mexico
Malaysia
Other countries
13%
15%
13%
25%
10%
8%
5%
11%
2011
India
Indonesia
Ecuador
Thailand
Vietnam
Mexico
Malaysia
India has gradually gained
market share in US shrimp
imports
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 21 of 31
Rising per capita fish consumption to open up domestic shrimp market
India’s per capita food consumption is set to increase at a higher rate than the rate of
population growth due to rising per capita income. Demand for food grains is projected
to reach ~355mn tons in 2030 from ~192mn tons in 2000, a 2.1% CAGR. However, demand
for livestock and dairy items is expected to rise at a higher rate because of its nutritious
value and rising purchasing power of Indians. Demand for meat/fish/eggs/milk is set to
clock a CAGR of 4.1%/3.3%/4.1%/3.0% over 2000-2030. We feel that rising per capita fish
consumption in India can open up a whole new domestic market for shrimps.
Exhibit 35: Demand for fish/related products to grow at a higher rate than for food
grains
Source: ICAR, Equirus Securities
Economics of shrimp farming remains attractive for farmers
As shown in Exhibit 36, shrimp farming is a highly profitable business, driving more
farmers to take up this business.
Exhibit 36: Simplified P&L of shrimp farmers suggests high profitability
Total seeds per acre 250,000
Survival rate 80%
Surviving seeds per acre 200,000
Cost per seed (Rs) 0.30
Total seed cost (Rs) (a) 75,000
Feed required per acre (Kg) 8,000
No. of seeds 200,000
Weight of shrimp (gm) 20
FCR ratio 2.0
Cost of feed per kg (Rs) 70
Feed cost (Rs) (b) 560,000
Other costs (mainly electricity & labour) (c) 325,000
Total cost (Rs) (a+b+c) 960,000
Farm gate price of shrimp (Rs/kg) 400
Total income (Rs) 1,600,000
Profit (Rs) 640,000
Margins (%) 40.0%
Source: Equirus Securities
14 33
64 81
192
4.5 6 17
43
93 76
30
102 95
156
355
15 16
57
110
180 182
0
50
100
150
200
250
300
350
400
Million t
ons
2000 2030
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 22 of 31
Investments by both corporate and farmers pick up pace
As explained in our initiating coverage report on Avanti Feeds (Avanti Feeds - Initiating
Coverage Note), the economics of shrimp aquaculture are very attractive for farmers
with an IRR of over 60%. Therefore, in India’s coastal regions, several farmers have been
taking up shrimp farming as their main source of income. Also, shrimp price volatility in
international markets has decreased over time (Exhibit 37). Hence, along with farmers,
corporate investments in shrimp feed and shrimp processing plants have increased
substantially, and should touch ~Rs 64bn over FY17-FY19 (Exhibit 38).
Exhibit 37: Global shrimp prices, while always volatile, have trended up since
2HFY17
Source: Bloomberg, Equirus Securities
Exhibit 38: Capital expenditure in aquaculture industry is expected to move up
Capital investments (Rs bn)
Aggregate investments made from 2013-14 to 2015-16 33
Aggregate investment required from 2016-17 to 2018-19 64
Fixed capital investment required 62
Source: Company, Equirus Securities
Government push on developing aquaculture in India
Blue Revolution – Neel Kranti Mission
The ministry of Agriculture and Farmers Welfare has merged all ongoing schemes
under the umbrella of Blue Revolution and approved a total outlay of Rs 30bn for
the implementation of the scheme during 2015-16 to 2019-20. The goal is to
substantially increase India’s market share in global marine exports by tapping
the full potential and enhancing the productivity of both inland and marine
aquaculture. Blue Revolution aims to triple India’s total marine production and
exports earnings by 2020, with benefits flowing to fish farmers and fisheries
through institutional mechanisms. The scheme proposes to double the income of
fish farmers and fisheries by increasing productivity and creating better
technology-enabled infrastructure.
Merchandise Export from India Scheme (MEIS)
MEIS was launched as a part of the new Foreign Trade Policy, and has replaced
five similar schemes available under the earlier foreign trade policy. Under
MEIS, the government has allocated more than Rs 220bn per annum for exports.
Development of agencies like CAA, MPEDA and Rajiv Gandhi Quarantine
Center to ensure sustained growth
Various government bodies ensure very strong systems and processes for
aquaculture in India and strictly enforce them:
Control over quality of seed hatcheries: All hatcheries have to be
registered with Coastal Aquaculture Authority (CAA).
Sourcing of broodstock can only be done from sources approved by
CAA.
Rajiv Gandhi Quarantine Centre regulates the introduction of non-
native P. Vannamei in India to prevent the entry of disease.
Complete traceability: Proper records are kept of seeds - from where
they were sourced from to whom they was supplied - to ensure
traceability.
6
8
10
12
14
16
18
20
Apr-
11
Jul-
11
Oct-
11
Jan-1
2
Apr-
12
Jul-
12
Oct-
12
Jan-1
3
Apr-
13
Jul-
13
Oct-
13
Jan-1
4
Apr-
14
Jul-
14
Oct-
14
Jan-1
5
Apr-
15
Jul-
15
Oct-
15
Jan-1
6
Apr-
16
Jul-
16
Oct-
16
Jan-1
7
Apr-
17
US shrimp prices (USD per pound)
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 23 of 31
Annexure 4: Company overview
APEX is an integrated producer and exporter of shelf stable quality aquaculture products.
It supplies ready-to-cook products to a diversified customer base consisting of food
companies, retail chains, restaurants, club stores and distributors spread across the
developed markets of USA, UK and various European countries. The company’s output
majorly comprises variants of processed Vannamei shrimp (White shrimp) and is sold
under the brands owned by customers and also through brands namely Bay fresh, Bay
Harvest and Bay Premium. APEX strategically focuses on the market of USA, which is the
largest importer of aquaculture products in the world although its dependence on USA
has been declining (see exhibit 39). Revenue share of USA has declined to 82% in FY17
from 93.5% in FY13.
Exhibit 39: USA contributed ~82% of Apex’s revenue in FY17
Source: Company, Equirus Securities
The Company operates out of Andhra Pradesh, which is the most favorable state in India
for aquaculture business. Their integrated operations spans across hatchery, farming on
~1,338 acres of land and processing capacity of 9,240 MTPA of finished products at
facility located at Kakinada. Additionally they have an arrangement with Royale Marine
for processing of another 3,000 MTPA. Their facility is approved by the Export Inspection
Council for export to all countries excluding Australia and Custom Union. Their facility is
also certified with BRC Food Grade, Best Aqua Culture Practices, HACCP and ASC.
Company derives major chunk of its revenue from its top 5 customers (see exhibit 40).
Its top 3 customers are Chicken of the Sea Frozen Foods (USA); Ocean World Ventures LLC
(USA); and Pacific Sea Food Group (USA).
Exhibit 40: Company derives a large portion of the revenue from top 5 customers
Source: Company, Equirus Securities
Company history
Year Milestone
1995 Commenced business operations by formation of a partnership firm under the
name “Apex Exports”
2004 Commencement of exports to US markets
2006 Received approval from Export Inspection Counsel of India for exports to all
countries, including EU
2007 Received HACCP for shrimp processing by SGS India Private Limited.
2008 Received “Best Aquaculture Practices” certificate from Accreditation
Committee of Aquaculture Certification Counsel Inc.
2012 Conversion of partnership firm into private limited under the name “Apex
Frozen Foods Private Limited”
2013 Exhibiting products in Seafood Expo Global held in Brussels
2014 Commenced work for setting up of additional pre-processing facilities at
Tallarevu
2015 Received a certificate of recognition- three-star export house from Directorate
General of Foreign Trade, Visakhapatnam, Ministry of Commerce & Industry,
and Government of India.
2016 Converted from private limited company to public company
2017 APEX has a public listing on BSE and NSE
Source: Company filings, Equirus securities
93.5% 87.5% 87.5% 85.6% 82.0%
6.5% 12.5% 12.5% 13.9% 17.8%
0.0% 0.0% 0.0% 0.5% 0.2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY13 FY14 FY15 FY16 FY17
USA UK and other EU Other countries
42%
54% 60%
66% 69% 69%
0%
10%
20%
30%
40%
50%
60%
70%
80%
FY15 FY16 FY17
Revenue from top 3 customers (%) Revenue from top 5 customers (%)
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 24 of 31
Key management profile
Karuturi Satyanarayana Murthy: Mr Murthy, aged 61 years, is the Chairman and
Managing Director of APEX. His experience in the aquaculture industry spans ~20 years.
He had set up a partnership firm, Apex Exports, in 1997 to export shrimps, which was
converted into Apex Frozen Foods Private Limited. Mr. Murthy makes strategic and
business development-related decisions and also looks after the company’s operations.
Karuturi Subrahmanya Chowdary: Mr Chowdary is the Executive Director of the firm and
has played an instrumental role in the development of the business. He has an
experience of ~12 years in the aquaculture industry. He looks after the company’s
business operations and marketing activities.
Karuturi Neelima Devi: Ms Devi is a whole-time director of the company. She holds a
Bachelor Degree in Science from Andhra University and has over 5 years of experience in
the aquaculture industry. She is experienced in administration and is the Chairman of CSR
Committee.
Datla Chandra Sekhar Raju: Mr Raju is a Non-Executive Independent Director of the
company. He has a Bachelor’s degree in Technology from Jawaharlal Nehru Technology
University. In his 19 years of experience in the IT sector, he has worked for several
reputed public and private sector companies. He was appointed as an additional director
on 25th January’17.
Venkata Subba Raju Datla: Mr Datla is a Non-Executive Independent Director of the
company. He holds a Bachelor’s degree in Law and has 36 years of experience in the
banking sector. He has held various positions during his association with Andhra Bank. He
was appointed as an additional director of the company on 25 Jan’17.
Mantena Lakshmipathi Raju: Mr Raju is a Non-Executive Independent Director of the
firm. He holds a degree of Doctor of Philosophy. He has 37 years of teaching experience
and has held prestigious positions in the Andhra University. He was appointed as an
additional director of the company on 25th Jan’17.
Ch Vijaya Kumar: He is the Chief Financial Officer of the company. He has a Bachelor’s
degree in Commerce from the Andhra University and is a qualified Chartered Accountant
from the Institute of Chartered Accountants of India. His responsibilities include
establishing policies for strengthening the performance of the firm, monitoring the
performance of the management and strengthening the company’s financial position.
S. Sarojini: She is the Company Secretary. She holds a Bachelor degree in Commerce
from Kakatiya University and is also a member of the Institute of Company Secretaries of
India. She was appointed on 1st Aug’16.
P. Durga Prasad: Mr Prasad is the Manager-Accounts of the company. He holds a B. Com
degree from Andhra University and Post-Graduate Diploma in Computer Application from
Intelligence for Generating Advanced Computer Education. He has been with the
Company Since Apr’12. He is currently responsible for handling accounts, taxation,
banking transactions, preparation of financial statements, MIS, and coordinating with
statutory auditors of the company.
D. S. Madhavi: She is the Quality Assurance Manager of the company, and is a Master of
Science (Marine Biology & Fisheries) from Andhra University, Vishakhapatnam. She has 13
years of work experience in the seafood Industry. She has also worked with Jasper Aqua
Exports Limited. She is responsible for quality control, inspection and monitoring of raw
shrimp, processed finished products, handling customer complaints and implementation
of corrective and preventive action.
H. Rajashekhar: Mr. Rajashekhar is the company’s Operations Manager. He is a Bachelor
of Fisheries Sciences from the University of Agriculture Sciences, Bangalore, and an MBA
in International Business. He has over 20 years of work experience in the sea-food
processing industry. He has been with the company since its incorporation and is
currently responsible for product strategies, production controls, production planning and
improvement, implementation of HACCP, coordination with product inspection and
quality control personnel, supervising work force, and motivation of staff.
V. Thiyagarajan: He is the Farm In-charge of the company. He holds a diploma in
Fisheries Technology and Navigation Engineering from the State Board of Technical
Education and Training, Department of Technical Education, Chennai. He has vast
experience in farm management and aquaculture. He was appointed as a Farm In-charge
in Sep’15 and is currently responsible for aqua farm management.
G V Raghava Raju: Mr Raju is the Purchase Manager, Accounts, of the company. He has
been associated with the company since Apr’12 and is currently responsible for
procurement of qualitative raw material at competitive prices from various farms located
within the state and nearby states. He has 25 years of experience as a purchase manager.
Rayadu Sreenivasa Rao: Mr Rao is the admin-in-charge. He holds a degree of Masters in
Social Work from Acharya Nagarjuna University, MBA (HRM) from Pondicherry University
and Bachelors of Commerce from Andhra University, Visakhapatnam. He has 14 years of
experience in the field of Human Resources. He is responsible for administration,
employee payrolls, PF, ESI, professional tax and other statutory requirements.
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 25 of 31
Corporate Governance
Following are key highlights of our preliminary assessment of the level of corporate
governance in the company through its RHP and FY17 Annual Report:
Board of directors Composition: The Board Directors is composed of six directors, including a woman
director, with three directors as non-executive independent directors. 18 board meetings
were held during FY17 and the maximum time gap between two meetings did not exceed
120 days.
Distribution of power: Executive power is a bit concentrated as most managerial tasks
are taken care of by two personnel: Mr. Karuturi Satyanarayana Murthy – Chairman &
Managing Director and Mr. Karuturi Subrahmanya Chowdary – Executive Director. Out of
five board committees, four (Audit, Nomination & Remuneration, Stakeholders
Relationship and IPO committees) are headed by non-executive/independent directors.
Concerns
As observed by secretarial auditors, APEX did not appoint a Company Secretary from
1st Apr’16 to 31st Jul’16. The company has sited non-availability of suitable candidates
as a reason; however, in Aug’16, it has appointed a new Company Secretary.
During FY17, the stakeholders’ relationship committee did not meet even once.
Amount unspent towards CSR in FY17 stood at ~Rs 5.2mn. APEX is in the process of
identifying suitable areas to spend the money.
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 26 of 31
Consolidated Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18E 2Q18E 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E
Revenue NA NA NA NA 1,842 2,917 2,029 1,549 2,189 3,466 2,411 1,841 6,991 8,337 9,907 13,557 Consumption of raw Material & Components
NA NA NA NA 1,426 2,260 1,570 1,200 1,675 2,652 1,844 1,421 5,492 6,457 7,592 10,331
Employee Benefits Expenses NA NA NA NA 69 69 69 69 79 79 79 79 249 274 315 378
Other Expenses NA NA NA NA 74 117 81 66 88 139 96 77 284 338 400 548
- - - - - - - - - - - - - - - - -
Manufacturing expenses NA NA NA NA 146 248 156 112 158 250 159 137 513 662 703 950 EBITDA NA NA NA NA 129 223 153 101 190 348 232 127 453 606 897 1,351 Depreciation NA NA NA NA 18 18 18 18 30 30 30 30 63 72 121 133 EBIT NA NA NA NA 111 205 135 83 160 317 202 97 390 534 776 1,218 Interest NA NA NA NA 32 32 32 32 29 29 29 29 112 129 116 104 Other Income NA NA NA NA 6 6 6 6 10 10 10 10 106 23 41 37 PBT NA NA NA NA 84 179 108 57 142 299 183 78 384 428 702 1,152 Tax NA NA NA NA 29 61 37 19 48 102 62 27 135 146 239 392 PAT bef. MI & Assoc. NA NA NA NA 56 118 71 38 93 197 121 52 249 283 463 760 Minority Interest NA NA NA NA 0 0 0 0 0 0 0 0 0 0 0 0 Profit from Assoc. NA NA NA NA 0 0 0 0 0 0 0 0 0 0 0 0 Recurring PAT NA NA NA NA 56 118 71 38 93 197 121 52 249 283 463 760 Extraordinaries NA NA NA NA 0 0 0 0 0 0 0 0 5 0 0 0 Reported PAT NA NA NA NA 56 118 71 38 93 197 121 52 244 283 463 760
EPS (Rs) - - - - 1.78 3.78 2.29 1.20 2.99 6.31 3.87 1.65 7.97 9.04 14.83 24.32
Key Drivers
Frozen shrimp export volumes (MT) - - - - - - - - - - - - 9,898 11,588 12,638 16,388 VAP export volumes (MT) - - - - - - - - - - - - - - 750 1,500 Frozen shrimp realization (Rs/kg) - - - - - - - - - - - - 666 666 679 693 VAP realization (Rs/kg) - - - - - - - - - - - - - - 781 797 - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
Sequential Growth (%)
Revenue - - - - - 58 % -30 % -24 % 41 % 58 % -30 % -24 % - - - - Consumption of raw Material & Components
- - - - - 59 % -31 % -24 % 40 % 58 % -30 % -23 % - - - -
EBITDA - - - - - 74 % -32 % -34 % 88 % 82 % -33 % -45 % - - - - EBIT - - - - - 85 % -34 % -38 % 92 % 98 % -36 % -52 % - - - - Recurring PAT - - - - - 112 % -39 % -47 % 149 % 111 % -39 % -57 % - - - -
EPS - - - - - 112 % -39 % -47 % 149 % 111 % -39 % -57 % - - - -
Yearly Growth (%)
Revenue - - - - - - - - 19 % 19 % 19 % 19 % 16 % 19 % 19 % 37 % EBITDA - - - - - - - - 48 % 56 % 52 % 26 % 11 % 34 % 48 % 51 % EBIT - - - - - - - - 45 % 55 % 50 % 16 % 9 % 37 % 45 % 57 % Recurring PAT - - - - - - - - 68 % 67 % 69 % 38 % 26 % 13 % 64 % 64 %
EPS - - - - - - - - 68 % 67 % 69 % 38 % 26 % 13 % 64 % 64 %
Margin (%)
EBITDA - - - - 7 % 8 % 8 % 7 % 9 % 10 % 10 % 7 % 6 % 7 % 9 % 10 % EBIT - - - - 6 % 7 % 7 % 5 % 7 % 9 % 8 % 5 % 6 % 6 % 8 % 9 % PBT - - - - 5 % 6 % 5 % 4 % 6 % 9 % 8 % 4 % 5 % 5 % 7 % 8 %
PAT - - - - 3 % 4 % 4 % 2 % 4 % 6 % 5 % 3 % 4 % 3 % 5 % 6 %
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 27 of 31
Consolidated Financials P&L (Rs Mn) FY17A FY18E FY19E FY20E
Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E
Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E
Revenue 6,991 8,337 9,907 13,557 Equity Capital 240 313 313 313 PBT 384 428 702 1,152
Op. Expenditure 6,538 7,731 9,010 12,207 Reserve 728 2,084 2,492 3,161 Depreciation 63 72 121 133
EBITDA 453 606 897 1,351 Networth 968 2,396 2,804 3,473 Others 91 106 74 66
Depreciation 63 72 121 133 Long Term Debt 1,057 947 847 847 Taxes Paid 130 146 239 392
EBIT 390 534 776 1,218 Def Tax Liability 15 15 15 15 Change in WC -291 -107 -233 -519
Interest Expense 112 129 116 104 Minority Interest 0 0 0 0 Operating C/F 116 353 426 440
Other Income 106 23 41 37 Account Payables 309 283 333 453 Capex -267 -877 -198 -315
PBT 384 428 702 1,152 Other Curr Liabi 226 181 181 181 Change in Invest 0 0 0 0
Tax 135 146 239 392 Total Liabilities & Equity 2,574 3,823 4,181 4,970 Others -18 23 41 37
PAT bef. MI & Assoc. 249 283 463 760 Net Fixed Assets 829 845 1,719 1,901 Investing C/F -286 -854 -157 -278
Minority Interest 0 0 0 0 Capital WIP 8 797 0 0 Change in Debt 296 -154 -100 0
Profit from Assoc. 0 0 0 0 Others 21 21 21 21 Change in Equity -29 1,180 0 0
Recurring PAT 249 283 463 760
Inventory 638 725 853 1,132 Others -98 -163 -171 -195
Extraordinaires 5 0 0 0 Account Receivables 828 822 977 1,337 Financing C/F 169 863 -271 -195
Reported PAT 244 283 463 760 Other Current Assets 205 205 205 205 Net change in cash 0 363 -2 -33
FDEPS (Rs) 8.0 9.0 14.8 24.3 Cash 46 408 406 373 RoE (%) 29 % 17 % 18 % 24 %
DPS (Rs) 1.0 0.9 1.5 2.5 Total Assets 2,574 3,823 4,181 4,970
RoIC (%) 18 % 14 % 15 % 21 %
CEPS (Rs) 13.0 12.6 18.7 28.6 Non-cash Working Capital 1,137 1,288 1,521 2,040
Core RoIC (%) 14 % 14 % 15 % 21 %
FCFPS (Rs) -3.3 -15.6 9.7 6.2 Cash Conv Cycle 59.4 56.4 56.0 54.9 Div Payout (%) 10 % 9 % 10 % 10 %
BVPS (Rs) 40.3 76.7 89.7 111.1 WC Turnover 6.1 6.5 6.5 6.6 P/E 26.6 23.5 14.3 8.7
EBITDAM (%) 6 % 7 % 9 % 10 % FA Turnover 8.4 5.1 5.8 7.1 P/B 5.3 2.8 2.4 1.9
PATM (%) 4 % 3 % 5 % 6 % Net D/E 1.0 0.2 0.2 0.1 P/FCFF -65.0 -13.6 21.8 34.4
Tax Rate (%) 35 % 34 % 34 % 34 % Revenue/Capital Employed 3.9 3.1 2.8 3.4 EV/EBITDA 16.9 11.9 7.9 5.3
Sales Growth (%) 16 % 19 % 19 % 37 %
Capital Employed/Equity 2.1 1.6 1.4 1.3
EV/Sales 1.1 0.9 0.7 0.5
FDEPS Growth (%) 26 % 13 % 64 % 64 %
Dividend Yield (%) 0.5 % 0.4 % 0.7 % 1.2 %
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 28 of 31
Historical Consolidated Financials P&L (Rs Mn) FY14A FY15A FY16A FY17A
Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A
Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A
Revenue 5,143 5,994 6,035 6,991 Equity Capital 200 240 240 240 PBT 204 282 302 384
Op. Expenditure 4,817 5,662 5,627 6,538 Reserve 178 320 513 728 Depreciation 45 4 49 63
EBITDA 325 332 408 453 Networth 378 560 753 968 Others 71 91 99 91
Depreciation 45 4 49 63 Long Term Debt 773 871 761 1,057 Taxes Paid 73 85 103 130
EBIT 280 328 359 390 Def Tax Liability -3 9 12 15 Change in WC -153 -169 26 -291
Interest Expense 80 96 104 112 Minority Interest 0 0 0 0 Operating C/F 94 123 374 116
Other Income 3 50 47 106 Account Payables 163 115 161 309 Capex -172 -124 -161 -267
PBT 204 282 302 384 Other Curr Liabi 94 97 101 226 Change in Invest 1 1 0 0
Tax 70 96 105 135 Total Liabilities & Equity 1,405 1,651 1,788 2,574 Others 3 3 1 -18
PAT bef. MI & Assoc. 134 186 197 249 Net Fixed Assets 403 523 552 829 Investing C/F -168 -120 -160 -286
Minority Interest 0 0 0 0 Capital WIP 0 0 80 8 Change in Debt 158 98 -110 296
Profit from Assoc. 0 0 0 0 Others 1 1 1 21 Change in Equity 0 -2 2 -29
Recurring PAT 94 134 186 197 Inventory 505 503 596 638 Others -80 -96 -104 -98
Extraordinaires 0 2 4 5 Account Receivables 340 502 415 828 Financing C/F 78 0 -212 169
Reported PAT 94 134 184 193 Other Current Assets 122 107 127 205 Net change in cash 4 3 2 0
EPS (Rs) 4.3 5.9 6.3 8.0 Cash 34 16 18 46
RoE (%) 43 % 40 % 30 % 29 %
DPS (Rs) 0.0 0.0 0.0 1.0
Total Assets 1,405 1,651 1,788 2,574
RoIC (%) 19 % 19 % 18 % 18 %
CEPS (Rs) 11.0 9.0 10.3 13.0 Non-cash Working Capital 711 901 875 1,137 Core RoIC (%) 18 % 17 % 16 % 14 %
FCFPS (Rs) -1.6 3.0 11.7 -3.3 Cash Conv Cycle 50.5 54.9 52.9 59.4 Div Payout (%) 0 % 0 % 0 % 10 %
BVPS (Rs) 18.9 23.3 31.4 40.3 WC Turnover 7.2 6.7 6.9 6.1
P/E 49.4 35.7 33.6 26.6
EBITDAM (%) 6 % 6 % 7 % 6 % FA Turnover 12.8 11.5 9.6 8.4 P/B 11.2 9.1 6.8 5.3
PATM (%) 3 % 3 % 3 % 4 % Net D/E 2.0 1.5 1.0 1.0 P/FCFF -133.3 70.9 18.1 -65.0
Tax Rate (%) 34 % 34 % 35 % 35 % Revenue/Capital Employed 5.1 4.6 4.1 3.9 EV/EBITDA 22.6 22.6 18.1 16.9
Sales growth (%) 101 % 17 % 1 % 16 %
Capital Employed/Equity 3.2 2.8 2.3 2.1
EV/Sales 1.4 1.3 1.2 1.1
FDEPS growth (%) 43 % 38 % 6 % 26 %
Dividend Yield (%) 0.0 % 0.0 % 0.0 % 0.5 %
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 29 of 31
Equirus Securities
Research Analysts Sector/Industry Email
Equity Sales E-mail
Abhishek Shindadkar IT Services abhishek.shindadkar@equirus.com 91-22-43320643 VishadTurakhia vishad.turakhia@equirus.com 91-22-43320633
Ashutosh Tiwari Auto, Metals & Mining ashutosh@equirus.com 91-79-61909517 Subham Sinha subham.sinha@equirus.com 91-22-43320631
Depesh Kashyap Mid-Caps depesh.kashyap@equirus.com 91-79-61909528 SwetaSheth sweta.sheth@equirus.com 91-22-43320634
Devam Modi Power & Infrastructure devam@equirus.com 91-79-61909516 Viral Desai viral.desai@equirus.com 91-22-43320635
DhavalDama FMCG, Mid-Caps dhaval.dama@equirus.com 91-79-61909518 Dealing Room E-mail
Manoj Gori Consumer Durables manoj.gori@equirus.com 91-79-61909523 Ashish Shah ashishshah@equirus.com 91-22-43320662
Maulik Patel Oil and Gas maulik@equirus.com 91-79-61909519 IleshSavla ilesh.savla@equirus.com 91-22-43320666
Praful Bohra Pharmaceuticals praful.bohra@equirus.com 91-79-61909532 Manoj Kejriwal manoj.kejriwal@equirus.com 91-22-43320663
Rohan Mandora Banking & Financial Services rohan.mandora@equirus.com 91-79-61909529 Dharmesh Mehta dharmesh.mehta@equirus.com 91-22-43320661
Associates E-mail SandipAmrutiya sandipamrutiya@equirus.com 91-22-43320660
Ankit Choudhary ankit.choudhary@equirus.com 91-79-61909533 Compliance Officer E-mail
Ashdeep Kaur ashdeep.kaur@equirus.com 91-79-61909595 Jay Soni jay.soni@equirus.com 91-79-61909561
Bharat Celly bharat.celly@equirus.com 91-79-61909524
Harshit Patel harshit.patel@equirus.com 91-79-61909522
Meet Chande meet.chande@equirus.com 91-79-61909513
ParvaSoni parva.soni@equirus.com 91-79-61909521
Pranav Mehta pranav.mehta@equirus.com 91-79-61909514
RonakSoni Ronak.soni@equirus.com 91-79-61909525
Samkit Shah samkit.shah@equirus.com 91-79-61909520
ShreepalDoshi shreepal.doshi@equirus.com 91-79-61909541
Vikas Jain vikas.jain@equirus.com 91-79-61909531
Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion andATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.
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Corporate Office: 3rd floor, House No. 9, Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge, S.G. Highway Ahmedabad-380054 Gujarat Tel. No: +91 (0)79 - 6190 9550 Fax No:+91 (0)79 – 6190 9560
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 30 of 31
© 2017 Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not
be reprinted, sold or redistributed without the written consent of Equirus Securities Private Limited
Analyst Certification
I, Depesh Kashyap/Harshit Patel, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their
securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Disclosures
Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC176044 is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the
Capital Market (Reg. No. INB231301731), Futures & Options Segment (Reg. No.INF231301731) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB011301737) of Bombay Stock
Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH000001154), as a Portfolio Manager under SEBI (Portfolio Managers
Regulations, 1993 (Reg. No.INP000005216) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No.IN-DP-324-2017). There are no disciplinary actions taken by any regulatory
authority against ESPL. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker and provides investment banking services including but not limited to
merchant banking services, private equity, mergers & acquisitions and structured finance.
As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for
investment banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have
received a mandate from the subject company; or (d) might have other financial, business or other interests in entities including the subject company (ies) mentioned in this Report. ESPL & its associates, their
directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in
their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as the last day of the month preceding the publication of the research report. ESPL or its Analyst or
Associates did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ESPL nor
Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or
brokerage service transactions. ESPL has not been engaged in market making activity for the subject company.
The Research Analyst engaged in preparation of this Report:-
(a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months;
(c) has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products
or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the
subject company or third party in connection with the research report; (f) might have served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the
subject company.
This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,
publication, availability or use would be contrary to law, regulation or which would subject ESPL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein
may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession of this document are required to inform themselves of, and to observe, such applicable
restrictions. Please delete this document if you are not authorized to view the same. By reading this document you represent and warrant that you have full authority and all rights necessary to view and read this
document without subjecting ESPL and affiliates to any registration or licensing requirement within such jurisdiction.
This document has been prepared solely for information purpose and does not constitute a solicitation to any person to buy, sell or subscribe any security. ESPL or its affiliates are not soliciting any action based
on this report. The information and opinions contained herein is from publicly available data or based on information obtained in good faith from sources believed to be reliable but ESPL provides no guarantee as
to its accuracy or completeness. The information contained herein is as on date of this report, and is subject to change or modification and any such changes could impact our interpretation of relevant
information contained herein. While we would endeavour to update the information herein on reasonable basis, ESPL and its affiliates, their directors and employees are under no obligation to update or keep the
information current. Also there may be regulatory, compliance, or other reasons that may prevent ESPL and its group companies from doing so. This document is prepared for assistance only and is not intended
to be and must not alone be taken as the basis for an investment decision. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an
investment in the securities of companies referred to in this document including the merits and risks involved. This document is intended for general circulation and does not take into account the specific
investment objectives, financial situation or particular needs of any particular person. ESPL and its group companies, employees, directors and agents accept no liability, and disclaim all responsibility, for the
consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. ESPL/its affiliates do and seek to do business with
companies covered in its research report. Thus, investors should be aware that the firm may have conflict of interest.
A graph of daily closing prices of securities is available at http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp and www.bseindia.com (Choose a company from the list on the browser and select the
“three years” period in the price chart).
Apex Frozen Foods Absolute – Long Relative – Outperform 28% ATR in 16 months
September 4, 2017 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 31 of 31
Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest
Research Analyst’ or Relatives’ financial interest No
Research Analyst’ or Relatives’ actual/beneficial ownership of 1% or more No
Research Analyst’ or Relatives’ material conflict of interest No
Disclaimer for U.S. Persons
ESPL/its affiliates are not a registered broker–dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United States. In addition Equirus is not a
registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the “Acts”), and under applicable state laws in the United States.
Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Equirus, including the products and services described herein are not available to or intended
for U.S. persons. The information contained in this Report is not intended for any person who is a resident of the United States of America or a resident of any jurisdiction, the laws of which imposes prohibition
on soliciting the securities business in that jurisdiction without going through the registration requirements and/ or prohibit the use of any information contained in this report. This Report and its respective
contents do not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be considered as an advertisement tool. "U.S.
Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US
Persons" under certain rules.