Avanti Feeds Surges After Share Split, Bonus Issue

Shares of Avanti Feeds Ltd. rose the most in three weeks after the company implemented its planned share split and a bonus issue today. Besides, the stock also got a boost from a brokerage rating upgrade.

The shrimp feed maker's stock jumped as much as 19 percent, the biggest in since June 6, early in the day and was trading at about Rs 607 apiece at 1 p.m. Its board, according to exchange filings, had on June 15 approved the share split and the bonus issue of Re 1 each—both in 1:2 ratio.

ICICI Securities initiated coverage on the stock with a ‘Buy' citing healthy cash flows and strong financials with a return ratio of more than 35 percent. The brokerage, however, expects the company's margins to decline in the ongoing financial year due to rising input costs. That's because two key raw materials used by shrimp feed makers—soymeal and fishmeal—have become dearer.

“Increase in raw material prices will negatively impact the company's bottom line in the current financial year,” Alluri Indra Kumar, managing director at Avanti Feeds, told BloombergQuint. Shrimp feed contributed nearly 83 percent of the company's revenue in the financial year through March 2018.

Rising raw material costs and falling shrimp prices have led to a sell-off in the stocks of shrimp exporters and allied businesses. Avanti Feeds has declined over 28 percent so far in 2018.

But ICICI Securities expects the country's shrimp exports to rise this year on increased consumption in the U.S., higher exports to Europe and Middle East and rupee depreciation. Shrimp exports contributed 17 percent to Avanti Feeds' revenue in the previous financial year.

China is a new market for India, Kumar said. “China has now turned a net importer and the requirement of shrimps there is very high.”