Rs 10,000 turned into Rs 39 lakh; this super mutibagger surged 38,000%, should you buy?

This Hyderabad-based company has just received a buy recommendation from a leading brokerage, which sees up to 38 per cent upside on the stock in next 12 months. The stock has rewarded the investors to a great deal by surging a whopping 38,000 per cent in the last ten years and still holds promising medium to long-term potential. Alluri Indra Kumar-owned Avanti Feeds, a manufacturer and seller of prawns and fish feeds, is indeed a multibagger, or rather a super multibagger. The stock has rallied as much as 38392 per cent in the last ten years from Rs 7 in 2008 to Rs 2468 now. By comparison, the benchmark Sensex has risen at a piffling rate in comparison, at 107 per cent!

Edelweiss Investment Research initiated coverage on Avanti Feeds with a ‘BUY’ recommendation and a target price of Rs 3,306. 

"Assuming 82 per cent utilisation in shrimp feed (new capacity) and 105 per cent utilisation in shrimp processing along with margins slightly below previous peak levels, we arrive at an EPS estimate of Rs 165 for FY20. We assign 20 times P/E and arrive at target price of Rs 3,306, an upside of 38 per cent from Tuesday's close," said Edelweiss Investment Research in a report released on Tuesday. 

According to the brokerage the key drivers envisaged to spur Avanti are: 1) robust growth in shrimp feeds space with increasing area under cultivation; 2) rising shrimp processing capability with aggressive capacity utilisation goals; 3) maintenance of leadership in the feeds space with sustained share gains; and 4) target to become India’s largest shrimp exporter.

Since 2009, the company has increased capacity 15 times and maintained utilisation level above 70 per cent since 2013. Avanti had a processing capacity of 7,000MT and in Q3FY18 it has started a new 15,000MT facility capable of making high value-added partially or completely cooked products. Thus, it now boasts of one of the largest processing capacities in India and is slated to be the largest shrimp exporter in India by FY20. 

"The facitiy has come on stream in Q3FY18 and has already clocked 1.5x (7,749MT) of its 2017 output (5,155MT) with one quarter still to go. We estimate the company to utilise 100% of its capacity within the next two years," said Edelweiss. 

Key financials 

On absolute basis, the company's net profit surged over 200 per cent between 2014 and 2017 to Rs 2143.9 crore. This translates into compound annual growth rate (CAGR) of 45 per cent during the same period. In December quarter, the consolidated net profit of the company jumped 128.31 per cent to Rs 105.07 crore after the company's total income grew 33.82 per cent to Rs 722.61 crore in Q3.

Source: Edelweiss Research

The cash-rich company is also a consistent dividend player. For the year ending March 2017, Avanti Feeds had declared an equity dividend of 450 per cent amounting to Rs 9 per share. At the current share price of about Rs 2450 this results into a dividend yield of 0.37 per cent. The company's dividend yield is expected to grow up to 1 per cent by FY20, according to Edelweiss.