Hello Sir,

Hope you are doing well.

Recently, I was going through the con-call of Apex Frozen Foods which exports processed shrimps to US, EU, China and other markets.

The demand from US, EU continues to be low as there’s still high cost inventory in such markets.

However, despite the poor quarterly results, stock price seems to have stopped reacting negatively for now.

In general, we like looking at companies which have done well in the past but currently going through a tough phase as a lot of times one can get good companies at cheaper valuations in such scenarios.

Below, we have shared interesting insights from the Q1 FY 24 con-call of Apex Frozen Foods to understand the current situation and the outlook for the company. Hope you find the details useful for your own investments or to add the stock to your watch list.

 

A few days back, we released our new stock recommendation for our Alpha and Alpha + Members.

It’s a sub 3,000 crore market cap, fast growing Specialty chemicals company

The company has introduced new import import substitute products, expanded aggressively over the last 4-5 years, started reducing debt and available at only ~11 times last 5 years average net profit

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Apex Frozen – Insights from Q1 FY 24 con-call of the company

– General Details

  • The net revenue came in at INR 253 crores, whereby the volumes stood at 3,447 metric tons
  • In comparison to the same quarter of the previous year, there was a volume decline of 8% year-on-year and realization decline of 14% year-on-year to INR 697 per kg
  • This can be attributed to a high base with regard to the Q1 of FY23, which was also a highest ever quarter, but importantly, due to the subdued demand from our key market USA
  • As a result of the slowdown in USA, our exports to China increased and therefore, our overall realizations saw a decline since the margins on our Chinese exports are relatively lower considering the nature of the products that we ship to the Chinese markets

– RTE (Ready to eat) capacity

  • RTE capacity expanded from 5,000 to 10,000 metric ton
  • We have commercialized the production towards the end of May and almost in June, we started the commercial production
  • RTE products are mainly taken by the retail markets or supermarkets, and it is less by restaurant chains or food service markets
  • We are actually working with some of the retail markets very carefully to ensure that, we lock-in the RTE products for the sizes which we have available
  • We just understand that the EU market also is opening up because in context to RTE for the past three years, we were disabled literally
  • We have some positive news that they are going to approve our new facility too

– US demand

  • The U.S. food-at-home inflation and food outside-home inflation numbers remained pretty high
  • This had a dual impact, the demand fell while the retail prices remained high, causing inventory buildup at distributors and stores
  • We understand that the situation is easing slowly and should be better in the next couple of quarters, towards by the end of the calendar year
  • Once the inventory backlog is cleared, which is in the process, and we are cautiously optimistic that we should see a revival in the demand

– EU

  • There is still some hangover of the inflationary pressure
  • We have been quite reasonably successful in growing our sales to the EU market especially locking in some contracts with supermarket chains who were not there with the company in the earlier years

– Supply scenario

  • Ecuador’s shrimp supply continues to add some pressure on realizations
  • Ecuador is supplying and they have increased their production to beyond 1 million metric tons of raw material, which is I think they’re almost looking at 1.2 to 1.5 million metric tons this year
  • However, from a competitive positioning perspective, India is still ahead, both on costs as well as value added products

– Debt

  • Our debt continues to decline as we judiciously use our surplus cash flows to deleverage our balance sheet

(End)

 

Disclaimer: This is not a recommendation to buy/sell Apex Frozen Foods. The securities quoted are for illustration only and are not recommendatory.

 

Best Regards,

Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.com/

 

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