Key highlights from Apex Frozen Foods Limited (APEX) Q2 FY24 Earnings Concall
- Quarterly Performance
- Volumes down 13% due to weak US demand.
- Realizations down 10% with lower shrimp prices.
- Change in sales mix with higher EU share where no RTE sales.
- Cost corrections in some key items.
- Enabled 300 bps sequential EBITDA margin expansion.
- 1% EBITDA margin in Q2FY24.
- Debt Reduction
- Reduced debt by INR7 crore in H1FY24 to INR83 crore.
- Debt to equity at favorable 0.17x.
- Working capital cycle also improving.
- US Demand Outlook
- Situation easing slowly, better by end of calendar year.
- Optimistic on demand revival by Q4FY24 as inventory backlogs clear.
- Retail customers also planning promotions for next year.
- New Market Expansion
- Exploring markets outside US to diversify.
- Focusing more on Europe, other East European markets.
- Move will enhance resilience to market fluctuations, but remain cautiously optimistic on overall scenario.
- Farm Exits
- Exited 1,500 plus acres of shrimp farms from 2021-2023.
- Done due to difficulty in managing spread out farms and for better profitability.
- Ecuador Production Outlook
- Seeing viability issues currently at farm level due to withdrawal of subsidies and other government support.
- Impact expected in 2024 with new production planning.
- Constraints on market’s ability to absorb supply volumes.
- India Dynamics
- Costs and low prices causing cautious approach currently.
- Aggressiveness of past not there but still slowly stocking ponds.
- India farm gate prices around INR300 per kg on average.
- Stable over 2022 and 2023 so far.
- Changing stocking densities, harvest sizes, crop lengths.
- Capacity Expansion
- Apex recently expanded capacity by 25,000 metric tons, including 5,000 metric tons for ready-to-eat products.
- However, new capacity not yet approved for exports to EU, which is company’s second largest market.
- Other companies have also expanded capacity based on their specific business strategies and target markets.
- Indian Shrimp Export Barriers
- Currently 4-9% duties on shrimp exported from India to EU.
- India-EU free trade agreement discussions could reduce or eliminate these duties.
- Approval for 25,000 metric tons of new capacity exports contingent on India-EU agreement.
- Petition filed in US to impose countervailing duties on Indian shrimp imports, alleging subsidies; could impact industry in 2024.
- India Facility Approval Delays
- New shrimp processing facilities awaiting regulatory approval from EU for exports for past 3 plus years.
- Holdup seems to be more political/diplomatic rather than related to facility audits or inspections.
- May be linked to broader trade discussions between India and EU.
- Shrimp Production Costs – India vs Ecuador
- Ecuador focused on commodity whole head-on shrimp.
- Ecuador Lacks value-added ready-to-cook (RTC) and ready-to-eat (RTE) capacity.
- Lack skilled labor, trying to use machines, but difficult to achieve same yields and quality as manual processing.
- Asian countries like India, Vietnam, Indonesia have access to skilled labor for RTC and RTE production.
- Ecuador’s costs likely higher than India due to labor constraints and dependence on automation.