On a day when the broad markets were volatile, some stocks managed to buck the overall trend and deliver positive returns to investors. Stocks in the aqua culture and related space such as shrimp breeding and manufacturing, shrimp feed manufacturing got a shot in the arm from the budgetary proposals tabled today by the Finance Minister.
While the movements in stocks likely to benefit from the proposals were not very significant, they were broadly relative outperformers for the day. Avanti Feeds gained 5 per cent, while other gainers for the day in the aquaculture space include Coastal Corporation (2 per cent), Waterbase Limited (2.5 per cent) and Uniroyal marine Exports (5 per cent). Interestingly both, Waterbase Limited and Uniroyal Exports, which is into marine food exports and sale of aquatic feed, have been loss making for the last few years.
Budget proposals
Two key proposals laid down in the budget are likely to help these companies in the short to medium term.
First one is the reduction on basic customs duty on broodstock (used for breeding), polychaete worms, shrimp and fish feed to 5 per cent. Similarly, the Finance Minister also announced that various inputs that are used for manufacture of shrimp and fish feed, will be exempt from customs duty. India exported sea foods worth Rs 60,000 crore in the last financial year and the above move will only provide further boost to the industry. The raw material cost accounts for bulk of the cost for feed manufacturers. For instance, the raw material cost for Avanti feeds accounts for over 80 per cent of the revenue. Among the other raw materials, ones such as Squid Liver Powder are typically imported by feed manufacturers. The removal of import duty on raw materials, now, will help these company better their margins.
Second, The proposal to provide financial support for setting up a network of Nucleus Breeding Centres for Shrimp Broodstocks is yet another big positive for the seafood industry. Also, the Government has also announced that financial support for shrimp farming, processing and export will be facilitated through NABARD. Given that the margins in these businesses tend to be thin, and the typical working capital cycle of about 2-3 months, financial support for working capital and expansion, will go a long way in supporting the industry.