Avanti Feeds Ltd

NSE:AVANTIFEED

Q4-2025 Earnings Call

[Operator]

Good evening, ladies and gentlemen. I'm Felicia, moderator for the conference call. Welcome to Avanti Feeds Limited Q4 and FY '25 Earnings Conference Call. We have with us today Mr. C. Ramachandra Rao, Joint Managing Director; Mr. A. Venkata Sanjeev, Executive Director; Mr. Alluri Nikhilesh, Director of Avanti Feeds and Executive Director, Avanti Frozen Foods Private Limited; Mrs. Santhi Latha, GM Finance and Accounts; Ms. Lakshmi Sharma, Senior Manager, Corporate Affairs; Mr. DVS Satyanarayana, CFO, Avanti Frozen Foods Private Limited; Mr. K. S. Reddy, CFO, Avanti Petcare Private Limited.

[Operator Instructions]

Please note this conference is being recorded. I would now like to hand over the floor to Mr. C. Ramachandra Rao, Joint Managing Director. Thank you, and over to you, sir.

[C. Rao, executive]

Thank you, Felicia. Good evening, ladies and gentlemen. I am pleased to extend a warm welcome to all of you for this investors' conference call to review the audited financial results for Q4 FY '25 and for the year ended 31st March '25.

Mr. A. Nikhilesh, Director, Avanti Feeds Limited and Executive Director of Avanti Frozen Foods Private Limited, is joining from factory at Kovvur. Along with me are Venkata Sanjeev, Executive Director, Avanti Feeds Limited; Mrs. Santhi Latha, GM, Finance and Accounts of Avanti Feeds Limited; Mr. DVS Satyanarayana, CFO of Avanti Frozen Foods Private Limited; and Mr. K. Srinivas Reddy, CFO of Avanti Petcare Private Limited.

To begin with Mrs. Santhi Latha, GM Finance and Accounts Avanti Feeds Limited, will present highlights of financial results for the period and year ended 31st March '25 of Feeds division and also consolidated financials of the company for the same period. Thereafter, Mr. Satyanarayana will present the financial highlights of Shrimp Processing and Export division. After that, Mr. Srinivas Reddy will present the status of Petcare projects. After presentation by all of them, with a brief sum up, we will take up the question-and-answer session.

[Santhi Latha, executive]

Thank you, sir. Good evening, everyone. I will take you through the consolidated and stand-alone financial performance highlights for the quarter and year ended 31st March 2025. First, we'll go through the consolidated financial results for the quarter ended Q4 FY '25.

The comparative performance of Q4 FY '25 with that of Q3 FY '25 and Q4 FY '24 has been given in the presentation, which has been already circulated. Gross income in Q4 FY '25 is INR 1,435 crores as compared to INR 1,405 crores in the previous quarter Q3 FY '25, an increase of INR 30 crores. Compared to Q4 FY '24, gross income of INR 1,320 crores, there is an increase of INR 115 crores by about 8.7%. The PBT is INR 211 crores in Q4 FY '25 as compared to INR 184 crores in Q3 FY '25, an increase of INR 27 crores by 15%, and compared to Q4 FY '24, PBT of INR 151 crores, there is an increase of INR 60 crores by about 40% increase.

Comparison of financial year '25 with that of financial year '24 performance. In FY '25, the total income increased to INR 5,778 crores from INR 5,505 crores in FY '24. The PBT in FY '25 increased to INR 737 crores from INR 537 crores in previous year, mainly due to increase in revenue and decrease in raw material costs and better overhead absorption. The consolidate results indicate the net impact of several factors such as increase or decrease in income and expenditure relating to Feeds and Frozen divisions.

Now we will discuss the individual performance of these units. Standalone financial results of Feeds division. The Q4 FY '25 results, the gross income for Q4 FY '25 is INR 1,070 crores as compared to INR 1,077 crores in the previous quarter of Q3 FY '25, a decrease of INR 7 crores due to a decrease of quantity sold by 2,338 metric tons. The gross income in Q4 FY '25 increased to INR 1,070 crores from INR 1,022 crores in the corresponding quarter of Q4 '24, an increase by INR 48 crores due to increase in sales quantity by INR 7,432 crores. The PBT for the Q4 FY '25 is INR 194 crores as compared to INR 167 crores in Q3 FY '25, an increase of INR 27 crores by about 16%, mainly due to decrease in raw material costs and better overhead absorption. The PBT in FY '24 has increased by INR 75 crores from INR 119 crores in Q4 FY '24 represented by 63%.

The Feeds sales decreased by 2,338 MT to 129,711 MT in Q4 FY '25 as compared to 132,049 MT in Q3 FY '25 and increased by 7,432 MT from 122,278 MT when compared to Q4 FY '24. For comparison of performance of Feeds division FY '24 with FY '25, in FY '25, the total income increased to INR 4,563 crores from INR 4,395 crores in FY '24 due to increase in feed sales and other income. The PBT in FY '25 increased to INR 659 crores from INR 407 crores in the corresponding period, mainly due to increase in sales, other income and decrease in raw material costs and better overhead absorption.

The major raw materials are fishmeal, soybean meal and wheat flour. The noticeable development in this year and quarter is softening of two major raw materials, that is fishmeal and soybean meal, resulting in improvement in the profitability. The prices of these raw materials keep fluctuating since their production is based on fish catches and agriculture. The prices of fishmeal decreased in Q4 FY '25 to INR 91 per kg from INR 93 per kg in Q3 FY '25 and from INR 119 per kg in Q4 FY '24. In case of soybean meal, their prices reduced to INR 43 per kg in Q4 FY '25 from INR 46 per kg in Q3 FY '25 and INR 52 per kg in Q4 FY '24. However, the wheat flour price increased to INR 36 per kg in Q4 from INR 35 per kg in Q3 FY '25 and INR 30 per kg in Q3 FY '24.

While on one hand, the raw material prices are instrumental in determining the margin, on the other hand, the status of aquaculture activity, conditions such as climate changes, diseases, et cetera, determine the consumption of feed in terms of volume, which will have an impact on the overall performance of the company.

To sum up, in general, FY '24-'25 is a challenging year for the aquaculture industry, both in respect of shrimp production as well as global demand for shrimp export. In spite of the challenging year, your company had a better capacity utilization.

Now I'll talk about shrimp production and feed consumption in FY '25. Shrimp feed consumption. The estimated shrimp production for 20 -- the shrimp production for 2024 is 10.5 lakh metric tons to 11 lakh metric tons and the same is estimated in 2025 also, the overall shrimp production. The company's feed sales during FY '25 was 555,247 MT against 531,967 MT in FY '24. In case of Shrimp Processing and Export, India's seafood exports touched 781,602 MT, an all-time high in volume during financial year '23-'24.

Frozen shrimp remained a major export item in quantity and value accounting for a share of 40% in quantity and 66% of the total dollar earnings. The company's shrimp exports during FY '25 were 14,149 MTs as compared to 13,444 MTs in FY '24, an increase by 705 MTs. It is estimated that the exports during FY '26 would be around 17,000 MT.

Update on fish feed. As reported in earlier con call, the company has imported fish feed from Thai Union Feed Mill Company Limited and is conducting trails under Indian conditions. Once the product performance is approved, the production will be taken up for domestic sales.

Now I will hand over to Mr. DVS Satyanarayana, to present highlights of Shrimp Processing and Export division.

[D. V. Satyanarayana, executive]

Thank you, madam. Good evening, everyone. So now I would like to take you through the financial highlights of Shrimp Processing and Export division. So I will start with the quarter results, that is Q4 FY '25. The gross income for Q4 FY '25 is INR 364 crores as compared to INR 328 crores in Q3 FY '25, an increase by INR 36 crores representing 11% mainly due to increase in sales quantity by 256 metric tons, which represents 7%.

The gross income in Q4 FY '25 increased to INR 364 crores from INR 297 crores during Q4 FY '24, an increase of INR 67 crores, representing 22% year-over-year growth. The sales volume during Q4 FY '25 increased to 4,100 metric tons from 3,846 metric tons in the last year same quarter, that is Q4 FY 2024. So there is an increase of 254 metric tons and compared to the last year same quarter. Higher sales in Q4 FY '25 were driven by volume growth, an increase in average selling price realization and favorable foreign exchange rates.

The PBT before exceptional item for Q4 FY '25 stood at INR 18 crores, unchanged from Q3 FY 2025. Despite higher sales during the quarter, PBT remained flat, primarily due to the full period impact of countervailing duty in Q4 FY 2025. The PBT in Q4 FY '25 is INR 18 crores, a decrease from INR 32 crores in the corresponding quarter Q4 FY '24, primarily due to the impact of countervailing duty and the increase in raw material prices.

Comparison of performance for the year ended 31st March 2025 with 31st March 2024. The gross income for the year ended 31st March '25 was INR 1,219 crores as compared to INR 1,118 crores in the previous year, that is financial year 2024. An increase of INR 101 crores in the gross income during FY 2025 is mainly due to increase in sales quantity by 682 metric tons, representing 5%.

Higher sales in FY 2025 was driven mainly by volume growth and increase in the average selling price realization and also favorable foreign exchange rates. The PBT in FY 2025 is INR 86 crores as compared to INR 136 crores in the previous year, that is FY 2024. A decrease in PBT by INR 50 crores is mainly on account of countervailing duty, higher ocean freight rates and depreciation from Krishnapuram new plant. Now I hand over to Mr. K. Srinivas Reddy, to update the status of Pet Food project.

[Kandhadi Reddy, executive]

Thanks, Mr. DVS Satyanarayana. Now I would like to present an update on the status of Avanti Petcare Private Limited, a subsidiary of the company, set up for petcare products in India. As you know, company has formed a joint venture with a Bluefalo Company Limited, Thailand, a well-known petfood and petcare product manufacturing company in Thailand for setting up joint venture company in India, with the equity investment by them along with the transfer of technology.

The company is in the final stage of acquisition of land and planning to commence the construction from September or October '25 after obtaining government clearances for setting up of facilities. In the meantime, company with the objective of establishing brand of the company's product has successfully commenced trading in cat food from January 2025 in the company's first product range under its own brand. Presently, the company is getting the products manufactured by the collaboration facility in Thailand and importing for trading. The brand name of the company's product is Avant Furst, the product launched in cat food ocean fish flavor.

In Q4 FY '24-'25, that is January '25 to March '25, recorded a sales of INR 25.79 lakhs, which is within the expectations of the initial stage. At present, company is marketing products in 9 key markets, that is Mumbai, Pune, Chennai Bangalore, Hyderabad, Solapur, Nagpur, Jaipur and Ahmedabad, further planning to expand to more cities and build a presence in e-commerce and q-commerce in the coming quarters.

The company is also building a strong brand visibility through the digital marketing, advertisement on Instagram and Facebook. The company is planning to introduce other flavors in the cat food in the coming months. The company is also planning to launch dog food products in August 2025. It is pertinent to mention that dog food constitutes major portion of pet food sales, which is about 80%, and cat food is 20%.

Now I hand over to GMD sir for closing remarks.

[C. Rao, executive]

Thank you, Mr. Srinivas. At this stage, I would like to share with you some of the developments that have taken place during the course of the year reflecting on performance of Feeds and Processing and Export business for the company. In respect to Feeds business, the relieving factor was more stable raw material prices and also feed sales yielding an increased profitability in the year compared to the previous year. The shrimp culture activity has also been stable. They also have been stable, except for some instances of disease and premature harvest. The farm gate prices of the shrimps were stable, resulting in maintaining the shrimp production levels. The export of processed shrimp registered a growth due to increase in export quantities and also increase in average selling price realization. The favorable U.S. dollar conversion rates also helped to enhance the profitability of the Shrimp Processing division.

As stated by colleagues, the company is focusing on increasing the production and export of value-added products, yielding better margins and less competition. The company is also focusing on developing other markets like Japan, EU, et cetera, to reduce dependence on U.S. market. As you are aware, the U.S. announced a new reciprocal tariff on 2nd April 2025. The U.S. imposed reciprocal tariffs on exports from all countries trading with it, a baseline tariff of 10% and all countries came into effect from April 5, 2025, with country-specific reciprocal tariffs scheduled to being on 9th April.

The various duties are like this; India, antidumping duty, that is ADD 1.35%, countervailing duty 5.77%, reciprocal tariffs 26%, total tariffs 33.12%; Thailand, 0 antidumping duty, 0 countervailing duty, reciprocal tariffs 36%; Vietnam antidumping duty 0, countervailing duty 2.8% and reciprocal tariff 46%, total 48.8%; Indonesia, 3.9% is antidumping duty, the countervailing duty is nil, and 32% is reciprocal tariffs and total tariff is 35.9%; Ecuador, antidumping duties nil and countervailing duty is 3.8% and the reciprocal tariff 10%, and total tariff is 13.8%. No tariff applies to containerships before 5th April 2025 if they arrive at the U.S. port before May 27, 2025. This is some sort of an arrangement for transition period for applicability of the reciprocal tariff.

Baseline tariff of price to shipments dispatched between 5th April and 8th April 2025. On 9th April 2025, the U.S. announced a 90-day suspension of country-specific reciprocal tariff for all countries except China. The country-specific tariffs, which I read out just now. Shipments from 9th April until a period of 90 days will continue to incur only 10% baseline tariff. We will have to see what's going to be the future rate after 9th depending upon the announcement in the policy decision taken by the Trump government.

The company proactively informed all U.S. customers about the tariff changes, and most of the customers have responded positively to the overall 10% price increase. Production was increased and shipment to U.S. were expedited with most orders dispatched before 21st of May 2025. Indian and U.S. officials are engaged in high-level discussions continuously aiming to finalize an interim trade deal with U.S. In fact, even the U.S. President Trump also announced very recently, a couple of days back, that the negotiations with Indian government for a tariff -- free trade agreement is in advanced stage and which may come any moment. An announcement is expected later this month, potentially before President Trump's July 9th deadline. India encouraged by recent trade agreements is carefully considering U.S. demands, balancing economic opportunities with potential domestic impact.

In addition to the tariff, the levy of CVD, which is at 5.77%, presently is always an additional burden to the export of shrimps to U.S., which is a major export market for the company. In this context, the Seafood Exporters Association of India with support of Government of India pursuing list parties of commerce with a request to review and reconsider the levy of CVD, which represents only remission of duties and taxes levied by the government. Keeping this factor in view, the endeavor of the company is to expand its global market to other destinations like Japan, Korea, EU and Middle East.

To sum up, notwithstanding levy of duties, such as ADD, CVD and the reciprocal tariff by U.S., the company is confident that in the course of business, the market correction balancing demand and supply and price determination do take place, ensuring sustainability of aquaculture industry in the long run.

With this observation, now I would like to keep the floor open for questions and answers.

[Operator]

Thank you, sir. [Operator Instructions] First question comes from Shivam Sahoo, an individual investor.

[Unknown Attendee]

Why our stock price has been decreased day by day, around 15% to 16% decrease last 4 days?

[C. Rao, executive]

Can you please come back? Your question is not clear.

[Operator]

Sir, he withdrew his question. The next question comes from Balaji from Avanti Feeds.

[Unknown Analyst]

My question is regarding that proportion of raw materials like fishmeal, soybean and wheat flour, what is the percentage or the share of [Technical Difficulty] in the consumption pattern, which raw materials were maximum used?

[Santhi Latha, executive]

Sir, raw material ingredients, is that what you're asking, the percentage of raw material ingredients?

[Unknown Analyst]

Yes, yes, percentage of raw material ingredients.

[Santhi Latha, executive]

Sir, that is our formula. We cannot disclose that.

[C. Rao, executive]

And also what our General Manager said is that the combination or composition, formulation depends upon different grades of products that we are making. And it is a sort of confidential information, which we cannot share with anyone because depending upon the circumstances, region, necessity, the climatic conditions, the formula keep changing. There is no consistent standard product mix that we are giving.

[Unknown Analyst]

Sir, now what is the cost of the raw material, sir? Even in quarter one, we are observing any increase in price of the fishmeal, soybean, wheat flour, sir? Did the trend remain same or is there any increase in raw materials we are observing, sir? And other thing is, sir, instead of these raw materials...

[Santhi Latha, executive]

Yes, tell me, sir.

[C. Rao, executive]

The raw material cost is clear from the financial statements given, no? You can see that. What is the raw material cost is given separately there. The raw material consumption -- consumed is given. You can arrive at the cost of raw material from the financial statements.

[Unknown Analyst]

Sir, I'm asking what is the present trend? Is it increasing trend or relatively stable?

[C. Rao, executive]

See, it is fluctuating. Let me tell you now, recently, the government has increased the MSP of wheat, soya and all the this thing, I think just a week back. So we are -- immediately, the prices have gone up. So it is very difficult to say. Basing on the day-to-day market situation, the prices fluctuate. See, after announcement of MSP, the soybean meal price has gone up and also wheat flour prices have gone up.

Second thing is that when we get the actually harvest, the prices decreased marginally and immediately goes up. The soybean meal crop comes from October -- September and October, and wheat production harvest comes in from March. So it is a fluctuating market. The prices of the raw materials keeps fluctuating. So we normally take on an average, we take the price.

[Unknown Analyst]

Yes, sir. Sorry, this is the last question. sir, if you say that Trump has given the tariffs, if it is really [Technical Difficulty]

[Santhi Latha, executive]

Your voice is breaking. It's not clear.

[Unknown Analyst]

Sir, on the Trump effect, if tariffs remain same, how our sales of the shrimp impacted and how are our export will get impacted?

[Santhi Latha, executive]

Trump tariff and how it effects the...

[C. Rao, executive]

Trump tariff and how it effects the exports. Nikhilesh, are you there, Nikhilesh?

[Alluri Nikhilesh, executive]

Could you repeat the question, please?

[Unknown Analyst]

Sir, if the Trump tariffs remain same, at the higher end, how are our shrimps sales will be affected? Will it decrease...

[Alluri Nikhilesh, executive]

You mean at 10% or 26%?

[Unknown Analyst]

Now at the higher end, 26%.

[Alluri Nikhilesh, executive]

The higher end is 26%. So then it would be -- the tariff would be as follows. Ecuador would be 10%, India would be 26%, Indonesia would be, I think, about 32% or 35% something and Vietnam would be over 40%. So I think generally, we'll be number 2. We will lose competitiveness over Ecuador, but we will gain competitiveness against the shrimp farming countries in Asia. So I think overall, it will be like average, not too bad, not too good.

[Operator]

The next question comes from Ronak Shah from Equirus Securities.

[Ronak Shah, analyst]

I have Couple of questions. So my first question is regarding what is the current demand scenario for the shrimp feed into the market?

[C. Rao, executive]

It will be around 12 lakhs.

[Santhi Latha, executive]

Same like last year.

[C. Rao, executive]

See, it's almost same like last year. It will be around 12 lakh tonnes per annum.

[Ronak Shah, analyst]

So from the Avanti Feeds' perspective, how we are projecting our FY '26 feed consumption, can it be in the range of 5.5 lakh metric tons?

[Santhi Latha, executive]

Yes.

[C. Rao, executive]

Yes. It's about just -- marginally it's more than actually 5 lakhs. It should be able to make around 5 lakh tonnes to 510,000 tonnes.

[Santhi Latha, executive]

No, 550,000 tonnes to 560,000 tonnes. Maybe we'll be around the same like last year.

[C. Rao, executive]

Last year, and will be -- our sales would be on the same line as last year, previous year.

[Ronak Shah, analyst]

Okay. Sir, my second question is regarding the competitive pricing. So as sir highlighted that there are the various tariffs and CVD, which is going on. So how is Indian shrimp landed cost is compared to the Ecuador vis-a-vis other Asian countries?

[C. Rao, executive]

Nikhilesh? Can you take this?

[Alluri Nikhilesh, executive]

Yes. Could you repeat the question again, please?

[Ronak Shah, analyst]

So Nikhilesh, what is the competitive -- so what is the landed price competitiveness, which India is having compared to the Ecuador and other Asian countries, specifically for the USA, considering the current CVDs and the tariffs?

[Alluri Nikhilesh, executive]

See, I think, that's a good question. So I would say with the current duty structure, India currently has a lot of duty on to a country with CVD and ADD as like 2 duties, which we have higher compared to the other countries. But if you see the reciprocal tariffs, it's much lower than what the other countries in Asia have like Indonesia, Thailand and Vietnam. Ecuador, on the other hand, again, has lower duty on that. So generally, I would say on a whole bucket of tariffs, including the reciprocal tariff, I think we fare pretty much equal to the other Asian producing countries, but much, much higher on duty compared to Ecuador.

That being said, our competitive advantage against Ecuador will be reduced. But however, the only silver line is that Ecuador doesn't produce a lot of the products that we do. We do a lot of value addition, not high value, but like medium value products like a cooked or a raw or a shrimp ring, with tail on tail off products, peeled and deveined. So these things that Ecuador can't do as much as us because just because of the population that we have in the country and the way the companies are structured, et cetera.

So that way, I would say, on a whole tariff bucket where Ecuador has an advantage, but we all have our own niches in the game. So we need to wait and see what happens in the future. So there are -- also for the tariffs, I wouldn't say that these tariffs are permanent, right? These are reviewed periodically year-on-year, so these keep fluctuating. And we're quite positive that things -- our association of seafood members and the Indian government are working positively to ensure that the duties are reduced.

[Ronak Shah, analyst]

And lastly, just a follow-up on this, Nikhilesh. So in last few years, when you see Avanti is continuously focusing on capacity expansion, and on top of that, we are saying that we are going to have 16,000 metric tons to 17,000 metric tons kind of the export sales from the processing. But when we look at the actual numbers, in last 3, 4 quarters, we always fall short of the guidance. On top of that, we are having also a planned capacity expansion. So how we are seeing all these parameters looking, considering the -- on one side, we are saying that we are having competitive edge over the Ecuador in terms of the process products and the niche products. However, we are not seeing exponential or the substantial growth into the Processing division.

So my first question is, how you are seeing these in terms of growth terms? And secondly, considering the CVD and antidumping duty, our profitability goes to the toss. So when earlier, the feed division used to have lower margin, processing used to have better margin profitability, which should be the normal case, which has reversed significantly. So how overall management is seeing these 2 business profitability going ahead? Yes, that's it from my side.

[Alluri Nikhilesh, executive]

That's a good question. See, on the capacity addition, I think there's no more additional capacity that's being added right now. Whatever had to be added is completed. And we needed it for multiple different reasons because during season -- see, it's a seasonal business, right? Like there's no shrimp during the monsoon season because if it rains, the shrimp comes out of the pond, right? And just like -- of course, there is little volume that comes in, but we call it the off-season. So even if we want to process at full capacity, we will not be able to. So this is something where we're trying to process during season and trying to export as much as product as we can.

And as you know, we had two facilities. We added a third one because the first one was built in 1997, not built, I'm sorry, acquired in 1997. It's a very old factory. It's over 30 years. So we want to shut it down for renovation. There's no room for expansion. So we needed another facility with state-of-the-art equipment, a cook line, a value-added line, et cetera. So that is the reason for capacity addition.

And also, if you see about exponential -- you asked about exponential growth. I think in the last quarter, the revenue increased by 22%, which is quite a good revenue increase if you see on a year-on-year basis. On a full year basis also, it's about 9% in a quite -- I would say it's been quite a weak market generally with oversupply. So that's still a good revenue growth, both if you see for the last quarter, it has been really good and year-on-year also about 9%, which is also, I wouldn't say like a poor performance in terms of revenue growth.

In terms of the margins, see, that's the best part of being an investor at Avanti. If the Feeds business is not doing well because of raw material prices or any competitive pressures, we also have the frozen business, which is in the same industry, which will give an alternate revenue source and kind of diversify our revenues and profit margins.

Similarly, like you pointed out, in the past, the Feeds wasn't doing well. The Processing was doing well. Today, the Feeds is doing really well, the Processing margins have fallen down due to like -- I would say the reason is purely nonoperational. Like you mentioned, these are some duties coming from countervailing and antidumping, but if you see the revenue growth and the business itself, fundamentally, we have been really robustly growing it. Our value-added products are really increasing. The company's Processing division has become one of the top export houses in India. So generally, things are healthy if you take out nonoperational factors.

And the last point I'd like to add is, I had mentioned to the previous question that these duties are not permanent, right? These are reviewed periodically, the U.S. government gives opportunity to kind of like make changes to what they're concerned about, a lot of work with the government, et cetera, and how certain tax refunds are structured, et cetera. So like I said, on the previous question, we are working along with the Indian seafood association and also the government to address these concerns and try to roll back certain parts of the duty.

[Ronak Shah, analyst]

Okay. Okay. Just lastly, so is it...

[Operator]

Mr. Ronak, can you join back the queue, sir. [Operator Instructions] The next question comes from Gopi Krishna from JPMorgan.

[Gopi Krishna, analyst]

We traditionally see that June quarter, like the Q1 is the strongest for Avanti Feeds because that's where we make a lot of business, right, traditionally if we see your accounts. And I also see that in Q3 and Q4, the margins are pretty much impressive. Now what is the expectation of Q1? Do you still see that the margins will further expand?

[C. Rao, executive]

See for this quarter, they are plus and minus also. As you said, the raw material prices, if stable, and on that front, we do not see a big really burden on the -- additional burden. But as far as the sales is concerned, we already told you that we are going to be at the same levels as in the last year. But however, recently, we have reduced the price of feed. There was a lot of -- immediately after the announcement of reciprocal tariff by U.S., a lot of concern by the farmers, the government, state government -- Andhra Pradesh state government and all they came and we had a series of discussions with them.

And to accommodate and to see that these aquaculture continues, the sustainability is maintained, we have to take a price cut by decreasing the price by INR 3 for kg. So that will have an impact -- full impact also will be there in this quarter. And hopefully, the prices -- the raw material prices stabilize, and they should be able to maintain same level of profitability in Q1 of '26, so as in Q1 '25. That should be the -- because normally Q1 and Q2 are the good two quarters which will make -- the aquaculture is very active. And even now the culture is going on very well. So we expect that the performance for this year also in the same lines as in the last year. And profitability also, by and large, it should -- assuming that the prices of raw materials remain stable as they are today, so I think that we will be able to maintain the profitability for these 2 quarters -- first quarter, Q1.

[Gopi Krishna, analyst]

And my second question is, we see like the 75% of the business, feeds business, is coming to North America. Like if there are -- like the tariff is coming in place, then Ecuador has a clear edge over India. So are we trying to expand it to other countries? That's one. And we see that when there is a tariff issues, there was a lot of concern raised from the farmers of Andhra Pradesh. Was this issue been highlighted to state government? Are there any incentives? Are there any kind of tax relief, which we got is what is my last question.

[C. Rao, executive]

Nikhilesh, will you be able to take the first question. And also, of course, generally, the tariff is in the public domain whenever there is a tax. And the incentives also, as of now, there is no such thing as announced by the government. But I think as far as the first question is concerned, I think, Nikhilesh, could you take that question?

[Alluri Nikhilesh, executive]

Yes. I can say that, yes, the U.S. market particularly has been extremely volatile over the last 1 year. We've had different types of duties, completely new duty like CVD came in, and then we have reciprocal tariff which was 26% and changed to 10%, and we still have no clarity. It's not only for shrimp, I guess. It's for all industries. So it has been volatile. So we are actively looking at other markets. Definitely, if you look at our -- like the PPT sent for you for the financial year FY '25, the U.S. market share has come down to about 70% from 83% the year before.

And the last, but also -- so if you see that PPT, it says about 70%, but that also includes Canada. But our U.S. market share has come down to the lowest that we've had at least in the last 4 quarters, if I'm not wrong. So we are actively looking into other markets. We just classify the markets as North America, Europe and Asia just to make it simple. But yes, we are diversifying from the U.S. market actively just to escape this kind of volatility that's happening in the country right now.

[Operator]

The next question comes from Nitin Awasthi from InCred Financial Services Limited.

[Nitin Awasthi, analyst]

Just a few technical things I just want to understand. Firstly, on the non [Technical Difficulty] tariffs, which are the older tariffs, the ADD and the CVD, these are supposed to be periodically reviewed, and we were supposed to have a CVD review in mid of this year. Is that happening or because of the whole tariff situation, it's kind of on pause?

[Alluri Nikhilesh, executive]

No. The review is still happening right now.

[Nitin Awasthi, analyst]

Got it. So probably in another month or 2 or by the next quarter, we'll have whatever representatives and everything at least a statement from the committee will be out. Is that correct?

[Alluri Nikhilesh, executive]

Yes, yes. The final determination will be out in the next few weeks.

[Nitin Awasthi, analyst]

Understood. And this implication will be from April itself, right?

[Alluri Nikhilesh, executive]

It will be from 2023 February, if I'm not wrong. It's retrospective. So the period of evaluation is not this year, but the previous year what they're evaluating.

[Nitin Awasthi, analyst]

No, no. The part where I was asking from is that, would we -- because this duty, like you said, is the evaluation period is, of course, the older period. But from when will it be applicable? The applicability will, of course, be a few months before today, and that's what I'm trying to get at. Because then that could be a swing that comes in, either most likely what the industry is expecting is that CVD will be cut, then you have a positive swing for the refund.

[Alluri Nikhilesh, executive]

Okay. See, I'm following the question, Nitin, but I'm not able to get it completely. See, there are two different things, right? The ADD is under review right now, the CVD is closed and they'll open the review later. The ADD, which is under review, the determination -- the final determinations come out in the next, I think, like you said, 2 months or so. And the duty would be paid for the year, the entries into the U.S. from February of '23 to March of '24.

[Nitin Awasthi, analyst]

Understood. And any particular time frame when the CVD hearings would reopen?

[Alluri Nikhilesh, executive]

I mean, not that I know of at the moment because we are not the respondents also, so there is no direct communication with us apart from industry news. But I can tell you that things are moving in a good direction in the sense that the government is actively working to provide our workings to the U.S. government, which we did not the last time. So it's going in a good direction compared to what had happened the last time.

[Nitin Awasthi, analyst]

Yes, sir, because that was what there's a worry about because last time what had happened was very unfortunate, and it was a sudden surprise to the Street. And of course, the industry is involved in this business, like your good selves because we were not expecting that CVD rate would be that high.

[Alluri Nikhilesh, executive]

Yes. It was quite unfortunate. It was election years, everyone was busy, but now everyone is actively working to ensure that it's kind of rolled back.

[Nitin Awasthi, analyst]

Got it. Sir, second question was relating to the new business of Petcare. The Petcare division is in a issue with JV. So the balance sheet impact and the P&L impact of said JV would just be a line item of profit from associates or loss from associates. Is that understanding correct?

[Santhi Latha, executive]

It's a line item. It's a line by line consolidation. It is a subsidiary of Avanti Feeds.

[Nitin Awasthi, analyst]

Okay. So it's a subsidiary of Avanti Feeds, not a JV?

[Santhi Latha, executive]

Not a JV.

[Nitin Awasthi, analyst]

By the accounting framework was what I trying to get at.

[C. Rao, executive]

Yes. It's a separate company SPV for implementation of this project in which the substantial investment of Avanti Feeds is there. So the consolidation -- line by line consolidation takes place in Avanti Feeds accounts.

[Nitin Awasthi, analyst]

Understood. Sir, lastly, on this one, this point itself, the Petcare business, which is currently a trading business, if I understand it correctly, which right now we're just trying to bump up our sales. So there would only be a few costs that we will be incurring per sale that we make. And only post manufacturing will profitability kick in. Is that understanding correct?

[C. Rao, executive]

You are right because see, it is the initial period, normally, the expenditure on brand promotion and establishing the market and all these expenses would be more in the initial stages, which will give results in later part. So as you rightly mentioned, the first part is that when we do the trading, definitely the trading may not result in as much profitability as we anticipated.

But nevertheless, it gives a lot of mileage to us because these products are in the market under Avanti brand. So the mileage and this brand establishment will be very, very helpful when we start production. Immediately, we'll have a ready market for our products. And then the profitability is certainly better than -- much, much better than what we are -- in the trading we are making. And expenditure is also high in the initial stages. Let's say about 2, 3 years, there will be heavy expenditure on various promotional measures, advertisement, distribution costs, all these things have to be stabilized and brought to a level of profitable sales levels, then we'll be able to make profit, okay?

[Nitin Awasthi, analyst]

Understood. Sir, lastly from my side, what is the target on the sales side, the volume side, which we have for this year, for Petcare division?

[C. Rao, executive]

Petcare division?

[Nitin Awasthi, analyst]

Yes.

[C. Rao, executive]

See, the thing is that there are two feeds that we are now producing, one is cat food, which have launched in January '25, and we plan to launch the dog food which is really the 80% market of Petcare would be dog food. The dog food will be launched in the month of August and cat food is only 20%. So the major portion of our sales will reflect in the fourth quarter and Q1 -- the third and fourth quarter and Q1 of next year. That's how we are planning. So initially -- the acceptance by the market is also very important. We are incurring a lot of expenditure and promotional things and giving free samples and getting. I think Venkata Sanjeev would give more about the Petcare products.

[A. Sanjeev, executive]

So the acceptance, as of now, we've launched the cat food and we're planning to launch a second flavor by end of this month. The dog food, which is the major proportion of the pet food industry, we would be launching in August. So it would take some time for the market to catch up to the brand. But this year, we are expecting INR 10 crores revenue -- around INR 10 crores revenue. That's what our target is.

[C. Rao, executive]

I may add that the good news of the investors is that our cat food is being accepted very well by the market. That is a very, very significant event for us because the market is receiving this as a good product, which is received instantaneously by all the pet parents. They say that their pets are really enjoying this feed compared to others. That's a good news for the investors. So in the future -- and we expect that dog food also will be having the same reception because our quality, as you know Avanti always maintains the best quality products. So we maintain that also. That's what we can tell from our side.

[Nitin Awasthi, analyst]

Thank you for answering my questions. Best of luck for the future ventures. And I have also seen the cat food brand cat and furry around parts of Mumbai, the last cat event also you guys are present. So yes, that is a good thing for the whole community. And congratulations on that, and best of luck going ahead.

[C. Rao, executive]

Thank you.

[Operator]

The next question comes from Rahul Rathi from Purnartha.

[Rahul Rathi, analyst]

Congratulations on a great year. It's lots of uncertainty and the delivery has been fantastic. So my two questions. So I'll start with the first one. If I look at your 5-year return on capital employed, the lowest has been 13%, and this year has been 23%. And if I look at the last 10 years, 13% has been the lowest. So we are in somewhere in the early 20s. How do you all think about return on capital employed? Is there a thought process around what you all want? How do you decide capital allocation decisions or the business side of things?

[C. Rao, executive]

See, if you look at the analysis, definitely our profitability has been very good over the -- consistent maintenance of the profitability over the years. And as you know that it is something, which is completely based on the nature's this one, and also market conditions. So what we think is that the profitability that we are getting, we keep to maintain same levels of profitability as far as the operations are concerned. Particularly, as a group, we have frozen foods, which is now in the move to really expand and -- expand means market, not to the production, but it is to the divesting the market from U.S. other countries and also the Petcare project also is going to come. So these are the things. And we consider that the return on capital should be at the same level on an average around -- see, it started, as you said, 13%, 14%. If we can get around 15%, that we would consider as a very reasonable and good return on investment.

[Rahul Rathi, analyst]

Right now, you are at 23%.

[C. Rao, executive]

Yes, of course. I would put it that this is one of the best years that we cannot expect that every year is going to be like this year. This year, fortunately, we got the raw materials produced, prices coming down, and also prices the prices were there. But you know what happened after some after time, suddenly this reciprocal tariff came and we had to reduce the feed prices by INR 3. So it has direct impact on the profitability, same with [ strike ]. So like that, see, unforeseen events do take place.

[Rahul Rathi, analyst]

No, no. I'm not worried about unforeseen. I'm just worried about management. So over, let's say, if I take next 3, 5 years, so next year and 3 years, will you have about 20% return on capital employed or you're looking at a lower return?

[C. Rao, executive]

No. We cannot give 20% assurance like that. It is not...

[Rahul Rathi, analyst]

Not assurance, expectation.

[C. Rao, executive]

I am not looking for it. See if we can maintain 15%, that would be considered as ideal.

[Rahul Rathi, analyst]

Okay. Second point is given that you're expecting a return on capital of 15%. If I look at the last 5 years, you've almost added INR 1,000 crores plus as investments plus cash on the balance sheet from what is there and it's not been used over the last -- if I look at your 10-year history, you've always added to cash on the balance sheet in terms of investments and cash. Any thought processes around what you plan to do with because it will be a drag on your return on capital and it will also inflate your balance sheet. So any thoughts on capital allocation?

[C. Rao, executive]

I mean I would look at it like this because you know if you see the balance sheet, we don't have any borrowings. Totally, no borrowings, zero borrowings. What is the rate of working capital interest today? If we don't use this money, where is it going? If you look at the balance sheet and profit and loss account, how we are able to maintain the inventory levels and receivables in this situation and how it is possible because money that is generated is going into that, most portion of that. Particularly in the seasonal industry, we need money when the season starts. For example, in soybean meal, the season starts in October. So we buy soybean meal in large quantities and keep it to maintain the price. Rest all it will go up. See, these are all costs, which are not seen in the balance sheet and go by this principle.

[Rahul Rathi, analyst]

So you still require about INR 1,900 crores cash...

[C. Rao, executive]

We always believe that, see, the management of the cash that we have should be safe and it should be giving good value to the investors. If we put some industry, okay, we have money, we'll start some industry, and if we don't get returns on that, what will happen? What is the return that we can expect today on any investment? You can't get big returns on investments. And so many risks are involved in any new industry. So what we believe, the Board of Directors believe that at the appropriate time we should be able to take the decisions, which will be in the interest of the investors.

And see, earlier we were thinking that this surplus should be used only for capital, but what we see practically is that when we use it for working capital, we are able to make about 15% to 20% saving on the interest alone, financial cost. You don't see it in our P&L account. Are you able to see that? No, sir. No. That's what I am trying to say. And your money is safe.

Whatever is there, we are always conservative. We don't believe in high yielding commericial papers and getting it as far as our surplus funds investments is concerned. We always go for AAA rated companies, secured and at the same time, we try to maintain 7% to 8% pre-tax return and whatever the amount that is available after utilizing for the working capital. That's what it is.

[Operator]

Thank you. That would be the last question for the day. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using Door Sabha's conference call service. You may disconnect your lines now. Thank you, and have a good day.