Rising Global Shrimp Demand Will Open New Opportunities For Expansion

Key Takeaways

• Increased global shrimp prices and U.S. demand suggest higher revenue through rising import volumes, benefiting gross margins and earnings.
  
• Expansion in the European Union and reduced ocean freight costs could enhance earnings stability and improve net margins.
  
• Constraints in raw material supply and increased purchase costs threaten revenue growth, while reliance on the U.S. market and regulatory delays pose additional financial risks.

Catalysts

Engages in the farming, processing, production, and sale of shrimps in India.

• The increasing global shrimp prices backed by improving demand, especially in the U.S. market, suggest a recovery in consumption, which could lead to higher revenue as import volumes are expected to rise.
  
• The European Union market is showing robust growth, with Apex's sales growing significantly. Diversifying sales geographically can contribute to revenue growth and improve earnings stability.
  
• The company is set to benefit from increased shrimp farming as rising shrimp prices encourage farmers to increase production, potentially improving raw material supply, which could positively impact gross margins and earnings.
  
• Reduction in major ocean freight costs is expected to benefit margins by reducing operational expenses, which could lead to better net margins and overall financial performance.
  
• Awaiting approvals for a new ready-to-eat facility could unlock additional capacity and product diversification opportunities, contributing to revenue growth and improved earnings once operational.

Apex Frozen Foods Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Apex Frozen Foods's revenue will grow by 15.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.2% today to 7.1% in 3 years time.
• Analysts expect earnings to reach ₹847.7 million (and earnings per share of ₹26.9) by about March 2028, up from ₹15.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.2x on those 2028 earnings, down from 482.3x today. This future PE is lower than the current PE for the IN Food industry at 18.3x.
• Analysts expect the number of shares outstanding to grow by 1.67% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.53%, as per the Simply Wall St company report.

Apex Frozen Foods Future Earnings Per Share Growth

Risks

• The continued constraints in raw material supply due to the conservative approach of farmers could impact Apex's ability to increase production, thus negatively affecting its revenue and earnings growth.
  
• The increase in average purchase costs of raw materials, driven by higher farm gate prices, risks pressuring the company's gross margins if these costs are not offset by higher selling prices or efficiencies.
  
• Potential impacts from countervailing duties (CVDs) and import duties on shrimp, particularly the uncertainty surrounding future rates and potential adjustments, could affect profitability and complicate financial forecasting.
  
• Dependence on the U.S. market, where any shifts due to economic conditions or tariff changes could significantly impact sales, highlights a risk associated with a concentrated sales geography, which may affect revenue and margins.
  
• Delays in regulatory approvals for new facilities, particularly with the EU, hinder the company's ability to capitalize on market opportunities and diversify its market base, potentially restricting revenue growth.

Valuation

• The analysts have a consensus price target of ₹245.0 for Apex Frozen Foods based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹11.9 billion, earnings will come to ₹847.7 million, and it would be trading on a PE ratio of 13.2x, assuming you use a discount rate of 12.5%.
  
• Given the current share price of ₹239.53, the analyst price target of ₹245.0 is 2.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.