I chose to value Avanti Feeds based on my screen for high growth companies with low P/E ratio and low debt.
Numbers and Narratives
Avanti Feeds is an industry leader in the shrimp feed business from which it garners its primary income. It is a high growth – low margin company with consistent longterm investment. I expect the growth to plateau over the next 5 years as the company matures and the margins to stay low because of the nature of business.
The core numbers that I arrive at based on the story are
- Compounded revenue growth for next 5 years = 15% (19% historical)
- EBIT margin in year 10 = 12% (13% most recent year)
- Initial cost of capital = 11.36%
I’ve used the above numbers along with the financial information to compute my DCF valuation for Avanti Feeds as seen below.
As you can see, the valuation price came out to ₹538.12, about 20% higher than the last traded price of ₹450.70.