Lahore, September 17, 2021 (PPI-OT):Globally, the poultry feed production stood at 1.2bln MT in 2020, up by 1% from 2019. Pakistan’s annual poultry feed production is around ~3.5mln MT, with ~150 registered feed mills and ~200 unregistered feed mills catering to it. The industry generates an annual turnover of ~PKR 396bln (Jun-20). At the beginning of the COVID-19 pandemic, the closure of restaurants/marriage halls and export avenues led to a supply glut of poultry products in the local market.

However, as business avenues became operational, demand for poultry products improved. Lately, a visible surge was also observed in feed and poultry product prices. This, along with SBP’s interest rate cut along with deferment and/or restructuring option provided sufficient respite to the industry players. An uptick in prices and demand dynamics are expected if the hospitality segment remains operational.

The ratings reflect Islamabad Feeds (Pvt.) Ltd.’s (‘the Company’) established presence in poultry and allied chain including feed, hatcheries, broiler, and layer farms. The second generation has been successfully inducted into the family business. The current sponsors have adequate acumen in the poultry segment. The Company remained exposed to inherent risks in the feed industry emanated from raw material price changes and low demand amidst the Covid-19 pandemic. Lately, the increasing demand and prices of poultry products has eased some pressure off the Company, however, the optimum production and sales levels are anticipated if demand avenues (banquet halls, dine-in restaurants) remain operational and demand uncertainties subside.

Although the Company enjoyed stable margins and profitability, sales remained slightly lower leading to lower capacity utilization and off-take. The Company has piled up raw material inventory (maize and soybean meal), procured on cash, to manage the impact of increased cost. As a result, margins and profits are expected to benefit the Company. However, this led to stretched working capital requirement, and receivable days remaining high, which was met through short-term borrowings. The Company has an aggressively leveraged capital structure, while coverages remain stretched.

The ratings are dependent on the management’s ability to prudently manage liquidity and working capital requirements. The management’s ability to build profitable volumes remains critical for the ratings. Envisioned improvement in business and financial profile along with effective changes in governance framework would be beneficial. Significant deterioration in coverages and/or margins will have negative impact on the ratings.

For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com