Lahore, March 11, 2022 (PPI-OT):The global feed industry is valued at ~$345bln, while poultry contributes (~$235bln) to the total industry. Pakistan has the capacity to produce ~10mln MT of feed annually. The industry generates an estimated annual turnover of ~PKR 350bln to PKR 450bln from local sales to poultry farms. Currently, an uptick in poultry prices has improved the dynamics of poultry and poultry feed segments. The cost of soybean oilseed, from where the industry extracts soybean meal, has seen a surge of ~50% till Dec-21.
Moreover, the cost of maize posted an increase (~50%) in the local market. The cost of raw materials being higher relative to the price of poultry feed and products squeezed industry’s margins. However, the industry is able to manage its working capital cycle in an efficient manner. Going forward, cashflows and liquidity are expected to improve contingent upon stable growth in margins.
The ratings reflect Hi-Tech Feeds (Pvt.) Limited’s (‘the Company’) association with an established poultry group, Hi-Tech Group. The Company is part of Group’s integrated poultry chain – oil/meal, feed and poultry – and enjoys an adequate market share with good Feed Conversion Ratio. The Company is exposed to inherent risks in the feed industry emanated from raw material price changes. At present, the Company has a strong topline dominated by poultry feed sales followed by poultry breeder stock and day old chick sales. Topline is expected to post stable growth on the back of significant demand for poultry products and increased prices.
Margins in turn profitability are currently stable and are expected to improve as the Company’s ability to pass on the increased raw material cost to poultry farms. The Company procured high levels of raw material inventory on cash, in anticipation of higher prices. This led to stretched working capital requirements, with receivable days also high, met through short-term borrowings. The Company had a moderately leveraged capital structure, while coverages remain adequate. Adequate support from sponsors bodes well for the ratings.
The ratings are dependent on the management’s ability to sustain its operations and improve capacity utilization. Maintaining strict working capital discipline through prudent inventory management and rationalizing significantly high receivable days and ensuing borrowings remain critical. Any significant deterioration in margins and/or prolonged low sales cycle will have a negative impact on the ratings. Support from sponsors and other group entities is important.
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