The Pakistan Credit Rating Agency Limited
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Faiqa Qamar

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PACRA Maintains Entity Ratings of Islamabad Feeds (Private) Limited

Rating Type Entity
(16-Sep-22 )
(16-Sep-21 )
Action Maintain Maintain
Long Term BBB BBB
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Pakistan's capacity to produce has improved to ~10 to 13mln MT of feed annually. The industry generates an estimated annual turnover of ~PKR 400bln to PKR 500bln 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 in the international market has witnessed a surge of 23.2%; while, the cost of maize, in local market, has surge to ~ 10.6% during 8MCY22. Surge in the raw materials cost, internationally and locally, relative to the price of poultry feed and poultry products have squeezed industry's margins. However, the industry remain able to manage its working capital cycle in an efficient manner. Lately, interest rate hike and recent floods are expected to further impact production. However, cashflows and liquidity are expected to remain afloat backed by high price.
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 fluctuations. On the other hand, demand remains stable. Moreover, the increased prices of poultry products is expected to ease 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 requirements 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 a negative impact on the ratings.

About the Entity
Islamabad Feeds (Pvt.) Limited was incorporated in Aug-08. The Company is primarily engaged in the production and sale of poultry feed, broiler meat, layer, and eggs. The Company has two feed mills in Rewat and Okara with production capacities of 90 MT per hour and 60 MT per hour, respectively. Major shareholding vests with Mr. Muhammad Ali (38.75%), followed by Mr. Muhammad Hassan (33.75%), Ms. Yumna Aslam (9.37%), Ms. Saleha Aslam (9.37%), and Mrs. Alia Mehmood (8.75%). Mr. Ali heads the Group as the CEO and Chairman of the Board. He is assisted by a team of experienced professionals.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.