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PACRA Maintains The Entity Ratings of Mumtaz Feeds & Allied Industries (Pvt.) Limited

Rating Type Entity
(22-Oct-22 )
(22-Oct-21 )
Action Maintain Maintain
Long Term BBB- BBB-
Short Term A2 A2
Outlook Positive Positive
Rating Watch - -

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 and maize has seen a surge of ~50% till Dec-21. 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 FY22 floods have damaged livestock and crops. Overall, ~31% of livestock holders have lost animal/poultry due to floods and ~54% of affected households reportedly lost poultry feed. More than ~50% of animal shelters have been damaged. Consequently, livestock holders are facing a severe shortage of fodder/feed for livestock. This is expected to lead an increase in feed prices in FY23.
The ratings reflect Mumtaz Feeds & Allied Industries (Pvt.) Limited's ('Mumtaz Feeds' or 'the Company') growing business profile in the Poultry Feed Industry. The Company is a fresh entrant in the feed business, and is involved in manufacturing and selling broiler & layer feed. The Company has an increasing top-line and posted healthy margins. However, both are small in quantum when compared to industry peers. The utilization level remains low, though, has improved on timeline basis. The Company remains exposed to inherent risks in the feed industry emanating from raw material price changes and disease risks in poultry farms. The Company's working capital remains in check on account of procuring raw materials on a prolonged credit period and prudent debtor management. The Company enjoys synergies as it procures raw material (mainly soybean meal) from an associated concern. Mumtaz Feeds has nominal reliance on bank financing and intents to follow this practice, going forward. Financial support from Sponsors, in the form of loans, provides comfort to the ratings. The management has a good understanding of the supply chain and leverages this understanding in the procurement of raw materials. This enables them to produce good quality products while keeping the costs in check. Coverage position and leverage are strong.
The ratings are dependent on the management's ability to gain market share, improve margins, and, in-turn, profitability. Maintaining strict working capital discipline and adequate leveraging remains critical. Any significant deterioration in margins and/or coverage's will have negative impact on the ratings. Positive outcome of future projects remains imperative for the ratings.

About the Entity
Mumtaz Feeds & Allied Industries (Pvt.) Limited was incorporated as a Private Limited Company in 2016. Commercial operations began in 2017. The Company is primarily involved in manufacturing and sale of broiler and layer feed in sixteen variants. The installed annual production capacity is 144,000 MT (40 MT per hour). Major shareholding of Mumtaz Feeds resides with Mr. Aamir Ali Khan (~35%), followed by Mr. Muhammad Umer (~20%). Mr. Nasir Malik and his brother Mr. Yasir Malik owns an equal stake (~17.5%) in the Company. Mr. Aamir Ali Khan, the CEO and Board's Chairman, holds more than 2 decades of relevant industry experience which remains instrumental for the Company's operations.

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.