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PACRA Maintains Entity Ratings of Sadiq Poultry (Pvt.) Limited, Assigns 'Rating Watch'

Rating Type Entity
(17-Dec-20 )
(22-Jul-20 )
Action Maintain Downgrade
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes Yes

Poultry is one of the largest agro based segment in Pakistan, posting an annual growth of ~ 10% lately. Pakistan is sufficient in poultry meat and egg production. However, per capita protein consumption remains low compared to the world's average. The industry generates an estimated annual revenue of ~ PKR 300bln from local and export sales. Nil or limited sales of marriage halls/restaurants due to Covid-19, along with no exports of poultry products, led to supply glut in local market. Prices of poultry products, especially day old chicks, posted a dip due to lower demand with many poultry farms becoming non-operational. As prices have recovered lately, sales picked up and liquidity issues sorted. SBP measures have provided necessary respite.
The ratings reflect Sadiq Poultry (Pvt.) Ltd.'s ('Sadiq Poultry" or "the Company') association with an established and vertically integrated poultry group, Sadiq Group. The Company has an established profile in poultry industry and is a leader in broiler, chicken, eggs and day old chicks segment. The Company's topline contracted and remains concentrated towards day old chicks and eggs sale. The Covid-19 breakout has impacted the entire industry adversely, especially prices of day old chicks, affecting the Company's business profile. Margins were lower as the prices of day old chicks crashed due to oversupply and lower demand. Although, the Company posted modest profitability in 9MFY20, it is expected to come under pressure. Sadiq Poultry remains exposed to price volatility and contingent health risks associated to its product (live chicken stock and eggs). Financial risk profile of the Company is characterized by moderate leverage and adequate coverage ratios. The loan mix is skewed towards short term borrowings to fulfill the working capital requirements. The Company has availed debt relief measures announced by SBP through deferment and restructuring of loans. This is expected to provide relief in terms of debt servicing and ease pressure on cashflow. Further, lower interest cost due to cumulative policy rate cuts of 626bps will lessen debt servicing burden. The Company is expected to post modest profitability in FY20. However, going forward, uptick in poultry product prices and demand is expected to impact the bottom line positively. The ratings incorporate potential support from sponsors and/or group companies. The Company has been assigned 'Rating Watch' as ownership transition of Sadiq Poultry is in process post Dr. Sadiq's demise. PACRA will monitor the transitioning process and update the ratings accordingly.
The ratings are dependent on the management's ability to prudently mange business risk for perishable consumer products, while sustaining business margins in prevailing challenging economic conditions. Moreover, smooth transfer of shareholding to sponsors is essential. Going forward, generating sustainable operational cashflows is important. Meanwhile, a prudent financial strategy to meet financial obligations remains critical.

About the Entity
Sadiq Poultry (Pvt.) Limited is a successful parent venture of Sadiq Group, a well-known player of Pakistan’s poultry industry. It was incorporated in 2004 and is primarily engaged in operating 40 poultry farms, out of which 30 are breeder farms, 4 broiler units, 4 laying units and 2 hatcheries. The Company has its own livestock pharmaceutical setup, to ensure birds health.
Previously, Sadiq Poultry's major shareholding vested with Dr. M. Sadiq (51%); followed by his two sons, Mr. Salman Sadiq (33%) and Mr. Asif Zubair (16%). Going forward, ownership stake of Dr. M. Sadiq (51%) is expected to be divided among eight successors, i.e. Dr. Sadiq's six children and two wives. Moreover, for the time being, the Company is headed by Dr. M. Sadiq's brother, Mr. Mian Muhammad Aslam. He is also the CEO of Arslan Poultry.

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.