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

Rating Type Entity
(22-Jul-20 )
(21-Jan-20 )
Action Downgrade Maintain
Long Term BBB+ A-
Short Term A2 A1
Outlook Stable Stable
Rating Watch Yes -

Poultry is one of the largest agro based segment in Pakistan comprising domestic & commercial poultry. The industry has posted an annual growth of ~ 10% lately. Pakistan is sufficient in poultry meat and egg production. However, per capita protein consumption remains low when compared to the world's average. The industry generates an estimated annual revenue of ~ PKR 300bln from local and export sales. Lately, due to Covid-19 outbreak, marriage halls/restaurants have been closed. This, along with no exports of poultry products, have led to supply glut in local market. Prices of poultry products, especially day old chicks, posted a dip despite being an essential food item due to lower demand with many poultry farms becoming non-operational. Although prices have recovered lately, low sales and liquidity problems may persist as smart lock down continues. Recent SBP measures will provide some respite in the short-time. However, prolonged lock down will affect sales in the entire poultry chain.

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 enjoys leading position 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 poultry chain 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 intends to avail 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. However, profitability and cashflows are expected to remain under stress. The ratings incorporate potential support from sponsors and/or group companies. The 'Rating Watch' signifies adverse impact of COVID-19 outbreak, economic slowdown and prevailing uncertainty. PACRA will monitor the situation closely 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, governance framework needs attention. 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.

Its present shareholding structure indicates that Dr. M. Sadiq, is the man at the last mile, as he holds major shareholding. Remaining stake resides with his two sons Mr. Asif Zubair and Mr. Salman Sadiq. Sponsoring family dominates the Board of Sadiq Poultry, which comprises three members. Board’s Chairman and the Company's CEO, Dr. Muhammad Sadiq, plays a pivotal role in making strategic decisions.

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.