PACRA Maintains Entity Ratings of Islamabad Feeds (Pvt.) Limited, Assigns "Rating Watch"

The global feed industry can be valued at around ~$460bln, with poultry (~$166bln) constituting ~36% of the total industry. Pakistan has installed poultry feed production capacity of ~ 8mln MT/year with a total of ~150 registered feed mills and ~200 unregistered feed mills catering to it. The industry generates an estimated annual revenue of ~ PKR 100bln from local sales to poultry farms. Lately, due to Covid-19 outbreak, restaurants, marriage halls and other public places have been closed. This, along with no exports of poultry products, have led to supply glut in local market. Prices of poultry products posted a dip, despite being an essential food item, due to lower demand with many poultry farms becoming non-operational. Subsequently, sale of feed and recovery from farms is expected to remain under pressure. Although feed producers have sufficient inventory and oversupply has reduced slightly, lower sales and liquidity crunch are expected to significantly impact the industry. Recent SBP measures will provide some respite in the short-time. However, prolonged closure of key revenue generating channels will affect sales in the entire poultry chain.

The ratings reflect Islamabad Feeds established poultry in the poultry industry with its sponsors and associates having presence in other poultry segments including hatchery, broiler and layer farms. The Company remains exposed to inherent risks in the feed industry emanating from raw material price changes and lately low demand due to COVID-19 outbreak. Although the Company enjoyed good margins and profitability in 3QFY20, sales have slowed down considerably in the 4QFY20 subsequent to lock down leading to lower capacity utilization and off take. This trend is expected to continue until lock down eases and demand centres (restaurants, banquet halls etc.) reopen. The Company piled up raw material inventory, procured on cash, in anticipation of higher prices. This led to stretched working capital requirement, with receivable days also high, met through short-term borrowings. The Company had an aggressive leveraged capital structure, while coverages remain stretched. The ratings have been put on "Rating Watch" as COVID-19 outbreak and lock down has adversely impacted industry prospects and created uncertainty. PACRA will monitor the prevailing situation and update the ratings accordingly.
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 negative impact on the ratings.

About the Entity
Islamabad Feeds (Pvt.) Limited was incorporated in 2008 and is primarily engaged in the production and sale of poultry feed, broiler chicken and layer chicken. The Company has two feed manufacturing facilities situated in Rewat and Okara with production capacity of 85 MT per hour and 60 MT per hour, respectively. The quality of feed produced is one of the best in industry.

Islamabad Feeds is a family owned business with Dr. M. Aslam, is the man at the last mile. He holds the entre shareholding in the Company along with his spouse. The Board of Islamabad Feeds comprises two members (both shareholders) only. The Board’s Chairman and the Company's CEO, Dr. M. Aslam, plays a pivotal role in strategic decisions and is instrumental in growing the business.