Muhammad Zain Ayaz
PACRA Maintains Entity Ratings of Islamabad Feeds (Private) Limited
Pakistan's poultry industry is one of the largest agro-based segments, comprising domestic & commercial poultry. Livestock having share of ~62.6% in agriculture and ~14.3% percent in GDP. 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 ~53.1% during FY23. However, during 9MFY23, oilseed cost remain on an increasing trend. While rupee depreciation made exports expensive for the local crusher; hence, meal cost also posted an inflationary trend. Despite increase in the feed and poultry product prices, the industry's margins remain stretched. However, the industry is able to manage its working capital cycle in a stable manner. Going forward, cashflows and liquidity are expected to remain stretch. 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. Consequently, livestock holders are facing a severe shortage of fodder/feed for livestock. This has lead to an increase in feed prices in FY23. 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 continues to face market risk, largely attributed to the indirect consequences of GMO import restrictions, particularly affecting its feed suppliers, primarily solvent extractors and seed crushing units. Conversely, there is stability in demand. Furthermore, the anticipated rise in poultry product prices is expected to alleviate some of the Company's challenges. However, for optimal production and sales levels to be achieved, it is contingent on the continued operation of demand avenues such as banquet halls and dine-in restaurants, as well as a reduction in demand uncertainties. The Company's topline posted growth of ~42% and reported at ~PKR 20bln during 9MFY23 (9MFY22: ~PKR 14bln) due to a rise in feed and poultry product prices. Resultantly, the net income of the Company has shown increase of ~24% and stood at PKR 162mln (9MFY22: ~PKR 130mln). The margins have remained stable, however the company maintains an aggressively leveraged capital structure, relying on short-term borrowings to meet its working capital requirements.
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.
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.