PACRA Maintains Entity Ratings of Islamabad Feeds (Pvt.) Limited

The ratings reflects Islamabad Feeds (Pvt.) Limited's (or 'the Company') established presence across the poultry sector, encompassing feed production, hatcheries, broiler operations, and layer farms. The Company remains exposed to market risks stemming from fluctuations in demand and supply, as well as industry-wide shortages. Pakistan faces various challenges, including disease outbreaks, feed quality issues, high production costs, non-availability of locally grown crops like soybeans, and increasing interest rates. However, the industry is expected to be stable during FY25 on account of improving macro-economic indicators and reduced interest rates. The ownership structure is considered stable, evidenced by the successful integration of the second generation into the family business, ensuring continuity and growth. Additionally, the current leadership demonstrates a deep and proficient understanding of the poultry industry. The Company's Board lacks independence oversight and diversity, indicating room for improvement. The management implemented a strategic decision to reduce sales volume to enhance the efficiency of working capital management hence reducing short-term borrowing. As a result, during 9MFY24, the Company experienced a ~59% decrease in sales, with total revenue reaching PKR 6bln. The Company has significantly enhanced its margins through strategic cost reductions including operational cost, leading to a notable rise in gross margins from 5.7% (9MFY23) to 14.5% (9MFY24). On the financial front, the Company faced challenges with deteriorated working capital days driven by reduced sales of finished stock. Higher finance cost due to high interest rates further impacted the profitability. Consequently, during 9MFY24 the net income significantly dropped to PKR 25mln (9MFY23: PKR 162mln). The Company maintains an aggressively leveraged capital structure of 55.8%, relying on short-term borrowings to meet its working capital requirements. To strengthen financial stability, the Company has devised a comprehensive strategy to reduce overall borrowing, which includes engaging with banks to restructure existing debt. Additionally, to strengthen the equity position, the sponsor has injected equity of PKR 1bln. Going forward, the leverage position of the Company is expected to improve resulting from lower debt position and stronger equity standing.
The management intends to manage the Company’s cash flows more effectively by relying on internal cash resources rather than additional external borrowing. 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.

About the Entity
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.