PACRA Maintains Entity Ratings of Islamabad Farms

The poultry industry is one of the largest agro-based segments in Pakistan, comprising domestic & commercial poultry. The industry has posted annual growth of ~ 7%. Pakistan is sufficient in poultry meat and egg production. However, per capita protein consumption remains low (11th) when compared to the world's average. The industry generates an estimated annual revenue of ~PKR 1,533bln from local and export sales during FY22, a YoY increase of ~29%. Export revenue is ~USD 3.5mln to ~4mln, annually. The increase is majorly price driven. Subsequently, prices of poultry products, especially day-old chicks, witnessed a hike of ~ 10% and benefited the players involved in the poultry allied chain. Increasing demand, and hence, prices eased down the liquidity problems of the industry. Demand for poultry products is likely to stay favorable for the industry players. The FY22 floods have damaged livestock and crops. Overall, ~31% of livestock holders have lost animal/poultry due to floods. Around 54% of affected households reportedly lost fodder/feed stored for their livestock. More than ~50% of animal shelters/sheds have been damaged. Consequently, livestock holders are facing a severe shortage of fodder/feed for livestock. This is expected to lead to price escalation during FY23.
The ratings reflect Islamabad Farms's ('the Business') developing position in the poultry industry and the sponsor's adequate acumen across the integrated poultry supply chain. The Business revenue is concentrated toward day-old chicks and posted a volumetric decline during FY22. Consequently, profitability also showed a declining trend. However, procuring feed in bulk from the Group’s own company and increasing poultry product prices benefited the margins. Islamabad Farms remains exposed to price volatility and contingent health risk associated with its product. Demand for poultry products remains stable. This along with a surge in day-old chicks prices is expected to benefit the Business. The financial risk profile of Islamabad Farms is characterized by a moderate leveraging ratio and strong coverage ratios. Loan mix is skewed towards short-term borrowings to fulfill the working capital requirements. Moreover, the ratings incorporate potential support from sponsors and the Group.
The ratings are dependent on the management's ability to sustain its operations. Improving margins, in turn building profitable volumes remain critical for the ratings. Effective management of ownership transition would remain important. Also, generating stable operational cashflows is imperative. Meanwhile, a prudent financial strategy to meet financial obligations is critical.

About the Entity
Islamabad Farms was established in 1981 as an Association of Persons (AoP). Islamabad Farms operates 18 breeder farms to maintain parent flocks of different breeds and 4 hatcheries for day-old chicks. Its registered office is located in Satellite Town, Rawalpindi. While the farms and hatcheries are scattered across the country. Major ownership of Islamabad Farms resides with the family of the late Dr. Muhammad Aslam (~ 50%). His sons, Mr. M. Ali and Mr. M Hassan own an equal stake of ~15% each; followed by Dr. Aslam's daughters, Ms. Yumna Aslam (~ 7%) and Ms. Saleha Aslam (~ 7%), and his wife, Mrs. Alia Mehmood (~ 6%). The remaining holding vests with Dr. Azhar Mehmood (~ 25%), Mr. Muhammad Masood (~ 12.5%), and Mr. Mamoon-ur-Rasheed (~ 12.5%).