PACRA Assigns Initial Entity Ratings to Hi-Tech Feeds (Pvt.) Limited

Pakistan has the capacity to produce ~10mln MT of feed annually. During FY23,The industry generates an estimated annual turnover of ~PKR 800bln to ~PKR 850bln 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. During FY23, PKR depreciation made the import of seeds expensive for the local crusher; hence, meal costs also exhibited an inflationary trend. Despite increase in the feed and poultry product prices, 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 stable.
The ratings reflect Hi-Tech Feeds (Pvt) Limited's ('the Company') affiliation with the well-established poultry group, Hi-Tech Group. The Company is an integral part of the Group's comprehensive poultry value chain, encompassing oil/meal, feed, and poultry segments, and commands a commendable market share, supported by a favorable FCR. However, the Company is susceptible to inherent risks within the feed industry, stemming from fluctuations in raw material prices. The Company boasts a healthy revenue stream (FY23:22.2bln, FY22:14.8bln),with approximately 80-90% attributed to poultry feed sales, and the remaining portion generated from Wanda and Aqua feeds. The topline is anticipated to exhibit stable growth driven by heightened demand for poultry products and upward price trends. Profit margins (FY23:7.7%, FY22:7.2%), indicative of current stability, are set for improvement as the Company demonstrates its capability to pass on escalated raw material costs to their customers. The Company maintains a moderately leveraged capital structure (FY23:35%, FY22:43%) with adequate coverage ratios. The ongoing support from its sponsors augurs well for the assigned ratings.
The ratings are dependent on the management's ability to sustain its operations and improve capacity utilization. Maintaining strict working capital discipline through prudent inventory management and rationalizing significantly high receivable days and ensuing borrowings remain critical. Any significant deterioration in margins and/or prolonged low sales cycle will have a negative impact on the ratings. Support from sponsors and other group entities is important.

About the Entity
Hi-Tech Feeds (Pvt) Limited is a prominent venture of the Hi-Tech Group, which has diversified vertically across the poultry supply chain. The company was incorporated in 1985 and is primarily engaged in manufacturing and selling poultry feed variants for birds of different types and age groups. The company has feed manufacturing facilityy situated in Sahiwal, with a production capacity of 408,000 MT of feed per annum. Hi-Tech Feeds is equally (25%) owned by Dr. Muhammad Arshad, Dr. Abdul Qayyum, Dr. Muhammad Asim Khan, and Dr. Anwar Mahmood Randhawa. All four sponsors, who also serve as directors on the board, hold veterinary degrees and are well-equipped with relevant industry knowledge. Dr. Muhammad Arshad laid the foundation of the group and serves as the CEO of the company. He is assisted by a team of experienced professionals.