The Pakistan Credit Rating Agency Limited
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Usman Amjad

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

Rating Type Entity
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Poultry feed manufacturing formally started in Pakistan in early 1960’s. Poultry feed is produced by commercial feed mills and home mixtures. There are ~ 350 poultry feed mills, with annual production capacity of around 10 MMT. Income levels and expanding population, pushes demand for poultry however, higher conversion ratio, volumetric growth has stagnated to an extent. However, this remains a competitive business where volumes and margins are function of timeliness and cost of raw material procurement and supply competition amongst different feed mills.

The ratings reflect Sadiq Feeds association with an established poultry group, named Sadiq Group. The Company is part of the Group’s integrated poultry chain – oil/meal, feed and poultry. Topline is concentrated towards broiler feed and major sale to group’s own companies. Moreover, procuring maize in bulk due to seasonal constraints, highlights inherent price risk of raw material along with storage issues and high holding period. Margins remain thin with modest profitability. The Company’s financial risk profile is characterized by high leverage mainly for working capital requirements, and modest coverages. To manage this, management is working to a) gradually reduce short term borrowings and b) reprofile its debt mix with some switch towards long-term borrowings. This, along with better cashflows, is expected to manage financial risk.
The ratings are dependent on the management's ability to prudently mange the liquidity and debt profile of the company, particularly working capital, while improving business margins. Envisaged improvement in business and financial profile along with effective changes in governance framework would be beneficial. Significant deterioration in coverages or margins impact the ratings.

About the Entity
Sadiq Feeds (Pvt.) Limited, was incorporated in 2005 and is primarily engaged in three different types of feeds - poultry feed, strain specific layered feed and cattle feed for birds and livestock of different types and age groups. The Company has two feed manufacturing facilities situated in Mandra and Sahiwal, with a production capacity of 70 MT per hour and 130 MT per hour, respectively. The quality of feed produced is ranked best among competitors.

Sadiq Feeds present shareholding structure suggests that Dr. M. Sadiq, is the man at the last mile, as he holds the major shares. For the time being, remaining stake resides with his two sons Mr. Asif Zubair and Mr. Salman Sadiq. Sponsoring family dominates the board of Sadiq Oil and comprises three members. Board’s Chairman and company's CEO, Dr. Muhammad Sadiq, plays a pivotal role in strategic decisions.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.