logo
The Pakistan Credit Rating Agency Limited
Press Release

Date
22-Mar-18

Analyst
Faiqa Qamar
faiqa.qamar@pacra.com
+92-42-35869504
www.pacra.com

Applicable Criteria

Related Research

Disclaimer
This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Assigns Initial Entity Ratings to Sadiq Feeds (Pvt.) Limited.

Rating Type Entity
Current
(22-Mar-18)
Action Initial
Long Term BBB+
Short Term A2
Outlook Stable
Rating Watch -

Poultry feed manufacturing formally started in Pakistan in early 1960’s. At present, poultry feed is produced by commercial feed mills as well as home mixtures. There are 350 poultry feed mills, making country's annual production capacity of around 10 MMT. This industry directly drives its demand from poultry – chicken and eggs consumption. With growing income levels and expanding population, the demand for poultry stays robust, in terms of poultry feed as well. The industry is experiencing ~10% growth.
The ratings reflect Sadiq Feeds association with an established poultry group, named SB Group. The company is in the centre of the group’s integrated poultry chain – oil/meal, feed and poultry. However, the group is in process of asset split, once done, this would bring consolidation to the company cost structures, in terms of margins. Lean inventory management system and related efficiencies continued to remain the competitive edge. Topline is concentrated towards broiler feed and major sale to group’s own company. Moreover, procuring maize in bulk due to seasonal constraints, highlights the inherent price risk of raw material along with storage issues and high holding (short-term borrowing cost). Consequently, company’s financial risk profile is characterized by high leverage. To manage this, management is committed to a) gradually reduce short term borrowings and b) reprofile its debt mix with some switch towards long-term borrowings. this along with improving cashflows, should help manage financial risk. 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 company had relatively suppressed results in FY17. However, lately these have improved. Both loan mix, after transfer of properties, referring to short term borrowings and long term borrowings will be re-profiled and may improve the cushion for future borrowings.
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.

About the Entity
Sadiq Feeds (Pvt.) Limited, is a successful vertically integrated venture of SB Group; well-known player of Pakistan’s poultry industry. It 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. Sadiq Feeds has two facilities manufacturing poultry feed and cattle feed. Mandra feed mill’s production capacity is of 70 MT per hour, where as Sahiwal’s feed mill's current production capacity is 130 MT per hour. To ensure highest quality feed, company has established research and development facilities. Moreover, they have employed specialized staff headed by experienced and competent managers, holding doctorate degrees in nutrition. The quality of feed produced is ranked best among competitors. Sadiq Feeds is dividing their domestic operations.
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.