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The Pakistan Credit Rating Agency Limited
Press Release

Date
21-Jan-20

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

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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 Maintains Entity Ratings of Sadiq Feeds (Pvt.) Limited

Rating Type Entity
Current
(21-Jan-20)
Previous
(22-Jul-19)
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Among the largest agro based segments in Pakistan, poultry holds a prominent place. Poultry feed manufacturing formally started in Pakistan in the early 1960's as home mixtures as well as in commercial feed mills. Today, there are around ~ 350 feed mills, with annual production capacity of around 8 MMT. Increase in income levels and expanding population, pushes demand for poultry. However, higher conversion ratio has stagnated volumetric growth. This remains a competitive business where volumes and margins are function of timeliness and cost of procuring raw material along with favorable supply chain dynamics of various feed mills. The industry has inherent risk of disease and mortality, which could lead to delinquencies by buyers.

The ratings reflect Sadiq Feeds association with an established poultry group, 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 sales to group companies. Moreover, procuring raw material in bulk due to seasonal constraints, highlights inherent price risk along with storage issues and high holding period. The company has adequate business margins, in line with peers and modest profitability. The Company’s financial risk profile is characterized by modest coverages. However, leveraging remains high, mainly on account of working capital requirements. In high interest rate scenario, this exerts pressure on the financial profile of the Company. The management is working on a gradual reduction in the short term borrowings by re-profiling the debt mix. This, along with better cash flows, is expected to improve coverages.
The ratings are dependent on the management's ability to prudently manage 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 will have negative impact on 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.