The Pakistan Credit Rating Agency Limited
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Faiqa Qamar

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PACRA Maintains Entity Ratings of Islamabad Farms, Assigns "Rating Watch"

Rating Type Entity
Action Maintain Initial
Long Term BBB- BBB-
Short Term A3 A3
Outlook Stable Stable
Rating Watch Yes -

Poultry is one of the largest agro based segment in Pakistan, accounting both domestic & commercial poultry. With an investment of almost PKR 700bln in FY19, the industry has posted an annual growth of ~ 12%. Pakistan is sufficient in poultry meat and egg production. However, per capita protein consumption remains low when compared to the world's average. The industry generates an estimated annual revenue of ~ PKR 250bln from local and export sales. Lately, due to Covid-19 outbreak, marriage halls/restaurants have been closed. This, along with no exports of poultry products, have led to supply glut in local market. Prices of poultry products have posted a dip despite being an essential food item due to lower demand with many poultry farms becoming non-operational. Low sales and liquidity problems may persist as farms follow 40-day cycle before new flock is ready. Recent SBP measures will provide some respite in the short-time. However, prolonged lock down will affect sales in the entire poultry chain.

The ratings reflect Islamabad Farms developing position in poultry industry and sponsor's strong acumen across the integrated poultry supply chain. Islamabad Farms revenue is concentrated towards day old chicks and posted a dip. Procuring feed in bulk from Group’s own company benefited the margins. Profitability remains modest. Islamabad Farms remains exposed to price volatility and contingent health risk associated to its product. This was evident in recent times when prices of day old chicks crashed. Financial risk profile of Islamabad Farms is characterized by moderate leverage and adequate coverage ratios. Loan mix is skewed towards short term borrowings to fulfill the working capital requirements. The Company intends to avail debt relief measures announced by SBP to alleviate pressure on cashflows. The ratings incorporate potential support from sponsors and/or group companies.

The ratings have been put on "Rating Watch" due to uncertainty created by prevailing lock down and its implications on industry prospects as demand has contracted. PACRA will monitor the situation as it is still evolving and update the ratings accordingly.
The ratings are dependent on the management's ability to sustain its operations in prevailing challenging economic conditions. Generating operational cashflows is important. 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.

Islamabad Farms major ownership resides with Dr. Muhammad Aslam (50%), followed by Dr. Azhar Mehmood (25%). Remaining shareholding vests equally with Mr. Muhammad Masood (12.5%) and Mr. Mamoon-ur-Rasheed (12.5%). Sponsors dominates the Board comprising four members. Board’s Chairman and Islamabad Farms CEO, Dr. Muhammad Aslam, plays a pivotal role in making 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.