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

Among the largest agro based segments in Pakistan, poultry holds a prominent place. Poultry feed manufacturing formally started in Pakistan in 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 ratings reflect Islamabad Feeds established poultry in the poultry industry with its sponsors and associates having presence in other poultry segments including hatchery, broiler and layer farms. The Company's topline remains strong and mainly comprises broiler and layer feeds. The Company has diversified into broiler chicken and eggs sales, though their respective contribution remains small in overall revenues. The Company procures Soybean meal from local market, however, is exposed to inherent price volatility risk after rupee depreciation. The Company's margins remain thin; but, inline with industry players with modest profitability. The Company’s financial risk profile is characterized by modest coverages, stretched working capital cycle and high leveraging. Procuring maize in bulk due to seasonal constraints leads to high holding period and increased financing requirement. Going forward, the rising interest rate scenario could exert pressure on the financial profile of the Company. However, the management is working on a gradual reduction in the short term borrowings.
The ratings are dependent on the management's ability to prudently manage liquidity and working capital requirements. The management's ability to build profitable volumes remains critical for the ratings. Envisioned improvement in business and financial profile along with effective changes in governance framework would be beneficial. Significant deterioration in coverages and/or margins will have negative impact on the ratings.

About the Entity
Islamabad Feeds (Pvt.) Limited was incorporated in 2008 and is primarily engaged in the production and sale of poultry feed, broiler chicken and layer chicken. The Company has two feed manufacturing facilities situated in Rewat and Okara with production capacity of 85 MT per hour and 60 MT per hour, respectively. The quality of feed produced is one of the best in industry.

Islamabad Feeds is a family owned business with Dr. M. Aslam, is the man at the last mile. He holds the entre shareholding in the Company along with his spouse. The Board of Islamabad Feeds comprises two members (both shareholders) only. The Board’s Chairman and the Company's CEO, Dr. M. Aslam, plays a pivotal role in strategic decisions and is instrumental in growing the business.