The Pakistan Credit Rating Agency Limited
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PACRA Maintains Entity Ratings of Hi-Tech Feeds (Pvt.) Limited

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

The global feed industry is valued at ~$460bln, with poultry (~$166bln) constituting ~36% of the total industry. Pakistan produces ~8mln MT of feed annually, with ~150 registered feed mills and ~200 unregistered feed mills catering to it. The industry generates an annual turnover of ~PKR 200bln to PKR 250bln from local sales. Amidst the COVID-19 pandemic, closure of restaurants/marriage halls and export avenues led to a supply glut of poultry products in local market. As a result, prices of poultry products posted a dip. Subsequently, sale of feed and recovery from farms remained under pressure. Although feed producers had sufficient inventory, liquidity crunch significantly impacted the industry players. Lately, as business avenues became operational, demand for poultry products has improved. A visible surge is also observed in feed and poultry product prices. Subsequently, sale of feed and recovery from farms has improved. This is likely to benefit the industry players, provided that the supply of poultry products remain stable. This, along with SBP's interest rate cut and deferment/restructuring option is expected to provide sufficient respite to the industry players.
The ratings reflect Hi-Tech Feeds (Pvt.) Limited's association is with an established poultry group, Hi-Tech Group. The Company is part of Group’s integrated poultry chain – oil/meal, feed and poultry – and enjoys a moderate market share with good Feed Conversion Ratio. Hi-Tech remained exposed to inherent risks in the feed industry emanated from raw material price changes and low demand amidst the Covid-19 pandemic. Lately, the increasing demand and prices of poultry products has eased some pressure off the Company. Moreover, the Company's ability to pass on the increased raw material cost to poultry farms led to improved margins. Further, rate cut by SBP will benefit the profitability and in turn cashflows. The Company has piled up raw material inventory, procured on cash, in anticipation of higher prices. This led to stretched working capital requirement, with receivable days also high, met through short-term borrowings. The Company had a moderately leveraged capital structure, while coverages remain stable.
The ratings are dependent on the management's ability to sustain its operations and improve capacity utilization. Maintaining strict working capital discipline through prudent inventory management and rationalizing significantly high receivable days and ensuing borrowings remain critical. Any significant deterioration in margins and/or prolonged low sales cycle will have negative impact on the ratings. Support from sponsors and other group entities is important.

About the Entity
Hi-Tech Feeds (Pvt.) Limited is a prominent venture of Hi-Tech Group, which has diversified vertically across the poultry supply chain. The Company was incorporated in 1985 and is primarily engaged in manufacturing and selling poultry feed variants for birds of different types and age groups. The Company has two feed manufacturing facilities situated in Lahore and Sahiwal, with a production capacity of 100 MT per hour and 90 MT per hour, respectively. The quality of feed produced is ranked as one of the best among competitors.
Hi-Tech Feeds is equally (25%) owned by Dr. Muhammad Arshad, Dr. Abdul Qayyum, Dr. Muhammad Asim Khan and Dr. Anwar Mahmood Randhawa. All four sponsors (also Directors on the board) hold a veterinary degree and are very well equipped with relevant industry knowledge. Dr. Muhammad Arshad laid the foundation of the Group and leads as the CEO of the Company. He is assisted by a team of experienced professionals.

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.