The Pakistan Credit Rating Agency Limited
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Faiqa Qamar

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PACRA Maintains Entity Ratings of Islamabad Feeds (Private) Limited

Rating Type Entity
Action Maintain Maintain
Long Term BBB BBB
Short Term A2 A2
Outlook Stable Negative
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 Islamabad Feeds (Pvt.) Ltd.'s established presence in poultry and allied chain including feed, hatcheries, broiler and layer farms. Lately, post Dr. Aslam's untimely demise, his son - Mr. Ali - has been appointed as the Group's CEO. The current sponsors have adequate acumen in poultry segment. The Company remained exposed to inherent risk in the feed industry emanating 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. Although the Company enjoyed stable margins and profitability in FY20, sales have slowed down considerably leading to lower capacity utilization and off take. As lock down has eased and demand centres (restaurants, banquet halls etc.) have reopened, sales are expected to surge, however, remain moderate. The Company has piled up raw material inventory (maize and soybean meal), procured on cash, to manage the impact of increased cost. As a result, margins and profits are expected to benefit the Company. However, this led to stretched working capital requirement, and receivable days remaining high, which was met through short-term borrowings. The Company has an aggressively leveraged capital structure, while coverages remain stretched.
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 August, 2008. The Company is primarily engaged in the production and sale of poultry feed, broiler meat, layer and eggs. The Company has two feed mills in Rewat and Okara with production capacities of 78 MT per hour and 40 MT per hour, respectively.
Post Dr. Aslam's demise, the ownership of the Company resides with his family. Major shareholding vests with Mr. Muhammad Ali (43.8%), followed by Mr. Muhammad Hassan (36.6%), Ms. Yumna Aslam (7.3%), Ms. Saleha Aslam (7.3%), and Mrs. Alia Mehmood (5%). Lately, Mr. Ali has been appointed as the Group's CEO and Chairman of the Board of Directors. He is assisted by a team of experienced professionals and is expected to play 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.