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The Pakistan Credit Rating Agency Limited
Press Release

Date
25-Mar-21

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

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

Rating Type Entity
Current
(25-Mar-21)
Action Initial
Long Term A-
Short Term A2
Outlook Stable
Rating Watch -

The global feed industry is valued at ~$460bln, with poultry (~$166bln) constituting ~36% of the total industry. Pakistan produces ~3.5mln MT annually, with ~150 registered feed mills and ~200 unregistered feed mills catering to it. The industry generates an annual turnover of ~PKR 396bln. Amidst the COVID-19 pandemic, closure of restaurants/marriage halls and export avenues led to a supply glut of poultry products in local market. Lately, as business avenues became operational, demand for poultry products has improved. A visible surge is also observed in feed and poultry product prices. This, along with SBP's interest rate cut and deferment/restructuring option has provided sufficient respite to the industry players.

The rating reflects Jadeed Feed’s association with Jadeed Group, a leading and integrated player in the poultry supply chain. The Group has significant presence along poultry supply chain as it imports and breeds grandparent poultry stock (Ross 308). Lately, the Company has merged Jadeed Farms and Jadeed GP Farms into Jadeed Feeds. The Company's current business line comprises three main products: poultry feed variants, poultry breeding stock and day old chicks. At present, the Company has a strong topline dominated by poultry feed sales followed by poultry breeder stock and day old chick sales. Topline is expected to post stable growth on the back of significant demand for poultry products and increased prices. Margins are currently stable, however, are expected to improve once the internal synergies are streamlined. Inventory management system and related efficiencies would require the Company’s attention to keep its working capital costs low. Financial risk profile of the Company is characterized by moderate leveraging, to fund working capital needs. The Company is expected to limit borrowings to the extent that leveraging remains moderate. The coverages are stable, however, and will further benefit from the low interest rate scenario leading to better cashflows. The Sponsors have agreed to execute a formal shareholding agreement providing clarity on succession and governance framework.
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 and adherence to strong financial discipline remain 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
Jadeed Feeds Industries (Pvt.) Limited, was incorporated in Jun-08 as a private limited company as per the Companies Ordinance 1984. The Company is primarily involved in manufacturing and selling variants of poultry feed, along with breeding and selling poultry breeding stock and day-old chicks. Currently, the Company's feed mills have combined capacity to produce 240 MT/hour. Farms have placement capacity of 2.6mln and hatching capacity of 453mln eggs per annum. GP farms have placement capacity of 0.3mln and hatching capacity of 47.5mln eggs per annum.

Jadeed Feeds present shareholding structure suggests that Mr. Mian Muhammad Javaid, is the man at the last mile, as he holds major shares (81%). The remaining stake resides with his two sons Mr. Muhammad Sohaib Javaid (7%) and Mr. Muhammad Safwan Javaid (7%), and wife, Mrs. Shazia Javaid (5%). The BoD comprises three executive directors from the sponsoring family. The Board’s Chairman and the Company's CEO, Mr. Javaid, plays a pivotal role in making strategic decisions. 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.