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The Pakistan Credit Rating Agency Limited
Press Release

Date
27-Apr-20

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

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Assigns "Rating Watch" to Entity Ratings of Shabbir Feeds (Pvt.) Limited, Outlook "Negative"

Rating Type Entity
Current
(27-Apr-20)
Previous
(29-Oct-19)
Action Maintain Maintain
Long Term BBB- BBB-
Short Term A3 A3
Outlook Negative Stable
Rating Watch Yes -

The global feed industry can be valued at around ~$460bln, with poultry (~$166bln) constituting ~36% of the total industry. Pakistan has an installed production capacity of ~ 8mln MT of poultry feed annually with a total of ~150 registered feed mills and ~200 unregistered feed mills catering to it. The industry generates an estimated annual revenue of ~ PKR 100bln from local sales to poultry farms. 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. Subsequently, sale of feed and recovery from farms is expected to remain under pressure. Although feed producers have sufficient inventory, lower sales and liquidity crunch are expected to significantly impact industry players. 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 established presence of Shabbir Feed Mills in Southern Punjab in its related fields – poultry feeds, broiler meat and table eggs. The Company's topline was impacted by lower volumes. However, procuring raw materials, maize and meal, at relatively low cost benefited the margins. The Company has a long working capital cycle due to seasonal nature of inputs that leads to longer holding period. Financial risk remains high due to significantly leveraged capital structure and mismatch at trade level as the Company provides financial support to other group companies. Due to high quantum of borrowings, the Company's coverages remain stressed. The Company intends to avail debt relief measures announced by SBP to alleviate pressure on cashflows and its financial profile. The ratings incorporates diversified business interests of the sponsors.

The ratings have been put on "Rating Watch" due to the uncertainty created by prevailing lock down. The Negative outlook signifies adverse 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 ability to navigate through this phase of economic challenges and sustain operations. Financial discipline and a prudent financial strategy to meet financial obligations is crucial.

About the Entity
Shabbir Feed Mills (Pvt.) Limited, is an established venture of Shujabad Group. The Company was incorporated in 2001 and is primarily engaged in manufacturing and selling poultry feeds, table eggs and broiler meat. The Company's feed mill, located in Multan, has a manufacturing capacity of 45 MT per hour.

Shabbir Feed Mills major shareholding vests with (Late) Mian Shabbir’s family (75%) with an equal stake divided among his five sons. Remaining of the Company’s share (25%) resides with Mr. M. Akram, one of the group’s founders. Mr. Qasier Shabbir - (Late) Mian Sahbbir’s eldest son - with his experience of fifteen years in poultry and textile businesses, leads the Group and the Company as its CEO.

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.