The Pakistan Credit Rating Agency Limited
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Shayan Farooq

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PACRA Maintains Entity Ratings of Sadiq Feeds (Pvt.) Limited

Rating Type Entity
Action Maintain Maintain
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Globally, the poultry feed production stood at 1.2bln MT in 2020, up by 1% from 2019. Pakistan's annual poultry feed production is around ~3.5mln MT, with ~150 registered feed mills and ~200 unregistered feed mills catering to it. The industry generates an annual turnover of ~PKR 396bln (Jun-20). At the beginning of the COVID-19 pandemic, the closure of restaurants/marriage halls and export avenues led to a supply glut of poultry products in the local market. However, as business avenues became operational, demand for poultry products improved. Lately, a visible surge was also observed in feed and poultry product prices. This, along with SBP's interest rate cut along with deferment and/or restructuring option provided sufficient respite to the industry players. An uptick in prices and demand dynamics are expected if the hospitality segment remains operational.
The ratings reflect Sadiq Feeds (Pvt.) Ltd.'s ('Sadiq Feeds" or "the Company') association with an established poultry group, Sadiq Group. The Company is part of the Group’s integrated poultry chain – oil/meal, feed, and poultry. Topline is concentrated towards broiler feed with sales to group companies as a major source. The Company remains exposed to inherent risks in the feed industry emanating from raw material price changes and fluctuating demand due to the COVID-19 outbreak. The Company enjoyed good margins and profitability, however, the slow down in sales during 3QFY21 led to lower off-take. Lately, this trend has eased as demand centers (restaurants, banquet halls, etc.) became operational. The Company procures raw material in bulk due to seasonal constraints. This highlights inherent price risk along with storage issues and a high holding period. The financial risk profile of the Company is characterized by improved working capital cycle. However, coverages remain stressed. Leveraging remains high, mainly on account of working capital requirements. However, the Company has availed debt relief measures (deferment and restructuring of loans) announced by SBP. This along with the interest rate cut has eased the pressure on the Company's cash flow. The ratings incorporate potential support from sponsors and/or group companies. Post Dr. Sadiq's demise, the ownership transition of Sadiq Feeds has been achieved.
The ratings are dependent on the management's ability to manage business risk while sustaining business margins in prevailing challenges. Moreover, the governance framework needs attention. Going forward, generating sustainable operational cashflows is important. Meanwhile, a prudent financial strategy to meet financial obligations remains critical.

About the Entity
Sadiq Feeds was incorporated in 2005 and is primarily engaged in three different types of feeds - poultry feed, strain-specific layered feed, and cattle feed for birds and livestock of different types and age groups. The Company has two feed manufacturing facilities situated in Mandra and Sahiwal, with a production capacity of 65 MT/hour and 130 MT/hour, respectively.

Previously, the Company's major shareholding was vested with Dr. Sadiq (70%), followed by his two sons, Mr. Asif Zubair (15%) and Mr. Salman Sadiq (15%). The ownership rests with Mrs. Saadia Sadiq (22%) and her sons: M. Arsal (25%), M. Sanan (27%), and M. Saad (27%).

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.