PACRA Maintains Entity Ratings of Islamabad Farms

The poultry industry is one of the largest agro-based segments in Pakistan, comprising domestic & commercial poultry. The industry has posted annual growth of ~ 10%-12% lately. Pakistan is sufficient in poultry meat and egg production. However, per capita protein consumption remains low when compared to the world's average. The industry generates an estimated annual revenue of ~ PKR 1,082bln from local and export sales. The industry has witnessed recovery after the dip in prices and demand amidst the pandemic. Subsequently, prices of poultry products, especially day-old chicks, witnessed a hike and benefited the players involved in the poultry allied chain. Increasing demand, and hence, prices eased down the liquidity problems of the industry. Moreover, SBP measures have provided respite. As business avenues became operational, demand for poultry products is likely to stay favorable for the industry players.
The ratings reflect Islamabad Farms's ('the Business') developing position in the poultry industry and the sponsor's adequate acumen across the integrated poultry supply chain. The Business revenue is concentrated towards day-old chicks and posted subtle growth during 9MFY21. Procuring feed in bulk from the Group’s own company benefited the margins. Profitability witnessed an increase indicative of the recovery of the poultry industry. However, Islamabad Farms remains exposed to price volatility and contingent health risk associated with its product. During 1HFY21, demand for poultry products picked up. This along with a surge in day-old chicks price benefitted the Business. Financial risk profile of Islamabad Farms is characterized by moderate leveraging ratio and strong coverage ratios. Loan mix is skewed towards short term borrowings to fulfill the working capital requirements. Islamabad Farms availed debt relief measures announced by SBP to alleviate pressure from its cashflows. Moreover, the ratings incorporate potential support from sponsors and the Group.
The ratings are dependent on the management's ability to sustain its operations. Improving margins, in turn, building profitable volumes remain critical for the ratings. Effective changes in governance framework would be beneficial for the ratings. Generating stable operational cashflows is important. Meanwhile, a prudent financial strategy to meet financial obligations is critical.

About the Entity
Islamabad Farms was established in 1981 as an Association of Persons (AoP). Islamabad Farms operates 18 breeder farms to maintain parent flocks of different breeds and 4 hatcheries for day old chicks. Its registered office is located in Satellite Town, Rawalpindi. While, the farms and hatcheries are scattered across the country.
Major ownership of Islamabad Farms resides with the family late Dr. Muhammad Aslam (50%) and Dr. Azhar Mehmood (25%). Remaining shareholding is equally divided among Mr. Muhammad Masood (12.5%) and Mr. Mamoon-ur-Rasheed (12.5%). After Dr. Aslam's demise, his sons, Muhammad Ali and Muhammad Hassan owns an equal stake of ~15% each. The remaining shares are owned by his daughters, Yumna Aslam (7%) and Saleha Aslam (7%), and wife, Mrs. Alia Mehmood (6%). Mr. Ali has been appointed as the CEO of the Business. He is aided by a team of experienced professionals.