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The Pakistan Credit Rating Agency Limited
Press Release

Date
22-Oct-21

Analyst
Shayan Farooq
shayan.farooq@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 Positive Outlook to Entity Ratings of Mumtaz Feeds & Allied Industries (Pvt.) Limited

Rating Type Entity
Current
(22-Oct-21)
Previous
(28-Oct-20)
Action Maintain Upgrade
Long Term BBB- BBB-
Short Term A2 A2
Outlook Positive 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 Mumtaz Feeds & Allied Industries (Pvt.) Limited's ('Mumtaz Feeds' or 'the Company') growing business profile in the Poultry Feed Industry. The Company is a fresh entrant in the feed business, and is involved in manufacturing and selling Broiler & Layer Feed. The Company has an increasing top-line and posted healthy margins, however, both are small in quantum. Utilization level remains low, though, have improved on timeline basis. The Company remains exposed to inherent risks in the feed industry emanating from raw material price changes and disease risk in poultry farms. The Company's working capital remains in check on account of procuring raw materials on prolonged credit period and prudent debtor management. The Company enjoys synergies as it procures raw material (mainly soybean meal) from associated concern. Mumtaz Feeds has nominal reliance on bank financing and intents to follow this practice, going forward. Financial support from Sponsors, in the form of loan, provides comfort to the ratings. The management has good understanding of the supply chain and leverage this understanding in procurement of raw materials. This enables them to produce good quality products while keeping the costs in check. Coverage position and leverage are strong. The Sponsors recently incorporated a solvent extraction unit in Multan, which is expected to be operational by Nov-21.
The ratings are dependent on the management's ability to gain market share, improve margins, and, in-turn, profitability. Maintaining strict working capital discipline and adequate leveraging remains critical. Any significant deterioration in margins and/or coverage's will have negative impact on the ratings.

About the Entity
Mumtaz Feeds & Allied Industries (Pvt.) Limited was incorporated as a Private Limited Company in 2016. Commercial operations began in 2017. The Company is primarily involved in
manufacturing and sale of broiler and layer feed in sixteen variants. The installed annual production capacity is 150,000 MT (25 MT per hour).
Major shareholding of Mumtaz Feeds resides with Mr. Aamir Ali Khan (35%), followed by Mr. Muhammad Umer (20%). Mr. Nasir Malik and his brother Mr. Yasir Malik owns an equal stake (17.5%) in the Company. The remaining stake vests with Dr. Muhammad Aslam (10%). Mr. Aamir Ali Khan, the CEO and Board's Chairman, holds more than two decades of relevant experience pertaining to poultry feed production which remains instrumental for the Company's operations.

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.