The Pakistan Credit Rating Agency Limited
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Shayan Farooq

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PACRA Assigns Initial Entity Ratings to Punjab Feeds Limited

Rating Type Entity
Action Initial
Long Term BBB
Short Term A2
Outlook 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 Punjab Feeds Limited's ('Punjab Feeds' or 'the Company') association with a strong business group, Olympia Group. The Group has a stable footing in chemicals, manufacturing, engineering, edible oil, poultry, poultry feed, power, and real estate segments of the economy. The Company is part of the Group’s integrated poultry chain – oil/meal, feed, and poultry. Ratings draw strength from the Company’s stable top line and consistent margins, along with efficient credit policies. The Company procures raw material in bulk due to seasonality constraints, posing an inherent price risk along with storage issues and a high holding period. This has been managed well by the Company and has yielded positive results while augmenting profitability. The Company has a modest capital structure supplemented by strong coverages and a healthy working capital cycle, which keeps the financial risk low. Demonstrated support from sponsors bode well for the Company's ratings.
The ratings are dependent upon improving margins and strict working capital discipline. The Company’s ability to improve profitability while further strengthening coverage ratios remain critical. Any significant deterioration in business performance and/or financial health will negatively impact ratings.

About the Entity
Punjab Feeds was incorporated in 1977 as a Public Unlisted Company. The Company is primarily engaged in two different types of feeds - poultry feed and cattle feed - for birds and livestock of different types and age groups. The Company's feed manufacturing facility is situated at 28-KM Lahore-Sheikhupura Road, Sheikhupura, with a production capacity of 45 MT per hour.

The Company is owned by the sponsoring family, through Olympia Assets (37%), Mr. Humayun Monnoo (26%), Mr. M. Shakil Monnoo (13%), Mr. M. Nasir Monnoo (8%), Mr. M. Zeeshan Monnoo (6%), Mr. M. Khurshid Monnoo (5%), Mr. Aurangzeb Monnoo (3%) and other individuals of Monoo family (1%). The Company's Board is Chaired by Mr. M. Khurshid Monnoo whereas, Mr. M. Nasir Monnoo heads the Company as the Chief Executive Officer. He is aided 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.