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PACRA Assigns Initial Entity Ratings to Sadiq Feeds (Private) Limited

Lahore, March 22, 2018 (PPI-OT): Poultry feed manufacturing formally started in Pakistan in early 1960’s. At present, poultry feed is produced by commercial feed mills as well as home mixtures. There are 350 poultry feed mills, making country’s annual production capacity of around 10 MMT. This industry directly drives its demand from poultry – chicken and eggs consumption. With growing income levels and expanding population, the demand for poultry stays robust, in terms of poultry feed as well. The industry is experiencing ~10% growth.

The ratings reflect Sadiq Feeds association with an established poultry group, named SB Group. The company is in the centre of the group’s integrated poultry chain – oil/meal, feed and poultry. However, the group is in process of asset split, once done, this would bring consolidation to the company cost structures, in terms of margins. Lean inventory management system and related efficiencies continued to remain the competitive edge. Topline is concentrated towards broiler feed and major sale to group’s own company.

Moreover, procuring maize in bulk due to seasonal constraints, highlights the inherent price risk of raw material along with storage issues and high holding (short-term borrowing cost). Consequently, company’s financial risk profile is characterized by high leverage. To manage this, management is committed to a) gradually reduce short term borrowings and b) reprofile its debt mix with some switch towards long-term borrowings. this along with improving cashflows, should help manage financial risk.

However, this remains a competitive business where volumes and margins are function of timeliness and cost of raw material procurement and supply competition amongst different feed mills. The company had relatively suppressed results in FY17. However, lately these have improved. Both loan mix, after transfer of properties, referring to short term borrowings and long term borrowings will be re-profiled and may improve the cushion for future borrowings.

The ratings are dependent on the management’s ability to prudently mange the liquidity and debt profile of the company, particularly working capital, while improving business margins. Envisaged improvement in business and financial profile along with effective changes in governance framework would be beneficial.

For more information, contact:
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425

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