The Indian poultry industry’s operating profitability is poised to slip by about 50 basis points (bps) next fiscal owing to an increase in feed cost, even as strong demand leads to revenue growth of 8-10 per cent, CRISIL Ratings said.
With modest capital expenditure (capex), no significant debt addition and healthy accrual, the credit profiles of poultry companies are expected to remain stable. An analysis of 30 Crisil Ratings-rated poultry companies, which generated revenue of about around ₹10,000 crore last fiscal, indicates as much. The industry’s margin improved last fiscal and this fiscal due to favourable input costs and higher realisation, particularly from softening feed prices. That said, profitability is expected to narrow next fiscal owing to an anticipated increase in prices of maize and soya (feed), it said.
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Jayashree Nandakumar, Director, Crisil Ratings said “The price of soya, which accounts for about 30 per cent of the total feed cost, declined last fiscal and this fiscal owing to a bumper crop. However, with the soya acreage expected to reduce, the price is likely to increase next fiscal. The price of maize, which constitutes around 60 per cent of the overall feed cost, is also expected to increase due to rising demand for ethanol production.”
Despite a decline in profitability, revenues of poultry companies are likely to increase by 8-10 per cent next fiscal, following a similar growth rate this fiscal, driven by both healthy volume and solid realisation. A strong growth in domestic consumption of broiler chicken and eggs will drive volume growth, CRISIL said.
India’s per capita consumption of eggs and poultry meat is much lower than the global average, indicating significant potential for growth. Changing dietary preferences, rising disposable income and increasing urbanisation are some of the factors that would support volume growth of 4-6 per cent over the medium term.
Rishi Hari, Associate Director, Crisil Ratings said “Given the strong demand and higher feed cost, we expect overall realisation for the industry to grow 4-5 per cent next fiscal. The average price per kg of broiler chicken would increase 3-5 per cent and the average price per dozen eggs by 2-4 per cent on-year.” With feed cost expected to increase, the poultry industry is expected to keep considerable feed inventory during the harvest season, leading to marginal rise in gross current assets at 60-65 days.
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Post-pandemic capacity expansions have left sufficient buffer, reducing the need for significant debt-funded additions over the medium term. The credit profiles will remain stable on the back of small incremental debt and strengthened balance sheets. The interest coverage ratio and gearing are likely to remain comfortable at 3.1-3.5 times and steady at around 1 time, respectively, next fiscal. That said, volatility in feed cost and broiler and egg prices, as well as bird flu outbreaks will bear watching, it said.