Poultry players face rising feed prices heat, margins to be under pressure in the near-term: ICRA

Poultry players face rising feed prices heat, margins to be under pressure in the near-term: ICRA

Synopsis

The revenues of Indian poultry industry are expected to grow by 5-6% in FY2022 compared to 2-3% growth witnessed by ICRA’s sample set of 10 large poultry integrators in FY2021. Continued demand recovery supported by opening up of hotels & restaurants and uptick in broiler realisations will support this growth, said ICRA in a release.

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The revenues of Indian poultry industry are expected to grow by 5-6% in FY2022 compared to 2-3% growth witnessed by ICRA’s sample set of 10 large poultry integrators in FY2021. Continued demand recovery supported by opening up of hotels & restauran
ts and uptick in broiler realisations will support this growth, said ICRA in a release.

“The industry demand-supply has been less impacted by subsequent two waves of the Covid-19 pandemic. However, industry margins are expected to contract sharply in FY2022 amid high average input prices led by heating up of soybean prices, players’ earnings are expected to be supported by favorable long-term demand outlook,” said ICRA.

As per the
recent report published by ICRA on Poultry Industry, Sheetal Sharad, Vice President and Sector Head, ICRA, says,
“The industry is sensitive to variations in input prices, mainly feed which accounts for ~70% of the variable costs. We expect industry margins to take a hit led by spike in soybean and maize prices on an average in FY2022. While many players faced net losses for H1 FY2022, subsequent softening of soybean prices following government’s actions and new crop supply provided some respite. However, recent geopolitical tensions have heated up soybean prices yet again. In this backdrop, adequate inventory levels of favorably priced feedstock may help players arrest margin contraction to some extent. For FY2022, ICRA expects the industry operating margins to contract sharply by 350 to 450 bps Y-o-Y. While higher than normal feed prices will severely impact earnings in FY2022, in the absence of any large debt-funded capital expenditure, moderation in debt protection metrics shall be restricted primarily to the earnings impact for FY2022.”

India has emerged as one of the fastest growing poultry producers with the production having grown four-fold over the last two decades. Over 70% of poultry output, particularly in the broiler segment, is produced by organised commercial farms, the shift has been gradual, from backyard poultry to large scale commercialization over the years. Farmers in India have moved from rearing country birds in the past to rearing hybrids which give better operating parameters and sustainable profits to the poultry farmers.

“However, despite largely organized production, distribution and retailing remains un-organisedgiven the consumer preference for live bird. This large dominance of wet or live bird market limits geographical movement of output given the perishable nature of product and limited cold storage and transportation infrastructure. This apart, the seasonal nature of consumption lead to volatile demand supply trends across regions. The trend is expected to change in the long-term with the share of processed chicken meat industry which accounts for ~10% of overall industry, likely to witness healthy growth,” said ICRA.

Sharad said, “Domestic broiler meat production has grown at a CAGR of ~10% over last ten-year period and per capita consumption grew by ~6% over the same period. ICRA expects industry revenues to increase by 5-6% in FY2022, while maintaining a similar long-term growth outlook on the back of favourable socio-economic factors. Industry players’ supply control measures to avoid a glut also underlines the moderate growth levels. Industry credit profile remains vulnerable to the inherent volatility in earnings profile. In the long term we expect demand to be favorable, supported by rising urban population, changing eating habits and growing penetration of quick service restaurants. Developing efficient distribution with large investments required in cold chain infrastructure and increasing market acceptability of frozen chicken are going to be the key industry drivers in the long term.”

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