Poultry profitability set to decline 50 basis points next fiscal, says Crisil Ratings

The Indian poultry industry’s 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 Rs 10,000 crore last fiscal, indicates as much," said Crisil in a release.

The industry’s margins improved last fiscal and in the current fiscal due to favourable input costs and higher realizations, particularly from softening feed prices. However, profitability is expected to narrow next fiscal due to an anticipated increase in maize and soya (feed) prices.

Jayashree Nandakumar, Director, of Crisil Ratings, states, “The price of soya, which accounts for ~30% 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 ~60% of the overall feed cost, is also expected to increase due to rising demand for ethanol production.” 

Despite the decline in profitability, poultry companies’ revenues are expected to rise by 8-10% next fiscal, following a similar growth rate this fiscal, driven by both healthy volumes and strong realisations.

Strong growth in domestic consumption of broiler chicken and eggs will drive volume growth. 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 urbanization are key factors expected to support volume growth of 4-6% over the medium term.

Rishi Hari, Associate Director, Crisil Ratings, adds, “Given the strong demand and rising feed costs, we expect overall realizations for the industry to grow 4-5% next fiscal. The average price per kg of broiler chicken is expected to rise by 3-5%, while the average price per dozen eggs may increase by 2-4% year-on-year.”

With feed costs expected to increase, the poultry industry is expected to keep considerable feed inventory during the harvest season, leading to a marginal rise in gross current assets at 60-65 days. 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 ~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.