The poultry industry is expected to post a better performance this fiscal because of higher realisations and lower input prices, leading to a 200 basis points (bps) improvement in operating profitability, despite flattish revenues, CRISIL said in a report.
Better profitability and modest capital spending, will help improve credit profiles for the industry’s players, it said.
This is as per Crisil’s analysis of 87 poultry companies, which constitute about 30% of the industry by revenue.
“Wholesale prices of broiler chicken crashed to a low of around ?50 per kg in March 2020 from ?90 per kg in Jan 2020, due to fears over spread of COVID-19 virus through poultry. The unviable prices led to culling of broiler birds, as costs were not being covered, and creation of a supply shock,” the rating agency said.
Thereafter, with fears of the virus not being spread through poultry abating and with demand outpacing supplies, prices of broiler chicken surged more than 20% to ?90-100 per kg on average in the first half of the current fiscal from ?75-80 per kg last fiscal.
It said supplies took time to catch up as poultry farms waited for the monsoon to get over, thereby increasing prices. “Broiler prices are expected to average at ?100-?105 per kg this fiscal,” it said
The sharp improvement in broiler realisations will offset the impact of an estimated decline of 20% in volumes this fiscal. As a result, industry revenues are expected to remain flat this year, it added.
Crisil said the poultry industry’s profitability will benefit from softer input prices this fiscal.
“The feed cost fell as maize production increased amid weaker demand from the poultry sector (which constitutes 65% of demand for maize). Maize prices have been hovering at ?15-16 per kg this fiscal compared with ?19-20 per kg last fiscal. Lower feed cost and higher sales realisations will increase the profitability of players by at least 200 bps to over 7% this fiscal,” it said.
Dinesh Jain, director, Crisil Ratings, said, “We expect realisations to remain firm during the rest of this fiscal with the onset of festival demand in November. Even if average broiler prices decline to ?90 per kg in the fourth quarter, the improvement in profitability should hold given prices should still be higher on-year and feed cost remains subdued.”
