Revenue of the Indian poultry industry is seen rising over 30% to ~Rs 2,500 billion this fiscal, driven by higher realisation and steady volume. However, elevated feed costs will shrink operating margin.

Credit profiles of poultries are expected to turn positive supported by higher accruals, even as short-term working capital requirement rises, an analysis of 80 CRISIL-rated ones, which account for a tenth of the industry’s revenue, indicates.

Revenue growth this fiscal would be largely attributable to higher prices, as capacities remain constrained. In the past two fiscals, poultries had restricted capacity addition, amid the pandemic. Consequently, consumption growth in meat and eggs was just ~5% and ~4% at 4.3 lakh tonne and 120 billion, respectively, last fiscal over 2021.

With demand continuing to be robust because of rising population, higher per-capita consumption of meat, and increasing preference for protein-rich diet, poultries have been operating at near-full capacity utilisation. Also, with the hotels, restaurants, and cafes (HORECA) segment now going at full tilt, demand is outstripping supply, leading to higher wholesale price for broiler chicken.

The price of broiler meat is expected to average Rs 135-140 per kg this fiscal, a 30% on-year increase from the average price of Rs 104 per kg last fiscal.

On the other hand, prices of maize and soymeal, key poultry feeds, have shot up almost 35% due to supply crunch and are unlikely to ease during the year. That will lead to lower margins for a second consecutive fiscal.

Says Himank Sharma, Director, CRISIL Ratings, “Realisation will continue to be robust given strong demand for broiler meat. The onset of the festive season in the third quarter will also support demand. Although higher input costs will dent Ebitda margin by 50-60 bps to ~5.7% this fiscal, it would still be on a par with the pre-pandemic levels.”

Poultries are expected to increase capacity by ~12% this fiscal because of strong demand and near-full capacity utilisation. These capacities are expected to come on stream early next fiscal given that it requires just 3-6 months to set up such facilities and turn them fully operational.

Higher cash accruals and low capital intensity will mean less reliance on external debt to fund capex. Thus, despite working capital requirements rising with input costs, debt will be under check.

Says Jayashree Nandakumar, Associate Director, CRISIL Ratings, “The credit profiles of poultries will improve with comfortable balance sheets. Net cash accrual against debt (NCATD) and interest coverage ratios are expected to be at ~0.5 time and ~6 times, respectively, this fiscal, better than the pre-pandemic levels. Total outside liabilities by tangible net worth (TOL/TNW) ratio will remain ~1x.”

Timely and commensurate enhancement of working capital bank lines, movement in feed price, and bird flu attacks will bear watching.