Poultry integrators to prune capex by a third, adopt wait and watch policy

Poultry integrators to prune capex by a third, adopt wait and watch policy

 

HYDERABAD: Several large poultry integrators across the country have slashed their capital expenditure outlays by at least a third due to pressure on profit margins and high debt.
Though the industry started seeing signs of improvement in margins this fiscal, analysts and industry representatives say many poultry integrators have temporarily frozen their capacity expansions, and have adopted a wait and watch approach.

They expect the industry to return to normalcy in capital expenditure in the next fiscal if improvement in margins is sustained.

Ravi Kabra, assistant vice president at ratings agency ICRABSE 0.59 %, said average capital expenditure in the poultry industry has declined 25-30% over last two years from the levels of 2015.
This, he said, was mainly because of sizeable addition of debt over the last few years towards capacity additions and discouraging moderation in accruals (till last fiscal), affecting financials.

According to ICRA, total capital expenditure of top 15 poultry firms, which together account for nearly half of the industry, grew to Rs 4,500 crore between FY10-FY15 from less than Rs 1,200 crore between FY06-FY10. This has also resulted in ballooning debt to around Rs 6,000 crore in FY16 from Rs 1,500 crore in FY10, it said.
Large poultry integrators that have slashed their capital expenditure outlays over the last couple of years include Suguna Foods, Venky’s India and Indian Broiler Group.

“Our business was adversely affected in the past two years mainly due to high prices of feed ingredients,” said Ashok Bausakar, chief financial officer at Venky’s India. “Hence, we went for nominal capital expenditure as against average investments of Rs 80-100 crore a year earlier,” he said.

Indian Broiler Group too deferred its investments worth Rs 200 crore till the market looks up again. “We have also accumulated significant capacities due to expansions in the past couple of years. However, since the market is still volatile, we would wait till the next fiscal to bring capex to our earlier levels,” its chief financial officer Manoj Ahuja said.

Prices of feed ingredients, mainly maize and soya, had shot up in 2016, forcing the industry to even import them, owing to low production due to subsequent draughts in the country, hurting the margins of poultry players.

Ravi Kabra of ICRA said, “Strong growth and profitability in FY2011 for poultry industry along with double digit growth prospects had prompted several integrators as well as independent farmers to expand aggressively, resulting in supply glut, sharp moderation in profitability and sizeable debt addition.”

Pointing out that surge in feed prices during FY13-FY16 had adversely affected the financials of many domestic poultry players, Kabra said lower feed prices since early this fiscal, coupled with industry’s efforts to coordinate broiler supplies, helped them see improvement in margins. Several large firms retired significant portions of debt by suspending capital expenditures.

The Indian poultry industry is currently estimated at around Rs 67,000 crore with broilers accounting for Rs 42,500 crore and table egg market at Rs 25,500 crore, an ICRA report said. The agency expects domestic broiler meat demand to continue to grow at the rate of 5-7% and table egg demand to grow at 4-5% a year in long term.

 

 

 

Source: ECONOMIC TIMES