Press Trust of india

Surge in broiler prices to offset COVID impact on poultry industry in FY21: Report

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Mumbai: The sharp rise in broiler realisations will offset the impact of an estimated 20 per cent decline in volumes and expected to keep the poultry industry revenue flat this fiscal compared to 2019-20, according to a report.

The poultry industry will shake off the woes heaped by COVID-19 pandemic and 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 revenue, Crisil Ratings said in a report.

Better profitability and modest capital spending will help improve credit profiles for the industry players, it added.

Wholesale prices of broiler chicken crashed to a low of around Rs 50 per kg in March from Rs 90 per kg in January due to fears over the spread of COVID-19 virus through poultry.

The unviable prices led to the culling of broiler birds, as costs were not being covered and the creation of a supply shock.

Thereafter, with fears of the virus not being spread through poultry abating and demand outpacing supplies, prices of broiler chicken surged more than 20 per cent to Rs 90-100 per kg on average in the first half of the current fiscal as against Rs 75-80 per kg last fiscal.

Supplies took time to catch up as poultry farms waited for the monsoon to get over, thereby inflating prices, the report said, adding that broiler prices are expected to average at Rs 100-105 per kg this fiscal.

The Crisil Ratings report further said the sharp improvement in broiler realisations will offset the impact of an estimated decline of 20 per cent in volumes this fiscal and as a result, industry revenues are expected to remain flat this year.

Even so, the poultry industry’s profitability will benefit from softer input prices in 2020-21, it noted.

The feed cost fell as maize production increased amid weaker demand from the poultry sector (which constitutes 65 per cent of demand for maize), hovering at Rs 15-16 per kg this fiscal compared to Rs 19-20 per kg last fiscal.

Lower feed costs and higher sales realisations will increase the profitability of players by at least 200 bps to over 7 per cent this financial year.

“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 Rs 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,” Crisil Ratings director Dinesh Jain said.

Better profitability will help crank up cash accrual by 50 per cent this fiscal, which will support incremental working capital and Capex requirements, as per the report.

Therefore, the capital structure of the industry is expected to strengthen with improvement in total outside liabilities to less than 0.9 times in 2020-21 from 1.16 times in FY20, the agency said.

“The credit outlook for India’s poultry industry remains positive despite the pandemic aftermath. Debt protection indicators like net cash accrual to term-debt repayments and interest coverage are expected to improve to 4.5 times and 7 times this fiscal from 2.9 times and 4 times in 2019-20,” Crisil Ratings associate director Jayashree Nandakumar said.

 

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