Rationale

 ICRA has consolidated the financials of Abis Proteins Private Limited (APPL), its parent Abis Exports (India) Private Limited (AEIPL) and Abis Sampoorna LLP (ASL), a 50:50 joint venture between AEIPL, the flagship company of the Chhattisgarh-based IB Group, and the Punjab-based Sampoorna Feeds Private Limited (SFPL), involved in poultry business, to arrive at the ratings. AEIPL has provided a corporate guarantee to ASL’s lender for the latter’s bank facilities. Besides, there is a track record of funding support to ASL from AEIPL in the form of unsecured loans and extended credit period for raw material supplies. APPL has been formed as a forward integration arm of AEIPL to foray into the processed meat segment for which AEIPL will infuse the entire project equity and will supply live birds post commissioning. Besides significant operational and financial linkages, AEIPL and APPL share a common management, hence, a consolidated view has been taken to arrive at the ratings for these two entities. The assigned ratings consider the large scale of operations and a dominant market presence of the IB Group in the poultry and related businesses, which is present in more than 20 states. ICRA also notes the Group’s integrated nature of operations with presence across various stages of the value chain, including manufacturing of animal feeds, grandparent farming, breeder farming, hatchery, broiler farming, layer farming, chicken processing (with a small scale at present), soya and rice bran oil extraction and refining, which strengthen the competitive position of the Group. The Group’s strategic partnership with Aviagen India Poultry Breeding Company Pvt. Ltd. (Aviagen) for procurement of grandparent day-old chicks (DOCs) has helped the IB Group integrate its operations further and expand its scale of operations over the years. Moreover, sourcing of the poultry feed internally ensures better control over poultry feed costs, quality and availability. AEIPL has eliminated dependence on third-party feed plants by setting up own facilities in various locations in the recent years and is also increasing its own hatching capacity, which would render cost benefit and improve product quality and yield. AEIPL’s capex programme for expanding its capacities and increasing the backward integration is likely to result in a sustained growth in the scale of operation and an improvement in the cost structure post commissioning and stabilisation of the projects, which would support its profits and cash accruals. The company has posted an above-average growth in its revenues in the recent years, as reflected by a compounded annual growth rate (CAGR) of ~20% between FY2020 and FY2024. In FY2024, its consolidated operating income grew by 15% on a YoY basis, supported by a robust growth in broiler birds sales volume by 27%. The consolidated operating margin improved to 10.0% in FY2024 from 5.5% in FY2023 on the back of softening of raw material costs and stable broiler realisations. In Q1 FY2025, AEIPL’s standalone revenue grew by 12% on a YoY basis and the operating margin improved to 19.6% from 14.5% in Q1 FY2024, supported by healthy realisations. ICRA expects the company’s healthy revenue growth and margin to sustain in FY2025. The ratings are, however, constrained by the susceptibility of margins of the Group’s poultry business to the highly volatile feed prices, which are dependent on agro-climatic conditions (maize and soya being the main raw materials for poultry feed manufacturing), international prices and government interventions in terms of setting the minimum selling prices (MSP),  export-import policies, demand from other end-user sectors etc. While arriving at the ratings, ICRA also notes the volatility in broiler realisations due to the seasonal nature of demand of poultry products in India, which has a significant bearing on the profitability of all integrators, including the IB Group. The Group, like other entities in the poultry and related businesses, is also exposed to the inherent industry risk of disease outbreaks (bird flu). However, ICRA considers various bio-security measures adopted by the Group over the years, which mitigate the risk to an extent. The Group would remain exposed to the risks relating to execution of the large, planned capex within the budgeted cost and estimated timeframe, notwithstanding its demonstrated ability to successfully implement such projects in the past and limited funding risks due to adequate liquidity position and a track record of successful debt tie-up for capex, aided by strong financial flexibility. The Group has also embarked upon a project to enter the meat processing segment to improve forward integration and mitigate exposure to fluctuation in broiler prices as the shelf life of processed chicken is longer than broilers. However, it will remain exposed to the challenges associated with ramping up of sales from the new segment, post commissioning, given the low market size of processed meat in India and relatively price sensitive consumers in the country. Nonetheless, changing lifestyle and evolving eating habits augur well for the future growth of the segment. The Stable outlook on the long-term rating reflects ICRA’s opinion that the Group’s overall business profile will remain strong, amid a sustained growth and increasing backward integration, supporting the cost structure. However, the resilience of profitability in an industry downcycle, amid adverse movement in raw material prices or broiler realisations, would remain important from the credit perspective. Its consolidated financial profile is likely to remain strong with healthy cash accruals, a conservative capital structure and comfortable debt coverage metrics despite the sizeable debt-funded capex.