- Feed costs may spike going forward, exerting pressure on margins of poultry companies in H2 FY2024
- commodity inflation could disrupt the momentum in H2
ICRA, a prominent credit rating agency, has said in its PR that Indian Poultry Industry maintained its revenue growth projections for the domestic poultry sector1 in FY2024, estimating a range of approximately 8-10%. This optimistic outlook is fueled by substantial volume expansion and an increasing market share of organized players within the industry.
The first half of FY2023 witnessed robust realizations; however, they gradually declined due to an excess supply in the latter half of the fiscal year. The current fiscal year, FY2024, has seen a resurgence in demand, leading to an improvement in average realizations, reaching around Rs. 107/kg in H1 FY2024 compared to Rs. 101/kg in FY2023 (Rs. 96.5/kg in H2 FY2023). The anticipation is that the festive season and cold weather will further bolster demand and realizations in the remaining part of FY2024.
Ms. Sheetal Sharad, Vice President and Sector Head at ICRA Ltd, highlighted the positive impact of controlled supply, healthy demand, and softened feed costs on players’ earnings. Notably, maize and soybean prices, major components of feed costs, experienced declines of approximately 9% and 21%, respectively, in H1 FY2023.
Despite the favorable conditions so far, concerns have been raised about the potential spike in feed costs. A significant contraction in soybean harvest during the kharif season and delayed sowing of maize are potential factors that could exert pressure on the profit margins of poultry companies.
The report also noted limited occurrences of avian influenza or bird flu across the country in the current fiscal year. Although localized incidents were reported in Kerala and Jharkhand, they did not escalate. The upcoming winter months are crucial, as they are prone to disease outbreaks, which could temporarily affect demand and realizations in affected and nearby regions.
In a significant development, the World Organisation for Animal Health (WOAH) approved India’s self-declaration of freedom from Highly Pathogenic Avian Influenza (HPAI) in specific approved farms in Maharashtra, Tamil Nadu, Uttar Pradesh, and Chhattisgarh. This approval is expected to open new opportunities for Indian poultry companies in the global market in the medium to long term.
Additionally, the resolution of the long-standing poultry dispute between India and the US, announced in September 2023, could potentially allow US poultry products into the Indian market. This move may increase competitive intensity and exert pressure on realizations, although the extent of its adverse impact remains a subject for monitoring.
The industry’s credit profile remains vulnerable due to inherent earnings volatility. Over the medium to long term, ICRA expects favorable domestic demand in India, driven by a rising urban population, evolving eating habits, and the growing prevalence of quick-service restaurants. To navigate toward higher-margin value-added products, ICRA foresees poultry companies investing in capacity additions for feed mills and exploring forward integration into meat processing plants. However, the expected rise in input costs and increased working capital requirements could potentially keep debt levels high within the industry.
1For ICRA’s sample set consisting of 13 companies
