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Indian Poultry Industry Broiler Meat and Table Egg

Long term industry volume growth prospects continue to remain favorable though high feed prices and volatile realizations resulted in depressed profitability in 2012; Improved profitability expectations in 2013 on back of coordinated efforts to control supply
October 2012 ICRA RATING FEATURE

Corporate Ratings
Anjan Deb Ghosh +91 22 3047 0006 anjan@icraindia.com Analyst Contacts: Subrata Ray +91 22 3047 0027 subrata@icraindia.com Ravi Kabra +91 20 2556 1194 ravi.kabra@icraindia.com

ICRA LIMITED

May 2013

Summary

Indian poultry sector has been growing at around 8-10% annually over the last decade with broiler meat volumes growing at more than 10% while table egg at 5-6% driven by increased domestic consumption. The production capacity has responded with increased integration and large scale implementation of contract poultry farming. Farmers in India have moved from rearing country birds in the past to rearing hybrids which ensure faster growth of chicks, higher eggs per bird, increased hatchability, low mortality rates, excellent feed conversion and consequently sustainable profits to the poultry farmers. The industry has been supported by indigenous advancements in genetic capabilities, veterinary health, poultry feed, poultry equipment, and poultry processing sectors. The productivity gains of poultry industry are reflected in relatively lower price increases in poultry meat over last five years compared to other meat products Poultry WPI (wholesale price index) has grown at 12% y-o-y over 2008-2013 as against 21% for overall meat products basket providing an affordable alternative for meeting protein requirements in Indian diet. Domestic poultry meat production (broiler - carcass weight) is estimated to have increased from less than 1.0 million tons in 2000 to 3.4 million tons in 2012 with per capita consumption increasing from 0.8 kg to 2.8 kg p.a during same period. Table egg production is estimated to have increased from 30 billion eggs in 2000 to 66 billion eggs in 2012 with per capita egg consumption increasing from 28 to 55 eggs during that period. The healthy growth in poultry output over last decade makes India one of the fastest growing major world market in the segment with future growth potential remaining strong on back of wide gap against global per capital consumption norms and favorable socio economic factors. CY 2012, particularly second half, was a tough year for the industry on back of considerable increase in production costs with feed ingredients (Maize and Soymeal) touching record highs and realizations suffering on back of oversupply in industry. For instance average production costs for a typical commercial broiler farm which was in the range of Rs. 45-50/kg in 2011 increased to more than Rs. 62-65/kg in H2CY2012 (moderating slightly since new maize/soya crop arrival) while broiler realization growth remaining muted. To make things worse, broiler realizations nosedived in last quarter of 2012 on back of oversupply and sporadic instances of bird flu in certain geographies. Strong 2010 and 2011 had resulted in sizeable investments in capacity expansion especially in broiler segment and same resulted in oversupply. This significantly affected profitability of poultry farms and integrators in 2012 with all the poultry players recording losses in broiler business in second half of 2012 and shutting down of sizeable number of independent poultry farms. The efforts of key integrators in poultry industry to control supply through measures like hatching holidays initiated towards fag end of 2012 has resulted in improved realizations in 2013 and industry is expected to register much better profitability compared to last calendar year. The deliberate attempts to control supply will result in lower volumes (in terms of broiler chick placements) though industry is projected to register healthy growth in value terms. The continued industry wide co-ordination will be critical to maintain sustainable margins in the business considering increased production costs and seasonal volatility associated with the poultry products though long term solution lies in developing processed chicken industry with value added offerings to protect against regional and seasonal variations in prices. Large integrators as well as Government bodies are investing and promoting increased processing of poultry products (in form of frozen/chilled chicken and further processing in form of ready to cook/eat) given increased acceptability of processed chicken in domestic market though 92-93% of domestic purchases are still through wet market due to traditional preferences. Increasing penetration of QSRs (Quick Service Restaurants), continued increase in proportion of working women, changing lifestyles with preference towards convenience food and higher purchasing power are expected to provide strong growth push for processed poultry industry in long term.

ICRA LIMITED

May 2013

ICRA expect domestic broiler meat demand to continue to grow at 8-10% and table egg demand to grow at 4-5% in long term on back of favourable socio economic factors like rising purchasing power, changing food habits, and increasing urbanization. Key challenges faced by industry include high feed costs, inadequate cold chain and transportation infrastructure, high vulnerability to disease outbreaks and highly volatile realizations affecting cash flows. Transition from a predominantly live bird/wet market to a chilled/frozen market is crucial for the future expansion of domestic poultry industry as well as to increase presence in international trade where India has negligible presence. Developing efficient distribution system with large investments required in cold chain infrastructure and increasing market acceptability of frozen chicken are going to be the key industry drivers in long term.

ICRA LIMITED

May 2013

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May 2013

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ICRA LIMITED

May 2013