Higher broiler and egg prices, steady demand and recovering profitability are expected to drive the sector’s recovery, although rising feed costs remain a key risk
India’s poultry industry is poised to return to its long-term growth trajectory of around 10 per cent this financial year, aided by firm demand across both egg and broiler segments, improved price realisations and a recovery in profitability, according to Crisil Ratings.
The ratings agency expects operating margins to improve by 50-70 basis points this fiscal after contracting by around 50 basis points in the previous year. Higher selling prices are expected to offset an anticipated increase in feed costs, while moderate capital expenditure, limited debt-funded expansion and healthy cash generation are likely to keep the sector’s credit profile stable.
An analysis of 34 poultry companies rated by Crisil, with a combined revenue of about Rs 12,410 crore in the previous fiscal, points to a gradual improvement in industry performance.
Egg Segment to Lead Growth
The egg business, which contributes around 58-60 per cent of the poultry industry’s value, is expected to remain the primary growth engine. Despite being one of the most affordable sources of protein, India’s annual per capita egg consumption stands at 106 eggs, significantly below the global average, indicating substantial headroom for growth.
Crisil expects egg consumption to increase by 4-6 per cent this fiscal, while average prices are likely to rise to Rs 5.6-5.8 per egg. As a result, revenue growth in the egg segment is projected at 9-11 per cent, compared with 9 per cent in the previous fiscal.
Broiler Business Recovers
The broiler segment is also expected to regain momentum, with revenue growth projected at 8-10 per cent, up from 5 per cent last fiscal. Volume growth is likely to remain in the 2-4 per cent range, supported by improving rural demand, rising per capita meat consumption and increasing preference for protein-rich diets.
Broiler prices are expected to remain firm as supplies tighten. Last fiscal, a shorter summer and an early monsoon led to excess production, resulting in a nearly 20 per cent year-on-year decline in broiler prices. The subsequent reduction in bird placements towards the end of the fiscal has led to tighter supplies and stronger prices in the current financial year.
“Given the forecast of El Niño conditions, bird weights are likely to be lower this year, leading to short supply. Average broiler prices are expected at Rs 120-125 per kg this fiscal compared with Rs 115-120 per kg last fiscal,” said Jayashree Nandakumar, Director, Crisil Ratings.
According to the agency, stronger broiler prices, coupled with stable demand, are expected to support the industry’s return to around 10 per cent growth this fiscal.
Feed Costs Remain a Challenge
While improved realisations are expected to support profitability, rising feed costs continue to pose a challenge for poultry producers. Feed accounts for nearly 60-65 per cent of total production costs, with maize and soybean de-oiled cake (DOC) forming the bulk of feed ingredients.
Crisil expects maize prices to rise moderately because of possible weather-related disruptions, while soybean DOC prices are likely to remain stable due to adequate domestic availability.
However, imported feed ingredients such as vitamins and husk, which account for around 10 per cent of feed costs, may become more expensive amid higher logistics costs resulting from geopolitical tensions in West Asia.
“Average feed costs are projected to rise 3-5 per cent to around Rs 77 per kg this fiscal,” said Rishi Hari, Associate Director, Crisil Ratings.
Credit Profile to Stay Stable
The ratings agency expects improved profitability to strengthen cash flows across poultry companies. Higher internal accruals and restrained expansion plans are likely to help companies absorb higher working capital requirements arising from increased feed costs.
The sector is also unlikely to witness significant debt-funded capacity additions in the near term, as investments made after the pandemic have already created adequate capacity buffers.
Crisil expects the industry’s interest coverage ratio to remain comfortable at three to four times, while leverage is projected to stay stable at around two times in the next fiscal. However, the agency cautioned that volatility in feed prices, fluctuations in egg and broiler prices, and any outbreak of bird flu remain the key risks that could affect the sector’s outlook.
