The poultry sector, both domestic and global, is on a revival path, driven by robust export demand and the private sector’s expansion of the broiler meat industry.
Rabobank, in its Global Poultry quarterly Q1 2024, says the 2024 outlook for the global poultry market is moderately positive, with a forecast of 1.5-2% growth. “Though a decline from the long-term average of 2.5% per year, it is a sign of recovery from 2023’s 1.1%. With declines expected in pork and beef markets, poultry is expected to be the fastest-growing protein in a global animal protein market forecast to grow just 0.4% year-on-year,” it added.
According to EMR market research, the India poultry market, currently valued at USD 28.18 billion, is expected to grow at a CAGR of 8.1% in the forecast period of 2024-32 and reach approximately USD 44.97 billion by 2032.
Exports of domestic poultry products, which crossed the INR 1,000 crore mark in the first nine months, are set to scale a new record of INR 1,200 crore in the current financial year 2023-24 on strong demand from countries such as Oman and Sri Lanka among others. India’s poultry exports touched a high of INR 1,081 crore (USD 134.04 million) during 2022-23, doubling over the previous year’s INR 529.8 crore (USD 71 million).
However, these upbeat prospects are not reflected in the poultry stocks. Shares of poultry players such as Venky’s India, SKM Egg Products, and Simran Farms have been trading in the red for quite some time. Shares of Venky’s are now trading at INR 1,762.90 on the BSE, down 1.6% from its previous close. The stock has given -7.43% return over three months. The company reported a net loss of INR 7.94 crore for Q3 FY24, causing a 6% slide in shares. Simran Farms is now trading at INR 129.40, up 2.29%, with a 3-month return of -20.5%. SKM Egg Products, a 100% export-oriented company, too, is trading in the red at INR 243.60 (down 3.75%). The company’s Q3 net slid 56.9% to INR 11.71 crore yielding a -34% return in the last three months. Ovobel Foods, an egg powder and liquid egg producer-cum-exporter, is at INR 220 on the BSE – down 1.23% from its previous close.
Raw material spikes
According to analysts, higher input costs and lower crop projections may spike production costs and pressure these companies’ margins. “Feed costs will move slightly lower, but global geopolitical issues like the Ukraine war, turmoil in the Middle East, and weather risks could affect feed costs, as well as oil and gas prices,” the Rabobank report added. Feed costs account for more than one-third of the production cost.
The Ministry of Agriculture and Farmers’ Welfare, in its second advance estimates for major crops for the 2023-24 season (July-June), pegged maize output lower by at least 6 million tonnes (mt) at 32.47 mt against 38.09 mt a year ago. Oilseeds production has also been pegged lower at 36.59 mt (41.35 mt). The output of soyabean, a major ingredient in the poultry feed, is seen at 12.56 mt against 14.98 in the previous season.
This year, maize prices are rising higher not only due to lower output but also to demand from ethanol production. The one solace is that exports may not be feasible as a result, and the poultry sector has the option of importing 5 lakh tonnes of maize under the tariff rate quota regime.
Demand for poultry feed in the country has been rising at around 8-10% annually over the last decade. Currently, 60% of domestic maize production is used as feed. Major poultry associations have written to the Union government to allow duty-free maize imports, including GM crops, to enable the poultry industry to meet its future requirements.
Realizations hit
All these factors are putting pressure on producer companies and their margins. ICRA expects the revenue growth for its sample set of domestic poultry companies to improve mildly to nearly 5-6% in FY2025 after an estimated modest YoY growth of 3-4% in FY24.
“The growth will be driven by demand improvement, increasing share of organized players, and growing preference for value-added products. While broiler meat realizations continued to be strong till 7M FY2024 (YoY growth of 2%), they started tapering thereafter due to high placement and excess supply in key markets. Subsequently, Q3 FY2024 witnessed a 10% QoQ drop in average realizations, resulting in overall flat average numbers in 9M FY2024 on a YoY basis,” the report added.
However, ICRA added that the same could be revived gradually as the oversupply scenario corrects over the next few months. While realizations improved in 7M FY2024 following controlled supply and healthy demand, softened feed costs further supported poultry companies’ earnings.
Currently, the weighted average national price of maize is INR 2,188 per quintal compared with INR 2,025 a year ago. However, soyabean prices have eased in the current fiscal and average prices in the first three quarters declined 14% vis-à-vis FY2023.
Initially, maize prices were lower during October compared with the year-ago period.
“However, the realizations started tapering from November 2023 onwards and the grain prices, particularly maize, also started rallying since then. Further, significant contraction in soyabean harvest during the kharif season and delayed sowing of maize may result in a potential spike in feed costs and is likely to exert pressure on the margins of poultry companies over the next few quarters,” the report added.
Source: The Business line
