Rising prices of poultry feed are likely to strain margin growth of India's poultry industry after a consistent improvement in operating profit margin for three financial years.
However, the industry hopes that increasing demand for poultry products in the wake of the beef ban will help offset the impact of rising feed prices. After a hiatus of a few years, many players are looking at capacity expansion to meet the growing demand for poultry products.
According to Ashish Modani, assistant vice-president at IcraBSE 1.29 %, average operating margin for the poultry industry grew to 8.5% in 2016-17 from 4.5% in the previous fiscal. In 2012-13, it was 3.5%.
Analysts expect the EBITDA margin growth to remain flat this year mainly on account of firming up of feed prices.
Prices of soya oil meal and maize had declined to Rs 20-25 per kg and Rs 13.5-14 per kg in 2016-17 from Rs 32-34 and Rs 17-18 respectively in 2013-14. However, prices have started to firm up to Rs 26-27 per kg for soya meal and about Rs 15-16 per kg in the case of maize.
The increase in feed prices was mainly on account of the goods and services tax levied on soya oil meal, a major feed ingredient, which was tax-free previously.
"With the imposition of 5% GST on soya oil meal, we are seeing an increase of nearly Rs 400 per tonne in feed prices, which is 75% of the cost of the broiler chicken," said Subramani Kannan, CFO at Suguna Foods.
"As both broiler chicken and table eggs are not taxed, there is no input credit provided. Hence, it is causing some strain on our margin growth."
