June 28, 2021 (MLN): Al Shaheer Corporation Ltd (ASC)- a leading brand of red meat and a notable exporter is now geared up to launch its long-awaited Poultry and processed food line.
The company is working on the Poultry Project (Lahore Project) for a long time and the incurred cost is affecting the company’s overall net profit margin. Thus, it is high time to kick start this project, a report by Al Habib Capital Markets Ltd (AHCML) said.
To note, the company posted a 27% gross margin in 9MFY21 while the reported net profit margin was hovering around 2% on the back of non-operational Lahore project, administrative costs, depreciation costs on CAPEX, and finance Costs related to expensive long-term financing acquired to pursue Poultry Project.
The report indicated that the ‘Poultry Project’ all set to commence commercial production soon and consequently ‘high margin-oriented revenue’ being received against the relevant cost. The management of ASC feels that it will be able to ‘Neutralise’ the negative repercussions of the cost associated with the said Project and be able to put its business on the path of sustainable growth thereby charting a promising future for ASC.
The Poultry Project would hit the market in two stages. In the first stage, raw chicken in the form of ‘Chicken Boneless’ and related products would be available by the end of July 2021 through caterers etc. The second stage will take another 1.5 months and may entail commencing ‘food-related production’ after which inventory of food-related production would start building-up.
With respect to the ASC’s anticipated marketing strategy, the report identified the heads of accounts under which marketing expenses were carried out by ASC’s competitors in the recent past.
Media spending alone has been in the range of Rs400mn to Rs450mn per annum by ASC’s competitors. ASC has a certain competitive advantage in terms of fixed capital expenditures such as Distribution/Cold Chain/Freezer which depend on the marketing strategy being pursued. While on average ASC’s competitors incur a monthly cost of Rs300,000 to Rs450,000 on costs related to Shops/Godowns. ASC will not be incurring such costs and instead be leveraging its existing Meat One and Khaas shops for this purpose.
Meanwhile, the vehicle cost will be determined by the size of vehicles being used and the area being catered to. For example, if one vehicle is serving multiple freezers/godowns and shops then the vehicle cost/kg of meat sold decreases and vice versa.
Going into the details, the company is expected to spend Rs700mn to Rs800mn with 50% attributable to Marketing and 50% to the Supply Chain of the new project implying Rs350-400mn each. Moreover, the financing plan for this Cash Burn relies on internal cash generation plus, if needed, modest bank borrowings. However, ASC does not envisage any major borrowings to fund this expense, the report by AHCML indicated.
With regards to the post-launch of the Poultry Project, the management of ASC foresees Year-I Net Consolidated Sales at Rs8.5bn rising to Rs10bn in Year-II implying that the management of ASC foresees Poultry Project contributing Rs2bn-Rs2.5bn in Year-I of its commercial production.
On the export front, having a Rated Capacity of 9,000 birds per hour (BPH) and a Practical Capacity of 8,000BPH together with a Freezing Capacity of 3,000 Tons, the company is expected to Export Poultry Products beginning in Year-II of its commercial launch.
It is worth mentioning that the Middle East is a better market for red meat-based products and not white meat-based poultry products, the report underlined.
In order to remain ahead of the competitive curve, ASC’s management will have to differentiate its Poultry Products offerings from the rest of competitors like K&N, Sabroso, O Foods.
For this, the management plans to undertake the strategy “Making life simple”. Under this strategy, the product offering by ASC’s Poultry Project would revolve around ASC’s theme of making the life of the lady of the house simple.
A wide array of White Meat products would be offered through the Poultry Project while the existing ASC brands would continue providing red meat and seafood.
As of now Frozen Poultry Products are marketed as ‘Snack Time’ delicacies. The Snack Time market is a niche market- not everybody can afford Frozen Poultry products for their children at that time quite frequently. The research further highlighted that the Dinner/Lunch Table is not only 10x in size as compared to the Snack Table, it is also a ‘necessity’ rather than a ‘niche market’.
By catering to the Dinner/Lunch market via a diversified product portfolio – including Paparooni – ASC aims to cater to an un-served market with zero competition and thus increase its revenues.
At present, ASC is in the Red Meat market while the White Meat market is twice the size of the Red Meat market. This means, once launched, ASC could have at least twice the number of customers for its White Meat market as compared to its Red Meat market.
The management of ASC is confident that it has a loyal customer base who will readily try ASC’s processed poultry products when launched, the report said.
With respect to the product portfolio, ASC plans a value-added product portfolio for its Poultry Segment which will include Nuggets, Seekh Kababs, and Chapli Kababs. The price of Nuggets and Seekh Kababs will be the same as that of other competitors since initially, premium pricing is not possible whereas Chapli Kabab will be marketed as a premium product helping save time and effort in making the product. To note, a 10%-15% premium pricing cannot be ruled out. In addition, Special products (Disruptors) will also be launched for snacking and dining table at a 20%-25% premium.
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