Bairaha Farms 2Q gets a fillip from higher volumes and prices

• Confronted with soaring cost inflation and witnessing pullback on chicken consumption

Bairaha Farms PLC reported some solid financial performance in the three months ended in September on higher volumes and prices but the company is seeing some softening in demand for chicken lately, as the elevated prices are turning away the average consumer, who has been battered by the runaway prices. 

The company reported sales of Rs.3.45 billion for the July-September period (2Q23), up 110 percent from the same period last year, on the growth in both volumes and prices of chicken and day-old chicks. 

The costs also rose in parallel with the direct costs rising by as much as 107 percent on the back of soaring cost of feed, parent chicks, fuel, electricity and others. 

“The prices of raw materials used in feed manufacturing increased rapidly during the same period, due to the increases in their prices in the world market, depreciation of LKR and payment of demurrages because of the delay in settling the import bills, due to the difficulties encountered in obtaining dollars for the timely settlement,” said the company’s Managing Director Yakooth Naleem.

The prices of corn and soybean meal have increased by 137 percent and 420 percent, respectively from a year earlier, resulting in a 249 percent increase in the average feed prices. The feed cost typically accounts for two-thirds of the poultry rearing cost. The 300 percent increase in the fuel cost has further sent the cost of production, transport and cost of power generation exponentially higher. 

On top of that, the company said the electricity tariff revision had also nearly doubled its power cost in August and September. The company estimates the 2.5 percent Social Security Contribution Levy, which came into effect from October 1, could further increase the cost of goods and services purchased, resulting in a 4.5 to 5.0 percent negative impact on the bottom line. 

The company reported earnings of Rs.16.57 a share or Rs.265.16 million for the quarter, compared to earnings of Rs.9.74 a share or Rs.155.86 million in the same period last year, translating into a 149 percent increase.  
As the September quarter earnings season is slowly getting underway, the investors and analysts are looking at how the companies confronted the muted demand coming from runaway inflation and soaring interest rates and how they navigated the foreign exchange shortages and other supply chain bottlenecks. 

The consumers are cutting down on their spending, as they have changed their consumer behaviour significantly since early this year in response to the runaway prices, which hit 70 percent in September while food inflation came in at 95 percent. 

Bairaha, as of late, has witnessed that the consumers were pulling back on spending consuming chicken when the prices reached beyond their affordability.

The company is trying to address this issue by making available small and affordable packs of chicken as well as by selling a particular range of pre-cooked chicken sausage products.
However, the latter fetch low margins, the company said. 

“Chicken consumption is highly correlated to the disposable income of the average consumer as well as to the price of fish, which is a substitute protein for chicken,” Naleem said.