Poultry stocks in focus amid reports of avian influenza outbreak

Street worried that the spread of the disease will impact near-term demand for companies like Venky's and Godrej Agrovet

Shares of poultry breeder Venky’s (India) and feed producer Godrej Agrovet are down as much as 7 per cent and 2 per cent, respectively, in the last three trading sessions (even as the Sensex was flat) amid reports of fresh concerns over the outbreak of avian influenza (also known as bird flu).

Earlier this week, the Ministry of Fisheries, Animal Husbandry and Dairying confirmed bird flu cases have been reported from Rajasthan, Madhya Pradesh, Himachal Pradesh, and Kerala. Consequently, state governments and ministries concerned have been proactively taking steps to curb the spread of bird flu.

In a bid to contain the outbreak, Kerala has begun culling chickens and ducks, while Madhya Pradesh has temporarily banned the import of such products from the southern state for a period of 10 days. So far, no human cases have been reported. However, concerns of a widespread outbreak and its impact on health are expected to have an impact on poultry demand, say analysts.

“We expect the consumption of poultry products (chicken/eggs) and their prices to decline. The demand for poultry feed may also decline,” said Aniruddha Joshi, research analyst, ICICI Securities.

The profitability of the entire value chain (poultry and poultry feed companies and farmers) is likely to be impacted in the fourth quarter of 2020-21 and the first half of 2021-22, added Joshi.

This is seen having a negative impact for Venky’s (India), which generates a bulk of its overall revenue from this segment.

Godrej Agrovet could also witness pressure on its animal feed and poultry business. However, the impact could be relatively less due to its diversified model, which also includes businesses such as crop protection, dairy and vegetable oils, among others.

Notably, bird flu viruses have been circulating worldwide for centuries, with four known major outbreaks recorded in the last century. This time around, Europe, South Korea, and Japan have also reported cases of bird flu. France, for instance, is culling over half a million poultry birds, news reports suggest.

Typically, such events have been followed by a period of 9 to 12 months of reduced consumption and lower prices of poultry products before recovering gradually.

However, while near-term financials of poultry-linked companies may get impacted, there is a positive spin, too, from a long-term perspective. Joshi says, this may turn out to be a positive in the medium- to long-term as consumers migrate towards premium, packaged products aiding the organised players to gain market share.