Volga | Farming, agriculture

Nizhnyís Linda Poultry on sale

6 Sep '10
Moscowís Prodo is seeking a buyer for its loss-making Linda Poultry in the Nizhny Novgorod region. With an expected less that $30m fire sale price it looks like a good deal. But is it worth spending that much plus an annual $15m for years to revamp the farm that now faces, alongside other Russian poultry plants, imminent U.S. competition?

Moscow-based agricultural group Prodo affiliated with Roman Abramovichís multi-sector business empire has announced plans to sell Linda Poultry in the Nizhny Novgorod region. Known until very recently as one of the groupís prized assets in the area, the company may be dumped at what experts estimate to be a bargain price of a max. $30m (the owner hasnít disclosed its price yet).

Set up in 1973 as a pedigree farm and then revamped in 1992 Linda Poultry is a regional player in broiler production and poultry canning. With Prioskolye from the neighboring Belgorod region and nearby Pavlovo Poultry as its main competitors the company currently has to trail, according to its own report, with an approximate 10% of the local poultry market.

Shedding branches to preserve the trunk

Linda Poultry has been in the red for months. It recently reported a net loss of $847k in the first six months of this year, a sharp year-on-year drop from a near $1m net profit. It is the poor performance in late 2009 and the 1H of 2010 that some market players believe is what has prompted Prodo to seek a sell-off.

Others, however, tend to attribute the decision to Prodoís changing strategy. Musheg Mamikonyan from Russiaís Meat & Poultry Union, for one, thinks the holding is no longer interested in keeping separate production assets and may focus on establishing large poultry processing hubs instead, a move that could beef up its status in the sector. Prodo might want to raise enough cash to invest in new and broader projects, and if so, the Linda Poultry sale is a step in the right direction, the expert feels.

Mr. Mamikonyanís interpretation of Prodoís intentions sounds accurate as until just recently the holding itself was in a precarious situation and looking for new ways to recapitalize itself is absolutely critical.

At the peak of the financial crisis last year Prodoís outstanding payables to banks amounted to a reported $320m, with Alfa Bank, Gazprombank, Sberbank and other banking majors wanting the holding to go bust to retrieve their money.

Prodo eventually maneuvered out of the log jam with a restructuring plan, which has proven smartly devised as by May 2010 the firmís debt shrank to a max. $130m and no default had occurred.

Shifting towards consolidation and creating poultry hubs through ceding such loss-making subsidiaries as Linda Poultry to local players eyeing larger market shares in their regions is most probably part of the restructuring plan too.

Pros and cons

On the one hand, dumping Linda doesnít seem to require hard-sell techniques. Its closest competitors in the Nizhny Novgorod region, Prioskolye or Pavlovo Poultry, may find it interesting to get what is up for grabs at a fire sale price (which some analysts argue will be even lower than $30m because of the company being chronically in the red over the past months). So they might be potential buyersóalongside the Linda management which is rumored to be eyeing ownership of the cheap asset.

Poultry production is more profitable in Russia than cattle or pig breeding; the demand side of the business has been on the rise since the financial crisis ate away at the Russiansí habit of buying more expensive beef or pork. Thereís every possibility that a meat producer will decide to diversify and do poultry business as well in the wake of the market developments.

On the other hand, finding an eager buyer may prove a challenge for Prodo. To breathe new life into the ailing Nizhny Novgorod company a minimum investment of $15m a year will be required, experts say, and few local players have pockets so deep to afford such a costly upgrade.

Unlikely as this may seem for a local matter like this, the US-Russia relations can also possibly weigh in with a serious political argument. A bilateral resolve to have a ban on imports into the RF of U.S. poultry treated with chlorine-based washes fully lifted is expected to open the locks for tons of overseas poultry to enter Russian markets. None anticipates any glut as a result of the imminent decision; pent up demand, however, will be lower and poultry plant operation less profitable.

All that said, the Nizhny Novgorod regionís annual poultry consumption is estimated to be about 80,000 tons and going up, and the combined efforts of Lindaís main competitors donít satisfy the demand. Imports will make a certain difference but not a great one, analysts reckon, knowing the Russiansí long-standing penchant for chilled vs. frozen poultry.

With this taken into account Linda Poultry is an offer to look closely at.
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