Russia’s Cherkizovo to boost pork, poultry mkt share to 20%, 30%

March 20, 2012

Russian meat processor Cherkizovo Group is seeking to raise its share on the pork and poultry market to 20% and 30%, respectively, from 5.4% and 10.1%, as of the end of 2011, BCS investment firm said in a statement late on Monday following a meeting with Cherkizovo’s management.

“Cherkizovo believes that consolidation of the sector would take several years, while merger and acquisition (M&A) deals are the most attractive opportunity to boost the scale of operations and strengthen competitive positions,” BCS said, adding that the deals could be financed from debt market borrowings or an additional share issue.

Cherkizovo’s management also mentioned that the market exaggerated the negative impact of Russia's World Trade Organization (WTO) accession on the industry.

“Import does not currently play a significant role in the poultry sector, and the quote system is to be maintained. In the pork sector, the import duties on live pigs are to be cut to 5% from 40% which will reduce the company’s EBITDA margin in this business to 30–35% from 40–42%,” the company said.

“Nevertheless, according the company’s CFO, taking into account the planned levels of self-sufficiency in Russian meat production, the industry should get state support in order to protect the growth of imports,” BCS added in a statement.

Since Tuesday, the Russian sanitary watchdog halted the import of livestock, including cattle, sheep, goats, and pigs from the E.U. over health concerns. BCS said the ban was likely to be extended. The government also discussed other ways to support domestic meat producers, such as keeping zero profit tax and subsidizing the interest payments for bank loans.