PACRA maintains entity ratings of PAEL

July 05, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Pak Elektron Limited (PSX: PAEL) at "A+" for the long term and "A1" for the short term with a stable outlook forecast, a latest press release issued by PACRA showed.

The ratings reflect PEL’s diversified revenue stream and long-established presence in appliances and power divisions including, power & distribution transformers, energy meters, and switch gears.

In the ongoing financial year, the household appliances segment is facing considerable performance challenges owing to high inflation, low FX reserves, policy hikes, and reduced energy subsidies.

On the other hand, factors driving the power division segment are linked with accelerated electricity consumption, new power projects, local industry revival, rehabilitation of power distribution networks, infrastructure developments, and new commercial/residential constructions.

During the end Mar’23, the company’s sales registered negative growth of 37.8% owing to challenging conditions, including the opening of LCs for the import of major raw materials and the rupee devaluation.

PEL’s topline is a mix of 56.45% (CY22: 48.18%) power and 43.55% (CY22: 51.82%) household appliances.

The company is strategically shifting towards the power division owing to better margins.

It holds the highest share in the power transformers segment (87%), followed by switch gears (73%), distribution transformers (25%), and energy meters (19%).

On account of negative growth check of Large-Scale Manufacturing (LSM) companies due to unfavorable economic conditions, the power division products portfolio of PEL has also shown quantum of decline.

However, the company holds onto a well-thought and sustained brand positioning in both power and home appliances segments followed by the targeted market leaders.

PEL expects to sustain its margins despite higher material costs by increasing volume and passing on the price hike to consumers. Coverages are on the lower side due to the reduced profitability matrix.

PEL’s capital structure is characterized by intermediate leveraging, majorly constituted by STBs.

The ratings are dependent on the Company’s ability to sustain its position and revenues amid a competitive business environment.

Moreover, close monitoring of working capital requirements to improve cash cycle and debt servicing remains imperative. Managing liquidity and financial risk is crucial for the ratings.

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