PACRA maintains Pak Elektron's rating at "A+"

July 10, 2024 (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.

PAEL is a distinguished engineering corporation in Pakistan, renowned for manufacturing a wide range of household appliances and electrical equipment.

The ratings reflect PEL’s diversified revenue streams and its long-established presence in both the appliances and power divisions, encompassing power and distribution transformers, energy meters, and switch gears.

Key drivers of the household appliances market include technological advancements, rapid urbanization, growth in the housing sector, rising per capita income, improved living standards, and increasing demand for comfort and convenience in household chores.

During CY23 country’s power generation capacity increased by 8%, however, power consumption dropped around ~11% due to lower demand from the industrial and domestic segment influenced by high energy tariffs, and the adoption of self-generating renewable energy (rooftop solar systems).

The household segment also faced challenges, on the supply side, difficulties arose due to issues with establishing L/Cs for importing electronic kits and other essential raw materials, whereas the demand side was affected due to high inflation and soaring interest rates which led to substantial price increases of consumer electronics.

Aligned with these trends, PEL's power division revenue recorded a decrease of ~16%, while its home appliance division revenue experienced a decline of 35% in CY23.

According to management, PEL commands a significant market presence with ~90% share in power transformers, 75% in switchgears, and around 22% each in distribution transformers and energy meters.

Whereas, the home appliances division has seen a dilution in market share due to the above-mentioned factors.

However; In the current Calander year, the economic condition has demonstrated recovery, bolstered by stability in FX exchange rates, normalization of letter of credit (LC) openings thus improved supply chain management, decrease in inflation and interest rates led to the improvement in consumer confidence.

As a result, the company has recorded a growth of 56% in 3MCY24, with its revenue reaching Rs12.718bn similar to the same period of the previous year (3MCY23: Rs8.141bn).

In this quarter, the Appliances Division contributed 49.8% of total sales, while the Power Division accounted for the remaining 50.2%.

The company's margins improved as a result of increased sales volumes and successfully passing on price hikes to consumers. The financial risk profile is characterized by comfortable coverages, cashflows and a stretched working capital cycle.

The capital structure is leveraged, with borrowings primarily composed of short-term borrowings for working capital management.

Going forward, the company's management is establishing a wholly owned foreign subsidiary in the UAE. This subsidiary will focus on commercial trading, encompassing import, export distribution, and ancillary warehousing activities.

The ratings are dependent upon improvement in revenues, profitability, and market share while retaining sufficient cashflows and coverages. Managing liquidity and financial risk is crucial for the ratings.

Copyright Mettis Link News