Pak Electron Ltd suffers decline in sales due to slowdown in Power division: PACRA

March 12, 2019 (MLN): Pakistan Credit Rating Entity Agency has maintained entity ratings of Pak Electron Limited at ‘A+’ for long-term and ‘A1’ for short-term, along with a stable outlook forecast for the company.

The ratings reflect PEL's diversified revenue stream and strong presence in Appliances and Power products market. The Company, by leveraging its brand, has continued to focus on enhancing product slate and revenues with introduction of new products (TV and Water Dispenser).

However, strong competition and slowdown in Power division led to a decline in sales, in 9MCY18. The Company could not completely pass on the increased raw material costs, which squeezed its margin and impacted profitability.

The Company's cash flows came under pressure and, coupled with larger quantum of borrowings, deteriorated coverage ratios. PEL’s capital structure is characterized by intermediate leverage due to new financing obtained to support higher inventory levels. High working capital needs, emanating from long inventory and receivable cycle, expose the company to financial risk. The Company is in the process of issuing a Commercial Paper to finance working capital requirements.

The ratings are dependent on the management's ability to maintain its market share and margins. Any further deterioration in margins, in turn, profitability may impact the ratings adversely. Meanwhile, close monitoring of working capital requirements to improve cash cycle and debt servicing capacity remain imperative. Maintaining strong coverages and managing financial risk prudently is crucial for the ratings.

Copyright Mettis Link News