Pak Elektron to issue Privately Placed Sukkuk to finance working capital: PACRA

September 4, 2019 (MLN): Pakistan Credit rating Agency (PACRA) has maintained entity ratings of Pak Elektron Limited at ‘A+’ for long-term and ‘A1’ for short-term, with a ‘stable’ outlook forecast.

According to the rating agency, the rating reflects Pak Elektron Limited's (PEL) 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).

Despite recent revision of prices, the Company witnessed a contraction in margins owing to elevated costs arising from a depreciated Pakistani Rupee and high borrowing costs.

The Company's cashflows have remained under pressure and, coupled with high quantum of borrowings, resulted in deteriorated coverage ratios. Rising interest rates add further pressure on the Company.

PEL is exposed to financial risk owing to its long inventory and receivable cycle. Although an improvement in working capital cycle was observed during 6MCY19, room for further improvement exists.

The Company’s capital structure is characterized by intermediate leveraging owing to financing obtained to support high inventory levels. The Company has (March, 2019) issued a Commercial Paper to finance working capital requirements and is currently in the process of issuing a Privately Placed Sukuk for the same purpose.

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 coverage ratios and managing financial risk prudently remains crucial for the rating.