PACRA assigns a preliminary rating of ‘A+’ to PEL’s debt instrument

January 12, 2024 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has assigned a preliminary rating of "A+" for long-term and "A1" for short-term to Pak Elektron Limited (PSX: PAEL’s) debt instrument, latest press release issued by PACRA showed.

The debt instrument is worth Rs2 billion, and the assigned outlook on the instrument is ‘Stable’.

PAEL is an eminent engineering corporation in Pakistan that manufactures a range of household appliances and electrical equipment.

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, the emerging challenges to the growth of the power division market are the high cost of parts/appliances and evolving technology.

From a demand perspective, household appliances, it is generated from both first-hand and second-hand markets whilst the power sector primarily drives its demand from new projects/orders.

Barriers to market entry are moderate to high as it is dominated by established brands and requires extensive capital investment.

In 9MCY23, the company recorded a topline of Rs30.6bn (9MCY22: Rs43.3bn) with net profit locked at Rs946 million (9MCY22: 1.49bnn).

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

PAEL is strategically shifting towards 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%).

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

PAEL 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 whereas 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.

Close monitoring of working capital requirements to improve cash cycle and debt servicing remains imperative. Managing liquidity and financial risk are crucial for the ratings.

Copyright Mettis Link News