The Pakistan Credit Rating Agency Limited
26-Apr-17
Analyst
Ayesha Qasim
ayesha.qasim@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
- Rating Modifiers | Outlook and Rating Watch | Jun-16
- Correlation between Long-term and Short-term rating | Jun-16
- Sukuk Rating | Jun-16
- Corporate Rating | Jun-16
Related Research
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PACRA Maintains Ratings of Pak Elektron Limited
| Rating Type | Entity | |
|
Current (26-Apr-17 ) |
Previous (03-Dec-16 ) |
|
| Action | Maintain | Upgrade |
| Long Term | A+ | A+ |
| Short Term | A1 | A1 |
| Outlook | Stable | Stable |
| Rating Watch | - | - |
The ratings reflect PEL's strong business profile in its respective markets - Appliances and Power - supplemented by its strong brand. The Company, while aiming to diversify its product base, has continued focus on improving quality and cost efficiency in its key revenue generating products. This resulted in higher sales volumes. The performance of the Company is well supported by healthy business margins. Improved profitability and stable cash flows strengthened the Company's debt servicing ability; thus risk absorption capacity has beefed up. High working capital needs emanating from long inventory and receivable cycle expose the Company to financial risk. While the management's focused efforts provided relief, comfort is drawn from sponsors' support to manage these needs (equity injection and retention of profits). Meanwhile, the Company has articulated an adequate debt management policy a) total debt would be restricted to 2.5 times of free cash flows [end-Dec16: 1.6] and b) short-term borrowings would not exceed 50% of net working capital needs [end-Dec16: 33%].
The ratings take in to account improving business dynamics in Appliances and Power segments apart from the Company's strengthening business risk profile. Increase in market share with sustainable cash flows have benefited the ratings. Meanwhile, close monitoring of working capital requirements and debt servicing capacity remain imperative to maintain the company's financial health; hence ratings.
About
the Entity
PEL, incorporated in 1956, is listed on Pakistan Stock Exchange. The Company is principally engaged in manufacturing and sale of electrical equipment and home appliances. The Company is majorly owned (~51%) by Saigol Group. Other interests of the group include power, textile, and real estate. Mr. Naseem Saigol is the non-executive chairman of the eleven member board, which includes four members of Saigol family, four nominees of financial institutions, and one independent director. Mr. Murad Saigol, who has been with PEL since 2005, has been elevated as the Chief Executive Officer in 2015. He is supported by an experienced and stable management team.