PACRA Maintains Entity Ratings of Pak Elektron Limited
In Pakistan, performance of the electronics sector is largely dependent on global raw material prices, which makes the sector vulnerable to external dynamics. However, the sector posted a growth of 39% in 2017-18, backed by rise in disposable income, technological advancement and rising awareness among population. Production of transformers grew by 43%, air conditioner by 24% and deep freezers by 5%. However, a dip of 31% was witnessed in the production of refrigerators, in 2017-18.
The ratings reflect PEL's diversified revenue stream and strong presence in Appliances and Power products market. The Company, while aiming brand expansion, has continued to focus on enhancing actual production in the key revenue generating products and intends to introduce new products (TV and Washing Machine). However, strong competition led to a decline in sales, in 1HCY18. 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 the coverage ratio. PEL’s capital structure is characterized by intermediate leverage due to new financing obtained to support inclining business volumes. High working capital needs emanating from long inventory and receivable cycle expose the company to financial risk.
The ratings take in to account strong business dynamics in Appliances and Power segments. Any further deterioration in margins, in turn, profitability may lead to downward rating revision. However, the Company's ability to strengthen its business profile by improving volumetric sales remains critical. Meanwhile, close monitoring of working capital requirements and debt servicing capacity remain imperative. Maintaining strong coverages and managing financial risk prudently is crucial for the ratings.
PEL was incorporated in 1956 as a Public Limited Company. Currently, it's listed on Pakistan Stock Exchange and is principally engaged in manufacturing and sale of electrical capital goods and domestic appliances. PEL is majorly owned by Saigol Group (~50.3%). Other interests of the group include power, textile and cement.
Mr. Naseem Saigol is the Chairman of the ten member Board. Saigol family has prominent presence on Board. Mr. Murad Saigol, MD/CEO, monitors all of the strategic and operational affairs of the Company. He is supported by an experienced and stable management team.