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The Pakistan Credit Rating Agency Limited
Press Release

Date
03-Mar-20

Analyst
Faiqa Qamar
faiqa.qamar@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Pak Elektron Limited

Rating Type Entity
Current
(03-Mar-20)
Previous
(02-Sep-19)
Action Maintain Maintain
Long Term A+ A+
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Pakistan’s household appliances sector is largely dependent on global raw material prices, making it susceptible to external dynamics. Challenging economic conditions, strong competition among industry players and transition of current government have proved to be an impediment to industry growth. This is reflected by lower production across major categories of household appliances during CY19. The highest impact was witnessed in refrigerator production which fell by 30%, YoY, followed by television sets (-8%). However, production of deep freezers surged by 75% during CY19. On the power front, production of electric meters, transformers and switch gears suffered a decline of 13%, 39% and 40% respectively.

The rating reflects Pak Elektron Limited's (PEL) diversified revenue stream and strong presence in Appliances and Power segments. The Company, by leveraging its brand, has continued to focus on enhancing product slate. The recent slowdown in industry sales, especially refrigerator, contracted the Company's revenues slightly. The Company maintained its gross margins by passing on the impact of cost to consumers. Sales in power segment remained low as PSDP spending and government projects were sparse. The Company net income was suppressed by high borrowing cost. The Company's cashflows remained under pressure and, coupled with high quantum of borrowings, resulted in deteriorated coverage ratios. PEL is exposed to financial risk owing to its long inventory and receivable cycle. However, the Company was able to reduce its inventory and recievable days on YoY basis, creating further cushion at trade levels. The Company’s capital structure is characterized by intermediate leveraging owing to financing obtained to support high inventory levels. The Company has issued privately placed Sukuk V (Dec-19) to finance working capital requirements.
The ratings are dependent on the management's ability to maintain its market share and margins. Any significant 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.

About the Entity
PEL is a listed Public Limited Company and was incorporated in 1956. The Company is principally engaged in manufacturing and sale of electrical capital goods and domestic appliances. PEL is majorly owned by Saigol Group (~51%). Other interests of the group include power, textile and real estate. Mr. Naseem Saigol is the Chairman of the nine 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.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.