PACRA Maintains Entity Ratings of Pak Elektron Limited

Pak Elektron Limited (‘PEL or ‘the Company) is an eminent engineering corporation in Pakistan which manufactures major household appliances and electrical equipment. The ratings reflect PEL’s diversified revenue stream and strong presence in appliances and power division including, power transformers, distribution transformers, energy meters and switch gears. Factors that shape the household appliances market are increase in technological advancements, rapid urbanization, growth in the housing sector, rise in per capita income, improved living standards, and surge in the need for comfort in household chores. In recent times, inclination of consumers toward eco-friendly & energy-efficient appliances further boost the market growth. Similarly, factors driving power division segment are linked with accelerated electricity consumption, new power projects, local industry revival, rehabilitation of power distribution networks, infrastructure developments, and new commercial/residential constructions. The emerging challenges to the growth of this market are high cost of appliances, changing customer preferences, and evolving technology. The demand for household appliances is generated from both first-hand and second-hand markets whilst power sector primarily drives its demand from new projects/orders. Barriers to market entry are high as it is dominated by well-established brands and requires extensive capital investment. The sector is primarily involved in assembling of imported parts; dependent on global raw material prices, making it susceptible to external dynamics. The 2021’s growth was mainly driven by companies rearranging their operations and recovering from the COVID-19 impact. During CY21, highest production growth was recorded in air conditioners ~195% and refrigerators ~112% when compared with preceding period. Power division also followed upward trajectory where production of transformers, energy meters and switch gears showed growth of ~10.23%, ~78.98% and ~170.30%, respectively. The Company holds onto a well-thought and sustained brand positioning in home appliances segments followed by the targeted market leaders. Resultantly, the Company was able to witness significant sales growth of ~48.9% during CY2021. PEL sustained margins despite higher material costs. Coverages are on lower side due to significant quantum of borrowings. PEL’s capital structure is characterized by intermediate leveraging, constituted by STBs. During Apr-22, the Company released right shares for subscription to fuel its equity base. Going forward, the management intends to materialize the envisaged strategies by partnering with foreign investors to split home appliances and power division into two independent companies. This shall benefit PEL in achieving operational efficiency, technological efficiency and real-time growth opportunities.
The ratings are dependent on the Company’s ability to sustain its position and revenues amid 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.

About the Entity
PEL, incorporated in 1956, is a listed public limited company. It is principally engaged in the manufacturing and sale of electrical capital goods and domestic appliances. Saigol Group owns shareholding in the Company (29.36%) through family members. Other interests of the group include power, textile and real estate. Mr. Naseem Saigol is the Chairman of the seven-members Board. Saigol family has prominent presence on Board. Mr. Murad Saigol, CEO, monitors all the strategic and operational affairs of the Company. He is supported by an experienced management team.