Muhammad Atif Chaudhry
PACRA maintains the rating of Pak Elektron Limited | PP Sukuk
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 divisions including, power transformers, distribution transformers, energy meters, and switch gears. Factors that shape the household appliances market are an increase in technological advancements, rapid urbanization, and a surge in the need for comfort in household chores. In recent times, the inclination of consumers toward eco-friendly & energy-efficient appliances further boosts the market growth. Similarly, factors driving the power division segment are linked with new power projects, rehabilitation of power distribution network, infrastructure developments, and new commercial/residential constructions. The emerging challenges to the growth of this market are the high cost of appliances, changing customer preferences, and evolving technology. 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 imported parts; dependent on global raw material prices, making it susceptible to external dynamics. The Company holds onto a well-thought and sustained brand positioning in home appliances segments followed by the targeted market leaders. PEL sustained margins despite higher material costs. Coverages are on the lower side due to a significant quantum of borrowings. PEL’s capital structure is characterized by intermediate leveraging, constituted by STBs. Going forward, the management intends to materialize the envisaged strategies by partnering with foreign investors to split the 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 upon the management’s ability to improve margins while sustaining its market share. Prudent management of the working capital, and maintaining sufficient cash flows and coverages are essential for the ratings. Any significant change in margins and coverages will impact the ratings.
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-member Board. Saigol family has a prominent presence on Board. Mr. Murad Saigol, the CEO, monitors all the strategic and operational affairs of the Company. He is supported by experienced management.
Pak Elektron Limited (“PEL” or the “Issuer” or the “Company”) issued a rated, secured, privately placed under Islamic Diminishing Musharaka Pak Elektron Limited | PP Sukuk ("Sukuk") of PKR 1,500mln in Nov'21. The Sukuk is secured by way of a first parri passu charge over the present and future current assets of the Company inclusive of a 25% margin. The tenor of the instrument is fifteen (15) months starting from the issue date (partial/full Call Option after 12 months). Profit is being paid quarterly in arrears on the outstanding principal amount at the rate of 3MK+1.3%. Sukuk shall redeem in one bullet payment at the time of maturity.