Sohail Ahmed Qureshi
PACRA Assigns Preliminary Rating to Pak Elektron Limited | PPCP | TBI
|Rating Type||Debt Instrument|
The ratings reflect Pak Elektron Ltd.'s (PEL) diversified revenue stream and strong presence in Household Appliances and Power division including, Power transformers, Distribution transformers, Energy meters and Switch gears. The key factors driving the Household Appliances market are increase in technological advancement, rapid urbanization, growth in housing sector, improved living standards and surge in the need for comfort in household chores. Whereas, Power division growth drivers are linked with new electricity power projects, rehabilitation of existing power distribution networks, infrastructure developments and new commercial/ residential constructions. Pakistan’s household appliances and Power sector is largely dependent on global raw material prices, making it susceptible to external dynamics. Amidst COVID-19 outbreak, challenging economic conditions and strong competition have proved to be an impediment to industry growth. Overall production levels of the major appliances market took a steep dip in CY20, particularly during the peak demand season when nationwide lockdown slowed down the overall economic activity and created uncertainty in industry. During 3QCY21 Household Appliances showed recovery and highest production growth was recorded in Refrigerators by 151.87%, Air Conditioners by 73.71% as compared to same period last year. Power division also followed upward trajectory where production of Transformers, Energy Meters and Switch Gears increased by 16.81%, 63.81% and 186.91%, respectively. The Company has continued to focus on enhancing its product slate and recently made a strategic alliance with a renowned Japanese electronics manufacturer “Panasonic” which will authorize PEL to locally assemble Panasonic’s split air conditioners which is a positive development. Going forward the Company is expected to receive benefits from (a) Growth in population (b) Government incentives to construction industry and launching of Naya Pakistan Housing Program (c) Government initiatives to improve existing electricity distribution network.
The ratings are dependent on the management's ability to sustain operations and sales in prevailing challenges. Meanwhile, any significant deterioration in sales and margins will impact the ratings. 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.
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's ownership is split between Saigol Group, general public, insurance companies, foreign investors, FIs/NBFIs, and others.
Pak Elektron Limited (PEL) intends to raise PKR 1200mln through an unsecured, privately placed Commercial Paper to be issued under the SECP’s Issue of Commercial Paper Regulations 2013 and any subsequent amendments (“Transaction”). The offer rate of the instrument is 9MK+1.50% p.a. with a tenor of nine (9) months. Commercial Paper will be issued in the form of promissory notes at a discount to face value. Issue proceeds will be utilized by the Company to meet its working capital requirements. PEL is to maintain minimum current ratio of 1.0x and maximum Debt/Equity ratio of 1.5x during the tenor.