The Pakistan Credit Rating Agency Limited
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Sohail Ahmed Qureshi

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PACRA Maintains Entity Ratings of Pak Elektron Limited

Rating Type Entity
(06-Jul-21 )
(07-Jul-20 )
Action Maintain Maintain
Long Term A+ A+
Short Term A1 A1
Outlook Stable Negative
Rating Watch - Yes

The ratings reflects 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, and 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 1QCY21 Household Appliances showed recovery and highest production growth was recorded in air conditioner ~136% and refrigerators ~59% as compared to same period last year. Power division also followed upward trajectory where production of transformers and switch gears showed growth of ~22% and ~76% 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. Sales revenue of the Company slightly improved in CY20 and further escalated during 1QCY21 due to recovery in Household Appliances and Power division. According to management representation profitability is expected to sustain in near future. Coverages are on lower side due to high quantum of borrowings. PEL is exposed to financial risk owing to long inventory and receivable cycle. However, the Company was able to reduce inventory and receivable days, creating cushion at trade levels. Capital structure is characterized by intermediate leveraging. 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.

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-members Board. Saigol family has prominent presence on Board. Mr. Murad Saigol, CEO, monitors all of the strategic and operational affairs of the Company. He is supported by an experienced 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.