The Pakistan Credit Rating Agency Limited
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PACRA Maintains Entity Ratings of Pak Elektron Limited

Rating Type Entity
(04-Jul-23 )
(06-Jul-22 )
Action Maintain Maintain
Long Term A+ A+
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Pak Elektron Limited (‘PEL or ‘the Company) is an eminent engineering corporation in Pakistan which manufactures a range of household appliances and electrical equipment. The ratings reflect PEL’s diversified revenue stream and long-established presence in appliances and power division including, power & distribution transformers, energy meters, and switch gears. Factors that shape the household appliances market are increase in technological advancements, rapid urbanization, growth in housing sector, rise in per capita income, improved living standards, and surge in the need for comfort in household chores. In the ongoing financial year, the household appliances segment is facing considerable performance challenges owing to high inflation, low FX reserves, policy hikes, and reduced energy subsidies. On the other hand, 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 parts/appliances and evolving technology. From demand perspective, in household appliances, it 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 moderate-to-high as it is dominated by established brands and requires extensive capital investment. Since, the sector is primarily involved in assembling of imported parts; dependent on global raw material prices, making it susceptible to external dynamics. During end Mar’23, the Company’s sales registered negative growth of ~37.8% owing to challenging conditions, including opening of LCs for import of major raw materials and rupee devaluation. PEL’s topline is a mix of ~56.45% (CY22: ~48.18%) power and ~43.55% (CY22: ~51.82%) household appliances. The Company is strategically shifting towards power division owing to better margins. It holds highest share in power transformers segment (~87%), followed by switch gears (~73%), distribution transformers (~25%), and energy meters (~19%). On account of negative growth check of Large-Scale Manufacturing (LSM) companies due to unfavorable economic conditions, the power division products portfolio of PEL has also showed quantum of decline. However, the Company holds onto a well-thought and sustained brand positioning in both power and home appliances segments followed by the targeted market leaders. PEL expects to sustain its margins despite higher material costs by increasing volume and passing on the price hike to consumers. Coverages are on lower side due to reduced profitability matrix. PEL’s capital structure is characterized by intermediate leveraging, majorly constituted by STBs.
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 (~30.0%) through family members. Other interests of the group include power, textile and real estate. Mr. Naseem Saigol is the Chairman of the eight-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.

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.