PACRA Assigns Preliminary Rating to Pak Elektron Limited- PPSTS II - PKR 2bln - TBI

Pak Elektron Limited (PEL or "the Company") is a leading engineering enterprise in Pakistan, recognized for its extensive range of household appliances and electrical equipment. PEL’s ratings are underpinned by its diversified revenue streams and well-established presence in both the appliances and power sectors. These divisions include power and distribution transformers, energy meters, and switchgears. The household appliances market's growth is driven by several factors, including technological advancements, rapid urbanization, expansion in the housing sector, rising per capita income, improved living standards, and increasing demand for convenience in household tasks. In the current calendar year, economic conditions have shown signs of recovery, supported by stability in foreign exchange rates, normalization of letter of credit (LC) processes that improved supply chain management, and a decline in inflation and interest rates. These factors have contributed to an improvement in consumer confidence. During 9MFY24, PEL achieved remarkable revenue growth of ~42%, with revenue reaching ~PKR 41,353mln (CY23: ~PKR 38,685mln). This growth was primarily fueled by increased volumes in the Appliances Division, which contributed ~58% of total sales, while the Power Division recorded ~11% revenue growth and contributed ~42% to sales. Management highlights PEL’s significant market presence, with ~90% market share in power transformers, ~70% in switchgears, and around ~21% each in distribution transformers and energy meters. However, the Home Appliances Division experienced a dilution in market share due to the above-mentioned factors. The Company’s financial risk profile is characterized by robust coverage ratios, healthy cashflows, and a stretched working capital cycle. Its capital structure is leveraged, with borrowings primarily comprising short-term loans for working capital needs. Going forward, PEL is diversifying its operations by establishing a wholly owned foreign subsidiary in the UAE. This subsidiary will focus on commercial trading activities, including import and export distribution, as well as ancillary warehousing operations. This strategic move is expected to strengthen the Company's international footprint and further solidify its market presence.
The ratings are dependent upon improvement in revenues, profitability, and market share while retaining sufficient cashflows and coverages. Managing liquidity and financial risk is crucial for the ratings.

About the Entity
Pak Elektron Limited (PEL), founded in 1956, is a publicly listed company engaged in manufacturing and selling electrical goods and household appliances. The Saigol Group, with ~30.0% ownership, also has interests in power, textiles, and real estate. The eight-member Board, chaired by Mr. Naseem Saigol, includes strong family representation. CEO Mr. Murad Saigol oversees operations with support from an experienced management team.

About the Instrument
Pak Elektron Limited (PEL) is set to issue the Rated, Secured, Privately Placed Short-Term Sukuk-II (PPSTS II) to replace the previous PKR 2,000mln Sukuk, which was redeemed on September 27, 2024. The tenor of PPSTS II will be six months, and will be redeemed in bullet at the expiry. The profit rate of for the instrument will be 6MK + up to 100bps, and will be payable at maturity.