PACRA Assigns Initial Rating to Pak Elektron Limited |PPSTS | PKR 2bln | March-24

Pak Elektron Limited (‘PEL or ‘the Company) is an eminent engineering corporation in Pakistan that 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. In 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, the emerging challenges to the growth of power division market are the 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. During 3MCY24, the company topline clocked in at ~PKR 12bln, reflecting a growth of ~58.2% (3MCY22: ~PKR 8,141mln) mainly due to relaxation in imports. While the net profits of the company are locked at ~PKR 445mln as of 3MCY24 (3MCY23: ~PKR 37mln). During CY23, ~56.45% of sales were contributed by the power division (CY22: ~48.18%), while household appliances accounted for ~43.55% of sales (CY22: ~51.82%). PEL is strategically shifting towards power division owing to better margins. It holds the highest share in power transformers segment (~87%), followed by switch gears (~73%), distribution transformers (~25%), and energy meters (~19%). It 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 improved whereas 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 a competitive business environment. However, maintaining prudent financial discipline and a robust control environment will be essential. Effective liquidity and financial risk management remain crucial for the rating.

About the Entity
PEL is a listed public limited company and was incorporated in 1956. The Company is principally engaged in the manufacturing and sale of electrical capital goods and domestic appliances. PEL's ownership is split between Saigol Group, the general public, insurance companies, foreign investors, FIs/NBFIs, and others.

About the Instrument
The Company issued a Rated, secured, Privately Placed Short Term Sukuk of amount PKR 2bln to finance the company’s working capital requirement. The tenor of the Sukuk is 6 months and carries a profit rate of 6MK+100bps. Profit payment and principal would be made in a bullet payment at the time of maturity.