Karachi: Pak Elektron Limited (PEL), a leading engineering corporation in Pakistan, has retained its entity ratings amid fluctuating demand across its two major divisions, as per the latest review by The Pakistan Credit Rating Agency Limited (PACRA).
According to The Pakistan Credit Rating Agency Limited announcement issued on 04 July 2024, PEL's ratings are bolstered by its diversified revenue streams and a long-standing presence in the manufacture of household appliances and power equipment, including transformers and switch gears. However, the company faced significant challenges in CY23, with power division revenue dropping by approximately 16% and home appliance division revenue decreasing by around 35%, largely due to high energy tariffs and increasing adoption of self-generating renewable energy sources, such as rooftop solar systems. Supply chain disruptions, particularly difficulties in establishing L/Cs for importing essential components, compounded these challenges alongside high inflation and rising interest rates impacting consumer purchasing power.
Despite these setbacks, PEL demonstrated a robust market presence, commanding approximately 90% market share in power transformers and 75% in switchgears. However, its household appliances division experienced a decline in market share due to the aforementioned economic pressures. In the current calendar year, the economic conditions have shown signs of improvement, with stability in foreign exchange rates and normalization in the opening of letters of credit, which has enhanced supply chain management. This recovery, along with a decrease in inflation and interest rates, has bolstered consumer confidence, resulting in a revenue increase of about 56% in the first three months of CY24, reaching PKR 12,718 million.
PEL is also expanding its operations internationally, with plans to establish a wholly owned subsidiary in the UAE focused on commercial trading, including import, export, distribution, and warehousing activities. This move is aimed at diversifying its business operations and mitigating risks associated with the domestic market.
The ratings outlook for PEL remains dependent on its ability to improve revenues, profitability, and market share while managing liquidity and financial risks effectively.