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The Pakistan Credit Rating Agency Limited

Date
03-Dec-2016
Analysts
Aisha Khalid
aisha@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Rating Modifiers | Outlook and Rating Watch (Jun 16) [View]
  • Correlation between Long-term and Short-term rating (Jun 16) [View]

Related Research

  • Sector Study | Household Appliances (Dec 16) [View]
  • Sector Study | Electrical Engineering (Dec 16) [View]
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PACRA Upgrades Ratings of Pak Elektron Limited
 Rating Type Entity Sukuk-II Sukuk-III
Current
(03-Dec-2016-)
Previous
(08-Dec-2015)
Current
(03-Dec-2016)
Previous
(08-Dec-2015)
Current
(03-Dec-2016)
Previous
(06-Oct-2016)
 Action Upgrade Upgrade Upgrade Upgrade Upgrade Initial
 Long Term A+ A A+ A A+  A
 Short Term A1 A1
 Outlook Stable Stable  Stable Stable  Stable Stable
 Rating Watch - - - - - -

The ratings reflect PEL's strong business profile in its respective markets - Appliances and Power - supplemented by its strong brand. The Company, while aiming to diversify its product base, has continued focus on improving quality and cost efficiency in its key revenue generating products. This resulted in higher sales volumes. The performance of the Company is well supported by healthy business margins. Improved profitability, in turn cash flows strengthened the Company's debt servicing ability; thus risk absorption capacity has beefed up. The company has relatively high working capital needs emanating from long inventory and receivable cycle which expose the Company to financial risk. Lately, the management's focused efforts has provided relief and contained respective financial risk. Comfort is also drawn from sponsors' support to manage these needs (equity injection and retention of profits). Meanwhile, the Company has articulated an adequate debt management policy a) total debt would be restricted to 2.5 times of free cash flows [end-Sep16: 1.3] and b) short-term borrowings would not exceed 50% of net working capital needs [end-Sep16: 26%].

Ratings take in to account improving business dynamics in Appliances and Power segments apart from the company's strengthening business risk profile. Meanwhile, close monitoring of working capital requirements and debt servicing capacity remain imperative to maintain the company's financial health; wherein, any deterioration would have negative implications.
About the Entity
PEL, incorporated in 1956, is listed on Pakistan Stock Exchange. The Company is principally engaged in manufacturing and sale of electrical equipment and home appliances. The Company is majorly owned (~51%) by Saigol Group. Other interests of the group include power, textile, and real estate. Mr. Naseem Saigol is the non-executive chairman of the eleven member board, which includes four members of Saigol family and five representatives of financial institutions. Mr. Murad Saigol, who has been with PEL since 2005, has been elevated as the Chief Executive Officer in 2015. He is supported by an experienced and stable management team.

About the Instrument
Sukuk II was issued in Mar08 for PKR 1,100mln. The instrument has a life till March 2019 with 14 equal quarterly installments outstanding. The profit on issue, payable quarterly, is at 3M Kibor + 100bps. As of Nov16, ~PKR 688mln is outstanding.
PEL’s Privately Placed Sukuk, having tenor of fifteen months, carries a profit rate of 3 months KIBOR plus 2.5%. Issued on 25th August 2016, the redemption will be at face value at the time of maturity on 24th November 2017 and profit payments are quarterly. PPS is secured against ranking charge over current assets of the issuer with 25% margin to be upgraded to first pari passu hypothecation charge within 180 days from the date of issuance. The Company, with adequate liquidity profile, retains ability to ensure timely redemption.
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.
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