PAK Elektron Limited holds Rs32bn in assets, which are deployed in two principal lines of business that some believe are poles apart.
The first is the appliances division, which produces refrigerators, air conditioners, microwave ovens, water dispensers and deep freezers. And the second is the power division, which is in the business of producing and selling distribution and power transformers, energy meters and switchgears.
Many sector watchers feel that the company — the largest producer in the power segment — would stand tall among competitors due to two recent developments: the planned privatisation of the Heavy Electrical Complex (HEC), and the sale of Siemens Pakistan’s transformer business to a foreign buyer.
The HEC requires massive overhauling, while the Siemens transformer buyer is yet to announce the company’s strategy. These developments will provide Pak Elektron (PEL) enough time to consolidate its market position.
PEL reported a profit-after-tax of Rs2.241bn for calendar year 2014, a quantum jump from earnings of Rs607m the previous year. This came on the back of a 28pc jump in sales to Rs24.1bn, from Rs18.9bn.
Its directors told shareholders in their annual report that the company is “back on track, from recovery to progress”.
While it retained all of the profit and skipped paying a dividend to consolidate reserves, PEL’s stock has managed to command investors’ interest and generally attracts a fairly high trade volume. Last Thursday, it closed at Rs64.75 a share. Same time a year ago, the stock was trading at Rs26.60 — providing a return of 143pc in a year.
PEL is believed to be a major beneficiary of the government’s agenda of alleviating the energy crisis, and its power division is all set to meet the upcoming infrastructure development requirements following improved power supplies in the country
The company’s paid-up capital stood at Rs57.8bn by end-2014, with its directors, CEO and family members holding 57.8pc of the equity. Around 24pc of the company’s shares was vested with the general public, a refreshing departure from the practice of most managements and sponsors leaving a pittance of free-float for the public.
The directors attributed the improved financial performance in the year to improved margins in domestic appliances “as a result of the company’s efforts to improve product features in operational as well as aesthetic terms, bringing cost efficiencies and improving productivity”. Appliance sales grew 41pc during the year, contributing 50pc to the company’s bottom line and 57pc to overall sales.
Refrigerators are the company’s mainstay, with sales rising 32pc in 2014; PEL has a 28pc market share in this category.
“An essential item of use for every household and with the rise in prosperity, especially in rural areas, the demand for refrigerators is surging,” the directors informed. In deep freezers, the company caters to corporate customers like Unilever (Wall’s), Engro Foods (Omoré) and Pakistan Dairy Products (Igloo).
The company also restarted the production of microwave ovens and split air conditioners, with the directors promising addition of more products to its range in the future.
In the power division, the company managed to grow its sales by 16pc despite having faced a slowdown in orders from distribution companies. PEL is a major electrical-equipment supplier to Wapda and K-Electric. This was compensated by an increase in sales of transformers to the private sector.
The directors also informed stakeholders that the company is making deeper inroads into foreign markets. “After successful introduction into the Saudi Electricity Company, PEL is gaining ground in export markets in the Middle East, Africa and Central Asia, with a special focus on Afghanistan”.
In switchgear, significant improvement was witnessed due to an increase in housing activities, in addition to a surge in new orders from industry.
In a recent report, Arif Habib Limited analysts mentioned a number of factors favouring the company. These included the power division’s growing market share, healthy gross margins driven by the home appliances segment amid its rebranding, favourable duty structure, deleveraging of the balance sheet, and the company turning into a Shariah-compliant entity. It stands as a Shariah-compliant company, as it fulfils the six pre-defined mandatory Shariah requirements, according to its balance sheet.
PEL is believed to be a major beneficiary of the government’s agenda of alleviating the energy crisis, and its power division is all set to meet the upcoming infrastructure development requirements following improved power supplies in the country.
With regards to future prospects, the company’s directors asserted that “both margins and market sizes of appliances products are expected to grow further. The appliances division has not only regained its market share but is also determined to consolidate its position in the complete range of domestic appliances, in addition to further strengthening its market share in each product category”.
Published in Dawn, Economic & Business, April 20th , 2015
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