Pak Elektron (PAEL) plans to export its power division products to the USA. The company’s current exports stand at US$5mn, and the target is to increase exports multiple times from 2025 onwards. Exports would fetch better margins for the company compared to domestic sales and would have an average cash cycle of 60 days. The duty on Chinese imports into the USA is 25%, which would benefit PAEL in penetrating that market for exports.
§ In 1H2024, Net revenue of PAEL increased by 45% YoY to Rs30.08bn. Growth has been achieved due to higher volumetric sales and increased prices. For example, in 2023, 160k Refrigerators were sold; in 2024, based on a year run rate, the company is targeting 210k sales.
§ In 2024, the average prices of refrigerators/Freezers, Air Conditioners, Water Dispensers, Washing Machines, and LEDs increased by 16.7%, 28.6%, 33.5%, 21.5%, and 42.8% to Rs72.5k, Rs145.2k, Rs34.8k, Rs30.4k, and Rs50.9k, respectively.
§ Power Transformer, Distribution Transformer, Switch Gear, and Energy Meter average prices have increased to Rs228mn, Rs663.9k, Rs2.5mn, Rs6.7k in 2024 compared to Rs193mn, Rs594.1k, Rs2.17mn and Rs5.6k in 2023.
§ PAEL would benefit from the recent reduction in flat steel prices. This raw material constitutes 5-10% of the cost of appliances and would lead to better margins. Other raw materials for the company include Plastic, Oil, Copper, and Compressors.
§ On average, 40% and 70% of raw materials are imported for the Power and Appliances division. This varies across PAEL products.
§ Reduction of interest rates would be positive for the company. Every 1% decrease in rates would decrease financial charges by Rs160mn.
§ Preference shares are convertible at an 8.5% rate, and conversion would be at a discount of 32.5% to market value.
§ PAEL used to avail of tax credit till 2019 under section 65E of the income tax ordinance. After its expiry, the company faced a higher effective tax rate due to the impact of deferred taxation. This would be normalized by 2025 and onwards, whereby taxation would be a Normal Tax of 39% (29% Corporate, 10% Super Tax).
§ Company is trading at 2025F PE of 5.0x compared to last year 10-year average PE of 9.6x.
Courtesy – Topline Pakistan Research
