Pak Elektron steady in 2016

Pak Elektron Limited (PSX: PAEL) full-year 2016 earnings (EPS) clocked in at 7.51 rupees up an impressive 14 percent compared to the previous year. The result was accompanied with a dividend of 1.75 rupees which took the total pay-out for the year to 3 rupees.

The top-line of the company showed growth of about 7 percent largely due to the uptick in consumer demand for appliances and improved performance from power division as transformer sales picked up due to nationwide expansion of transmission network.

During the year, the company introduced new variants of refrigerators such as glass door and air conditioners. Apart from that microwave ovens and water dispenses were also launched to provide a complete range of products.

During Q4 the net sales of the company went down by 30 percent as hefty discounts in appliances segment and decline in transformer sales. Competition from local and imported Chinese white goods is increasing and the company is starting to feel the heat.

On the margins side, there was an overall improvement. Gross margins improved on yearly basis by 100bps because of lower raw material cost. Prices of aluminium, copper and steel all went down during the year which supported the margins. The net margin of the company improved by 300bps largely due to the decline in finance cost and a lower tax rate.

On the expense side, distribution cost went up by 22 percent as spending on promotions and advertising increased. During the year, the company rolled out new advertisements which have been running throughout during prime-time.

After the announcement of the result, the share price of (PSX: PAEL) went down by 1.53 percent and closed at 85.80 rupees. The stock after underperforming during the last one year recently got attention of investors and has had a decent run-up during the last few weeks leading up to the announcement.

Looking forward, Pak Elektron needs step up its game in face of stiff competition coming in from local and imported products in the appliances segment. Input costs at the back end of the year have also started to rise which will put margins under pressure in 2017. A weaker rupee could also have a hit on the margins of the company. The power division of the company should continue to the support the top-line in wake of upcoming power-projects and upgradation of transmission lines in the country.