Pak Elektron Limited

Pak Elektron Limited (PSX: PAEL) is one of the biggest player in white goods sector of Pakistan. The company also has significant exposure in the power sector being a manufacturer of electrical equipment. The company started its operations in 1956 to manufacture motors, switchgear and transformers. Initially the company was setup by Malik Brother in technical collaboration with AEG of Germany. After a few years, AEG exited from Pakistan and sold their holdings. Pak Elektron was subsequently bought by the Saigol Group in 1978.
The company started manufacturing of air-conditioners in 1981 while manufacturing of refrigerators and deep freezers started in 1987. Production of electricity meters started in 1992 with assistance from IAR-SILTAL. 2006. The Company got listed on the stock exchange in 1988.
The power division of the company is very important considering the power sector situation in Pakistan. The country needs to expand and improve its existing network and that is where Pak Elektron's position becomes strong. Customers of the company include WAPDA, K-Electric, other DISCOs and private sector.
The appliances division of the company has also grown over the years catering to wide array of consumers in Pakistan. Domestic consumption of white goods is steadily going up every year. The competition is tough with various appliances makers gunning for the market share but Pak Elektron brand 'PEL' enjoys popularity among the masses.
Saigol Group is one of the oldest and biggest groups of Pakistan. The group is engaged in various other industries such as textile with Kohinoor Textile Mills (PSX: KTML), cement with Maple Leaf Cement (PSX: MLCF).
Historical Performance: Pak Elektron prior to 2014 was struggling and the company was dire straits because of higher interest rates, over leveraged balance sheet, commodity prices and sluggish domestic growth. In 2013, the company's revival started and in 2014 the revenue of the company grew by 30 percent. Net income of the company doubled during that year.
As commodity prices, especially steel and copper prices declined, the company was able to significantly push up its gross margins which went up to almost 31 percent in 2014 up 6 percent from the preceding year. From sales of 13.7 billion in 2011, Pak Elektron went to almost 30 billion in 2015.
Recent Performance 9MFY16: Pak Elektron in its announcement of third quarter results posted earnings of 6.05 rupees up 13 percent compared to previous year. The sales of the company went up by 19 percent as appliances and power division both showed growth.
The finance cost of the company came down as interest rates hit rock-bottom levels. The company also took benefit of tax rebates due to expansion done in previous year. This tax rebate brought effective tax rate of the company down to around 14 percent. The tax rate would get normalised in the coming year.
Share Price Performance: The share price of Pak Elektron (PSX: PAEL) has underperformed the benchmark KSE-100 index during the past one year. It is to be noted that PAEL stock outperformed during 2014 and early of 2015. The company had fantastic growth years from 2013 to 2015 which led to significant rally in the stock price. As the company took a breather to consolidate its growth, the stock price went down as it was trading at high price to earnings multiple.
Lately, the stock has seen renewed interest from local institutions and has rallied up. Going forward analysts believe that PAEL would regain its previous momentum and the price could reach new highs in 2017.
Shareholding Pattern: The Saigols specifically Mr Naseem Saigol and his wife Mrs. Amber Saigol hold majority of the shares in the company. The directors and their spouses combined own approximately 53 percent of the company. Local financial institutions own 16.9 percent. Over the last couple of years, the company has generated interest from foreign investors who own 7.39% percent of shares. The general public owns about 22% percent as per the 2015 annual filings by the company, which would be soon updated with the upcoming annual result.
Outlook: The outlook considering the product line of the company remains optimistic. The company is set to benefit from the growing middle class whose incomes are also rising and spending habits are changing. Appliances nowadays are a necessity in every home and office. The power division of the company will also remain in limelight as expansion in power sector is underway. Upcoming power plants, transmission lines, up-gradation of existing network will require equipment that Pak Elektron sells and the company would be bidding to get all these contracts.

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Pak Elektron 9MCY16 Snapshot

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PKR (mn)            9MCY15   9MCY16    YoY

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Net Sales           18,807   22,439    19%

Cost of Sales       12,688   15,649    23%

Gross Profit         6,119    6,790    11%

Operating Expense    1,540    1,956    27%

Other Income            26       29    10%

Other charges          109      155    42%

Finance cost         1,321    1,198    -9%

Profit before tax    3,174    3,509    11%

Taxation               510      503    -1%

Net Income           2,664    3,006    13%

EPS                   5.35     6.04    13%

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Source: Company Accounts

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Pattern of Shareholding (As of Dec 31, 2015)

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Shareholders with more than 5% shareholding

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Mr. M. Naseem Saigol                  99,924,572      25.10%

Mrs. Amber Haroon Saigol              81,783,627      20.54%

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Shareholding Pattern Directors and

their Spouses and minor Children      11,937,778      53.23%

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Mr. M. Naseem Saigol                  99,924,572      25.10%

Mr. M. Azam Saigol                     2,127,440       0.53%

Mr. Muhammad Murad Saigol                  9,937       0.00%

Mr. Muhammad Zeid Yousuf Saigol       11,799,967       2.96%

Mr. Haroon Ahmed Khan                      9,937       0.00%

Syed Manzar Hassan                         1,633       0.00%

Mr. Munaf Ibrahim                     12,511,950       3.14%

Mrs. Amber Haroon Saigol              81,783,627      20.54%

Mrs. Sehyr Saigol                      3,768,715       0.95%

Financial and Insurance Companies     67,266,904      16.90%

Foreign Shareholding                  29,426,171       7.39%

General Public and Others             89,514,335      22.48%

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