By: Research Team
Pak Elektron Limited (PAEL) is not included in AZEE Universe but changing fundamentals warrant us to give recommendation on the scrip. PAEL is the pioneer manufacturer of electrical goods in Pakistan. The Company comprises of two divisions; each offering a wide range of products. Power division manufactures and distributes transformers, Energy Meters, Switchgears and Electrification works. Appliances division manufactures, assembles and distributes Refrigerators, Air Conditioners, Deep Freezers,Microwave Ovens and washing machines.
PAEL is expected to witnessed robust growth in profitability as its bottom line to rise by 241% to Rs 2,070 million (EPS: Rs 7.02) in CY14 compared to Rs 607 million (EPS: Rs4.04) in CY13. Phenomenal growth in earnings expected owing to improve gross margin, lower financing cost and better penetration of high margin products. TheAppliances Division and EPC Division performance was positively impacted as a consequence of growth across all segments and cost control measures. While the major driver remain higher gross margin of 40% against average gross margin during CY11 at 8%. Furthermore, there was improved capacity utilization, lower operating cost,improved Rupee USD parity and material cost reduction as a result of major R&D initiatives in our company’s main products.
The company in order to reduce its financial cost and to meet working capital requirements has announced a right issue of 35% at Rs 20/share amounting to Rs 2.06 billion.The funds generated though right issue would be utilized towards improvement of working capital. However it will dilute the earnings of the company therefore we have presented diluted earnings for CY14 in the below table.