Lahore, March 12, 2019 (PPI-OT): Industry headwinds, intensified by weakening domestic currency, widening fiscal imbalance and strong competition among players have negatively impacted domestic appliances industry. Pakistan’s household appliances sector is largely dependent on global raw material prices, making it susceptible to external dynamics. Challenging economic conditions and transition of current government have proved to be an impediment to power industry (transformers and switch gears) growth as well. This is reflected by lower production across major categories of household appliances and power during CY18. The highest impact was witnessed in refrigerator production which fell by 12% YoY, followed by television sets (-8%) and deep freezers (-5%).
The ratings reflect PEL’s diversified revenue stream and strong presence in Appliances and Power products market. The Company, by leveraging its brand, has continued to focus on enhancing product slate and revenues with introduction of new products (TV and Water Dispenser). However, strong competition and slowdown in Power division led to a decline in sales, in 9MCY18. The Company could not completely pass on the increased raw material costs, which squeezed its margin and impacted profitability.
The Company’s cash flows came under pressure and, coupled with larger quantum of borrowings, deteriorated coverage ratios. PEL’s capital structure is characterized by intermediate leverage due to new financing obtained to support higher inventory levels. High working capital needs, emanating from long inventory and receivable cycle, expose the company to financial risk. The Company is in the process of issuing a Commercial Paper to finance working capital requirements.
The ratings are dependent on the management’s ability to maintain its market share and margins. Any further deterioration in margins, in turn, profitability may impact the ratings adversely. Meanwhile, close monitoring of working capital requirements to improve cash cycle and debt servicing capacity remain imperative. Maintaining strong coverages and managing financial risk prudently is crucial for the ratings.
For more information, contact:
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Category: General Business News