PAK Elektron Limited will raise Rs995.36m in equity through a fresh issue of 25pc right shares during 2016, a company announcement said early this month.
This will be the third such issue since 2013 as the country’s leading producer of capital goods and home appliances positions itself to grab huge business opportunities generated by the government’s focus on building power generation and distribution infrastructure, and the increased consumer spending on the back of an improved economy.
PEL has already raised Rs3.88bn in equity in 2013 and 2014.The new right share issue will raise the company’s paid up capital to Rs4.97bn from the present Rs3.98bn.
The firm has already raised Rs3.88bn in equity in 2013 and 2014. The new right share issue will raise the company’s paid up capital to Rs4.97bn from Rs3.98bn
The right share issue, according to the firm’s management, will help it reduce its debt and financial cost, strengthen its working capital requirement and equity, improve liquidity and grow the business.The money to be raised will be used for working capital requirements of the firm.
The new right share issue will carry a premium of Rs30 per share, indicating the shareholders’ confidence in the manufacturers of capital goods like power and distribution transformers, switch gears, energy meters, deep freezers, refrigerators, split air-conditioners, microwave ovens, etc that had suffered a significant loss of Rs1.8bn in 2011.
The first right issue worth Rs1.828bn carried a premium of just Rs2.5 per share in 2013. The second successive right shares issue of Rs2.064b was sold at a premium of Rs10 per share as the company’s profits started soaring.
“The company has performed very well in the last three years. It is now on its way to consolidate the gains it has made in the last three years (after recovering from the losses) and take advantage of the future opportunities,” argued a Lahore-based stock market analyst.
PEL’s profits after tax have soared by 65pc to a record Rs2.66bn during the first nine months of last year to September — much better than the whole-year profit for the last year — on the back of almost 19pc increase in its gross sales revenues to just under Rs22bn.
The firm — also an EPC (engineering, procurement and construction) contractor since 2006 — was able to first quickly multiply its after-tax profits to Rs2.24bn in 2014 from Rs607m only a year ago.
The spike in profits in the last two years is attributed to improvement in demand of capital goods and domestic appliances the company makes on the back of improved economic fundamentals, stable rupee, low inflation, better margins on domestic appliances, and sharp reduction in global oil prices, as well as the firm’s ability to cut its costs, improve technology, undertake R&D to improve the quality of products, and pursue aggressive marketing strategy to boost sales.
In addition to boosting its share in the domestic market, PEL has also been working to increase its overseas presence. In the annual report for 2014, the company’s directors had informed the shareholders that the firm is making “deeper inroads into foreign markets. After successful introduction into the Saudi Electricity Company, the firm is gaining ground in export markets in the Middle East, Africa, and Central Asia, with a special focus on Afghanistan.”
Analysts are of the view that the sales projection the firm’s management had made for the next three years to 2018 reflected its confidence. The company has projected its sales to grow from Rs37.31b this year to above Rs45b by 2018 and profits to Rs4.56b.
“The projections are apparently made on the expectations that the government will continue to invest heavily in power generation and distribution network to cut blackouts before the next polls in the country,” an analyst explained.
Besides, he added, the demand for home appliances is expected to boost quickly with a faster growth of the construction industry — especially the housing sector — as the economy expands. “PEL, a leading electrical equipment supplier to both public and private power companies, is a major beneficiary of the government’s agenda of controlling energy crisis. Unless government shelves its power projects and people stop investing in housing, there will be no stopping the company from achieving its financial projections — however unrealistic they might appear to some people — of sales and profits,” he concluded.
Published in Dawn, Business & Finance weekly, January 18th, 2016