One of Pakistan’s leading appliance-makers is having yet another good year. Pak Electron Limited (PSX: PAEL) is continuing its run of double-digit top line growth seen in recent years. And now in the six-month period ended June 30, 2017, PAEL achieved a 28 percent growth in gross revenue, which hit a six-month high of Rs25.8 billion. During 2QCY17 as well, the firm showed a 14 percent growth in the top line.

The Lahore-based firm, which markets its appliances under the brand name PEL, has seen a remarkable turnaround since CY11. At the start of the decade, both its top revenue segments – appliances division and power division – were under pressure as power crisis worsened and per capita GDP growth slowed significantly.

But the 61-year old firm weathered the storm and came back strongly, starting in 2014. PAEL has been on a growth trajectory as power crises has eased and domestic retail economy has surged in recent years. In CY16, the Saigol Group subsidiary amassed all-time high top line of Rs36 billion (up 16% YoY), which, thanks to operational efficiencies, culminated in a record bottom line of Rs3.6 billion (up 27% YoY).

The 1HCY17 top line fillip growth is expected to have come about mainly from the appliance division, which deals with manufacturing and sale of refrigerators, deep freezers, microwave ovens, air conditioners and other home appliances. Back in CY16, this division’s gross sales grew by 29 percent year-on-year, providing some 57 percent of PAEL revenues.

Within appliances, growth is mainly led by the energy-saving ‘PEL inverter series’ product variants in both air-conditioners and refrigerators. Besides, the firm has been making investments its distribution network and undertaking marketing interventions to grow market share. (For more on the electronics market, read “Electronics: powered on” published in this column on August 3, 2017).

PAEL’s power division – which manufactures and sells electrical capital equipment such as transformers, switch gears, energy meters, besides bidding for EPC contracts and construction of grid stations and electrification works – has been a bit of a laggard lately. The division’s gross sales grew at only 3 percent year-on-year in CY16.

And in 1HCY17, too, the division has presumably grown slowly, apparently due to delay in projects from Wapda and power distribution companies. In the long run, the firm’s market standing allows it to competitively participate in projects dealing with modernization of Pakistan’s power production, transmission and distribution infrastructure, both within and outside the scope of CPEC energy projects. During the half-yearly period, PAEL’s bulky cost of sales remained in check, as did the administrative expenses. Distribution costs went up by a third, which is understandable in light of expanding market footprint. Thanks to low interest rates, finance costs also cooled on a year-on-year basis. Thanks to such savings, PAEL closed its 1HCY17 consolidated accounts with a proportionally-higher 21 percent expansion in net profits.

While PAEL looks set to close CY17, too, on a high, it better hope that the second quarter’s top line slowdown (up 14% YoY, compared to 1QCY17 growth of 52% YoY) and 8 percent lower operating profit turns out to be an aberration. As the summer season winds down, the appliances’ sales will flat line. It will be good for PAEL’s year-end financials if the anticipated power-sector contracts start to materialize.

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Pak Elektron: latest financials (consolidated)


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Rs (mn)                                1HCY17     1HCY16    YoY chg


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Net sales                              19,362     16,786        15%


Cost of sales                          13,452     11,734        15%


Gross profit                            5,910      5,052        17%


Operating expenses                      1,951      1,550        26%


Other income                               15         22       -32%


Operating profit                        3,974      3,524        13%


Finance cost                              724        821       -12%


Share of profit/(loss) of association   0.462     -1.196       139%


Profit before tax                       3,250      2,701        20%


Taxation                                  519        436        19%


Net income                              2,731      2,265        21%


EPS - Rs                                 5.44       4.79        14%


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