Electrical Goods:- PAK ELEKTRON LIMITED - Analysis of Financial Statements Financial Year 2003 - Financial Year 2007
Pak Elektron Limited (PAEL or PEL) is the pioneer manufacturer of electrical goods in Pakistan. The company is listed on all the three stock exchanges of Pakistan. Its principal activity is manufacturing and sale of electrical capital goods and domestic appliances.
THE COMPANY COMPRISES TWO DIVISIONS:
-- Appliances Division (Air-conditioners, refrigerators and deep freezers, microwave ovens, colour televisions and washing machines)
-- Power Division (energy meters, transformers, switch gears, Kiosks, compact stations, shunt capacitor banks etc). Like the air-conditioner, PAEL's refrigerators are also in great demand. Currently, PAEL Crystal has 30% market share. PAEL deep-freezers are also the preferred choice of companies like Unilever.
In addition PAEL is one of the major electrical equipment suppliers to Water and Power Development Authority (WAPDA) and Karachi Electrical Supply Corporation (KESC), the largest power utilities in Pakistan.
Over the years, PAEL electrical equipment had been used in numerous power projects of national importance within Pakistan. PAEL was established in 1956 in technical collaboration with M/s AEG of Germany. In October 1978, the company bought by the Saigol Group of Companies, which runs under the name of "Kohinoor Industries Limited".
Since its inception, the company has always been contributing towards the advancement and development of the engineering sector in Pakistan by introducing a range of quality electrical equipments and home appliances and by producing hundreds of engineers, skilled workers and technicians through its apprenticeship schemes and training programmes.
In spite of stiff competition from emerging local and multinational brands, PAEL Group's appliances and electrical equipments have remained in the spotlight due to constant innovation. PAEL is synonymous with quality. Strategic partnership with multinationals of repute enabled the PAEL Group to incorporate new technologies into existing product ranges, thus giving the Pakistani market access to innovative, affordable and quality products.
FINANCIAL PERFORMANCE (FY03-FY07):
The company has achieved more than 25% growth for the sixth consecutive year. The consistent sales growth is observed across the product categories. During FY07, the company has shown progress by maintaining sustained growth momentum in sales and profit. Gross sales of Rs 13.077 billion from Rs 11.042 billion in the last year, with Rs 8.075 billion, Rs 6.077 billion and 3.983 billion in FY05, FY04 and FY03 respectively has shown a consistent growth.
Growth in sales and profit after tax in FY07 were 26% and 32% respectively. However, the robust sales growth was mitigated by high COGS as a result of which the gross profit margin remained flat. But, the overall profit margin was slightly higher than the previous year 2006, due to higher net profit. The ROE and ROA witnessed slight increase in the FY07 due to higher increase in profits compared to that in assets and equity base.
All the current ratios being less than 1 indicate that the company has higher portion of current liabilities over the years. The current ratio increased 2003 onwards but has decreased slightly from 0.69 to 0.61 in 2006.
This showed that company's current liabilities (mainly due to higher trade payables and short term borrowings) were rising far more than its current assets, reflecting a decline in the company's ability to pay-off its short-term obligations. But this is proved wrong by FY07 results in which the trend is opposite mainly due to reduction in current liabilities.
Quick ratio, a better measure of liquidity followed a trend similar to current ratios, first declining slightly in 2004 and then rising again in 2005, while suffering a slight fall in 2006. The drop can be attributed to the 54% increase in current liabilities as compared to just 24% increase in quick assets in that year. Just like CR, QR recovered again in FY07, mainly due to reduction in current liabilities.
Inventory Turnover (ITO) ratio depicts how quickly the company is able to sell off its inventory. ITO for PAEL has been rising until 2004, after which it declined in FY06 and later in FY07 by 22 days. The decline is to be explained by the proportionate increase in net sales being higher than the increase in average inventory kept by the company. This shows an efficiency of PAEL to quickly convert its inventory into sales.
Days sales outstanding (DSO) shows how quickly the company is able to collect the dues from its debtors. It should be enough for the company to avoid risks of bad debts. The trend line indicates a decline in this ratio in 2004 after which it's been on a constant rise but declined again in FY07, due to the proportionate increase in net sales being higher than that in trade debts (which have been doubling every year after 2004) indicating that the company is trying to mitigate the risk of debt evasion and reformulating its credit policy.
The operating cycle of PAEL hence showed a decline in FY04, FY06 and FY07 due to fall in DSO and ITO in the respective years. Also both TATO and sales/equity show a rising trend till FY06 on account of robust sales growth in last 4-5 years. Sales/equity remained flat in FY07 compared to increasing TATO because of greater increase in total equity base than in sales.
As far as debt management is concerned, both D/A and D/E ratios showed PAEL's greater reliance on debt financing rather than equity financing. The trend lines in particular show that D/A (0.63 to 0.69) ratio has remained almost stable over the years where as D/E ratio has decreased significantly (2.2 to 1.8 in FY07) owing to higher increase in equity base than total debt.
Also the proportionate increase in long term liabilities is greater than the modest increase in the equity base, (as further evident by the long term debt to equity ratio). The TIE ratio for PAEL has been on a rise till 2005 showing PAEL's increasing ability to cover its interest expenses.
However this ability declined in FY06 and remained flat in FY07 owing mainly to significantly lower interest expense compared to an increase in EBIT. Looking at this, we can that infer that the high interest rates are not having adverse impact on PAEL's operations and it is able to cover them efficiently.
The (P/E) ratio shows how much investors are willing to pay per rupee of the reported profits, depends on the company's price per share and its the earnings per share (EPS).
PAEL's EPS has been erratic driven mainly by any changes in company's number of shares and its net income. Consequently, the P/E ratio also followed an erratic trend driven by the increases in EPS and market price of its share. On comparison of the share price to performance with KSE 100 index we see it has outperformed the index till FY05 but later the trend was erratic.
Initially PAEL's book value per share was very high however 2004 onwards, the company's book value per share nose-dived on account of nearly 5 times increase in the number of shares compared to only a modest increase in total equity. It has now shown a consistent growth in recent years. The company has recommended a stock dividend (bonus shares) in FY07.
FUTURE OUTLOOK: Power division: In the current year 2006-07, demand for PAEL's products continued to grow mainly owing to need for strengthening power supply network and village electrification. Also increasing demand for switchgears, transformers etc and increased order booking of these goods would help boost sales.
The outlook for the power division especially looks bright with increased focus of the government on power projects, resulting into higher demand for PAEL's products by WAPDA and its distribution companies coupled with private sector clients. PAEL would also likely to benefit from this according to its market share.
PAEL has already made considerable investment in the expansion and modernisation of its manufacturing plant. In order to utilize its experience in this business for half a century and to target the upcoming opportunities, the Company has diversified into production of Power Transformers and Turnkey construction of Grid Stations.
It has successfully delivered first of its products in this area in the FY'07. These products will become an important source of revenue for the Company in the coming years This should result, in due course, in sound development of PAEL's business in the coming years.
Appliances division: With continued product improvement and deepening sales network through augmentation of consumer marketing PAEL hopes not only to maintain its present share but aims to enhance it by reinforcement through launch of additional products.
PAEL has planned to capture a greater share of the market in Microwave ovens, colour televisions and washing machines categories in the coming year. With improved marketing and sales strategy focused on reducing market credit, bringing uniformity in pricing structure and widening the dealers network, margins in this area are expected to improve.
Simultaneously, the progress on bringing cost efficiencies through innovative production processes, use of latest designs and testing equipments together with continuous training of personnel is continuing. Company now is well set to take advantage of its new sales strategy in the coming years.
Hence the economic future for PAEL seems brighter with many key indicators moving in a favorable direction. It is hoped that national economy will continue to grow and rising prosperity will bring expanding opportunities for the Engineering Industry and for PAEL.
=======================================================================================================
Pak Elektron Limited - Financials
=======================================================================================================
Balance Sheet 2003 2004 2005 2006 2007
-------------------------------------------------------------------------------------------------------
Property, plant and equipment 3,029,908 3,598,805 2,716,401 3,144,904 3,949,349
Intangible assets 249,880 602,465 591,440
Long-term investment 96,701 96,701 60,711 11,227 9,563
Long-term deposits 6,034 13,073 25,541 38,811 29,510
Total non-current assets 3,132,643 3,708,579 3,052,533 3,797,407 4,675,889
Stores, spares and loose tools 28,765 49,157 52,713 58,543 61,756
Stock-in-trade 817,285 1,309,131 1,963,765 2,576,026 3,062,221
Trade receivables 749,316 980,491 1,853,889 2,614,396 2,843,785
Total current assets 2,218,484 3,039,308 4,966,363 6,310,334 7,077,531
Total assets 5,351,127 6,747,887 8,018,896 10,107,741 11,753,420
Share capital and reserves
Share capital 189501.00 236876.00 1136194.00 1215873.00 1368591.00
Reserves 125100.00 77725.00 1167070.00 1467619.00 1733166.00
Retained earnings 204226.00 485946.00 - -
Total equity 518,827 800,547 2,303,264 2,683,492 3,101,757
Total non-current liabilities 880,008 1,114,892 936,500 911,821 2,303,878
Trade and other payables - - 836,697 1,599,580 1,062,073
Short-term running finances 1,132,927 1,897,577 2,879,827 3,795,340 4,475,884
Provision for taxation - - 8685 23,587
Proposed dividend - 23,688 - -
Total current liabilities 2467215 3256102 4290531 6048257 5178286
Total liablilities 3347223 4370994 5227031 6960078 7482164
Total equity and liabilities 5351127 6747887 8018896 10107741 11546779
-------------------------------------------------------------------------------------------------------
Income Statement 2003 2004 2005 2006 2007
-------------------------------------------------------------------------------------------------------
Net Sales 3,209,236 4,929,496 6,787,882 9,408,018 11,813,487
Cost of Goods Sold 2,382,619 3,859,115 5,298,489 7,360,351 9,283,623
Gross Profit 826,617 1,070,381 1,489,393 2,047,667 2,529,864
Selling, General and Admin. Expenses 299,542 443,013 688,024 852,894 945,537
EBIT 533,182 659,103 837,758 1,282,218 1,632,356
Interest Expense 349,388 379,001 450,888 742,130 937,109
Net Income Before Taxation 183,794 280,102 380,875 516,751 707,409
Net Income After Taxation 141,207 277,224 285,174 442,142 582,244
-------------------------------------------------------------------------------------------------------
PROFITABILITY RATIOS 2003 2004 2005 2006 2007
-------------------------------------------------------------------------------------------------------
Profit Margin 4.40% 5.62% 4.20 4.70% 4.93%
Gross profit margin 25.76% 21.71% 21.94 21.77% 21.42%
Return on Assets 2.64% 4.11% 3.56 4.37% 5.04%
Return on Equity 7.05% 11.66% 10.21 14.05% 14.32%
-------------------------------------------------------------------------------------------------------
LIQUIDITY RATIOS 2003 2004 2005 2006 2007
-------------------------------------------------------------------------------------------------------
Quick Ratio 0.56 0.52 0.69 0.61 0.83
Current Ratio 0.90 0.93 1.16 1.04 1.33
-------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT RATIOS 2003 2004 2005 2006 2007
-------------------------------------------------------------------------------------------------------
Inventory Turnover(Days) 94.91 99.20 106.95 100.81 78.38
Day Sales Outstanding (Days) 84.06 71.61 98.32 100.04 89.83
Operating cycle (Days) 178.96 170.80 205.27 200.85 168.21
Total Asset Turnover 0.60 0.73 0.85 0.93 1.02
Sales/Equity 1.60 2.07 2.43 2.99 2.91
-------------------------------------------------------------------------------------------------------
DEBT MANAGEMENT RATIOS 2003 2004 2005 2006 2007
-------------------------------------------------------------------------------------------------------
Debt to Asset 0.63 0.65 0.65 0.69 0.65
Debt to Equity Ratio 1.67 1.84 1.87 2.21 1.84
Long Term Debt to Equity(%) 0.44 0.47 0.34 0.29 0.57
Times Interest Earned 1.53 1.74 1.86 1.73 1.74
-------------------------------------------------------------------------------------------------------
MARKET RATIOS 2003 2004 2005 2006 2007
-------------------------------------------------------------------------------------------------------
Earning per share 5.96 11.70 4.27 5.79 6.65
Price/Earnings Ratio 12.91 4.57 14.87 5.13 10.90
Dividend per share 2.50 4.00 4.00 2.50 0.00
Book value per share 105.75 100.34 24.57 25.89 29.70
No of Shares issued (in thousands) 18950.10 23687.60 113619.40 121587.30 136859.10
Market prices(Year End) 76.93 53.45 63.50 29.70 72.46
=======================================================================================================
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
Comments
Comments are closed.