Pent up demand and construction package to help Pak Elektron

Often, when it comes to companies, it helps to have a long-term view. Just because a company is doing very poorly right now, does not mean that it will not do better in the future, for reasons that may not seem even apparent right now. 

The same is true for Pak Elektron. At first glance, Pakistan’s terse macro conditions seem to have handicapped PEL’s consumer durables based investment case. This was true even before the Covid-19 led shutdowns that disrupted loperations. It resulted in very odd and divergent sales performance over the nine month period of calendar year 2020, with appliances increasing 33.8% years on year, but power sales falling 14.7% year on year.

And yet, according to Ali Poonawala, deputy head of research at AKD Research, in a note issued to clients on January 19, this is alright for now. That is because due to a “return to normal” outlook for consumer confidence, and increased purchasing powers for consumer due to lower interest rates: “we now find significant catalysts to accommodate a sustained uptick in power equipment revenue over our forecast horizon.”

First, let’s examine the scenario that PEL finds itself in. Initially, it seems that the year 2021 was going to solve our economic woes, and we would see pent up demand for household appliances and white goods. However, that is not exactly the case.