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PAE


PAE operates broadly in the Auto and Power Systems industries.

The company restructured its activities recently to focus on five segments, which are – auto batteries, auto parts, industrial batteries, solar, and power backup systems.

The company has reported reasonably consistent pre-tax profits of 8 to 10cr on a somewhat stable revenue base of 250 to 260cr over the last five years except the last nine months when the higher than usual debt load transformed marginal operating profits into net losses – amounting to 4cr on a revenue base of about 190cr.  The debt load of over 48cr as at 30th September, 2011 appears dangerously high relative to operating performance but is covered by the enlarged working capital as at that date.

One of the key things to bear in mind about this company, which isn’t readily apparent from its form, is that it’s predominantly a trading operation with few (if any) manufacturing facilities.  Therefore, its products/services are generally low value-added and subject to intense competition in the marketplace, which are reflected in low profit margins.

Its auto batteries segment is characterised by low market share, heavy competition from the ‘unorganised’ sector (for price and terms), cost inflation, and credit risk with customers.

Its auto parts segment is similarly afflicted by high competition from the unorganised sector and low market share as well as supply of only a few product lines. Further, the auto replacement market is shrinking as a result of more durable originals.

The industrial batteries segment is being adversely impacted by the increased availability and reliability of power supplies.   The business is exposed to lead price increases and dependent on few suppliers in the market.   It is seasonal in nature and negatively impacted by low demand when power is abundant and short supply of products during peak demand.

The solar segment is capital intensive and requires large upfront costs to operate.  Furthermore, the market is highly fragmented with intense competition from a large number of small players. 

The power backup systems segment (including products such as inverters) is adversely impacted by the increasing prevalence of power-saving and energy-efficient products.  Increasing use of laptops also pose a threat to demand for the company’s UPS products.  Moreover, it is dependent on a few suppliers and also subject to government policies regulations on duties/taxes/imports etc.

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