PACRA Maintains Entity Ratings of Descon Oxychem Limited
Descon Oxychem Limited (‘DOL’ or ‘the Company’) is primarily engaged in the manufacturing, procurement and sale of Hydrogen Peroxide (H2O2) & allied products having variety of applications in multiple sectors (including textile, mining, pulp & paper, water treatment, sugar, food & beverages). The ratings reflect Company’s leading position in the local H2O2 market, underpinned by solid sponsorship background and propitious clientele base. Pakistan’s H2O2 industry shown progress as application of definitive anti-dumping duty offers enabling environment to local producers. The industry is dominated by mainly two players catering ~60% of local market demand. The cost break up is dominated by natural gas and power expenses, thus industry’s reliance on the production process generates risk as prices remain volatile, yet holds the ability to pass on hikes. Hydrogen Peroxide primarily derives its demand from textile consumers . DOL manages to augment its revenue position by using state-of-the-art technology plant, efficient production processes, and strengthening its footprint; predominantly in the higher profitability region. Over the years, the Company has made considerable volumetric growth as import substitution is being encouraged coupled with weak competitive landscape. At end of Mar’23, DOL recorded historic sales at PKR 5.18bln whereas bottom-line stood at PKR 1.30bln. The key opportunity is generically available to the Company if investments are made in terms of serving more demand from local market. DOL has potential to earn high margins by moving towards specialized products (cosmetics, poultry, livestock, & sugar). With increased share of exports, the Company intends to create a natural hedge against price depression in the local market. Financial risk profile of the Company remains good characterized by efficient working capital management and strong coverages. DOL’s capital structure is low leveraged; encompassed STBs and solid equity base. Ratings draw comfort from DOL’s association with the financially sound and experienced business group - DESCON. Going forward, the Company intends to materialize the envisaged strategies by strong oversight of risk, compliance and code of corporate governance.
The ratings are dependent on the DOL’s ability to retain its position amidst changing business environment and management’s ability for successful strategy execution by tapping new segments. Timely translation of the expansion into better profitability would positively impact the ratings. With growth in DOL’s revenue; prudent financial performance, strong coverages and effective liquidity profile shall remain imperative.
Descon Oxychem Limited, incorporated in 2004, is a listed concern engaged in the production and sale of Hydrogen Peroxide. The Company started its commercial production in Mar 09. Descon Group, the principal sponsor of Descon Oxychem, holds majority shareholding 72.63% through associated companies while 27.37% stake rests with the general public and financial institutions. Descon Group has strong foothold in engineering business through its flagship company – Descon Engineering Limited. The Group, over the years, has expanded its horizons beyond Pakistan, particularly in the Middle East.
The Company’s Board, comprising eight-members, is dominated by representatives of Descon Group. Mr. Taimur Dawood is the Chairman of the Board while Mr. Muhammad Mohsin Zia is the CEO of the Company. He holds relevant industry experience of more than two decades.