PACRA Assigns Positive Outlook to Entity Ratings of Descon Oxychem Limited

The ratings recognize the company's leading position in the local Hydrogen Peroxide market, supplemented by efficient production process, sound technological infrastructure, and effective control environment. Ratings also draw comfort from Descon Oxychem’s association with a financially sound and experienced business group - DESCON - which has continuously demonstrated support. One of the only two manufacturers in Pakistan market, Descon Oxychem has gradually strengthened its footprints; particularly in north region. Market Share enhanced considerably over the years solidifying Descon Oxychem's position as market leader. Related debt from financial institution has been repaid completely, while in Nov18, the company converted its preference shares into inter company loans. Capitalizing on available fiscal space, the company is poised to undertake expansion to increase capacity by 25%. The expansion will be financed mainly through debt, to the tune of PKR 1.1bln. Currently Free cashflows (FCFO) provides requisite cushion for the debt. Recently higher Hydrogen Peroxide prices in international markets have boded well as the company generated better cashflows and profitability. Sustainability of FCFO remains critical, going forward, keeping in view fluctuating nature of hydrogen peroxide international price trend, as well as moderate demand growth in local industry.

The ratings are dependent on improved competitiveness of the company. Timely execution of expansion plan and translation of the same into added profitability would impact positively on the ratings. Meanwhile smooth operations from current plant would remain important. Prudent management of debt matrix, keeping it conservative, shall be critical.

About the Entity
Descon Oxychem Limited (Descon Oxychem), incorporated in 2004, is listed on Pakistan Stock Exchange and produces Hydrogen Peroxide (H2O2). The plant started commercial production in Mar09. DESCON Group, the principal sponsor of Descon Oxychem, holds majority shareholding (~61%) through associated companies (~17%) and sponsoring family (~44%), while, 30% and 9% stake rests with general public and financial institutions, respectively. DESCON has footholds 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.

DOL's board, comprising eight-members, is dominated by representatives of DESCON. Mr. Taimur Dawood - is the Chairman of the board. Mr. Imran Qureshi is the newly appointed CEO of the company, joined DOL in May 2018. Mr. Imran Qureshi is foreign qualified, having overall experience of ~20 years in his portfolio. Capitalizing his experience amidst expansion plans would remain important.