PACRA Maintains Entity Ratings of Descon Oxychem Limited

The ratings recognize Descon Oxychem’s leading position in the local Hydrogen Peroxide market, supplemented by efficient production processes, sound technological infrastructure and effective control environment. One of the only two manufacturers in Pakistan’s market, Descon Oxychem has gradually strengthened its footprint; particularly in the North region. Recent upturn in global HPO prices accompanied by Pakistan Rupee devaluation has boded well with the Company’s profitability. Meanwhile, financial risk profile remains strong characterized by efficient working capital management and strong cashflows. With expectation of continued growth in demand for HPO, the Company is presently undergoing 25% capacity expansion to be financed mainly by debt amounting to ~PKR 1.5bln. Timely execution of expansion and generation of incremental cash flows is critical to sustain higher level of leveraging. Ratings further draw comfort from Descon Oxychem’s association with a financially sound and experienced business group - DESCON - which has continuously demonstrated support.
The ratings are dependent on improved competitiveness of the company. Timely execution of expansion plan and translation of the same into improved 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, incorporated in 2004, is a listed concern engaged in the production of Hydrogen Peroxide (H2O2). The Company started commercial production in Mar09. Descon Group, the principal sponsor of Descon Oxychem, holds majority shareholding (~61%) through associated companies while 30% and 9% stake rests with general public and financial institutions, respectively. Descon Group 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.

Descon Oxychem’s Board, comprising eight-members, is dominated by representatives of Descon Group. Mr. Taimur Dawood is the Chairman of the Board while Mr. Imran Qureshi is the CEO of the Company. Mr. Imran Qureshi is foreign qualified, having overall experience of ~20 years in his portfolio. Capitalizing his experience amidst expansion plans would remain important.