PACRA Maintains the Entity Ratings of Pakistan Oxygen Limited

The ratings reflect the eminent position of Pakistan Oxygen Limited (“the Company” or “POL”) in the industrial & medical gases, welding, hard goods & Medical Engineering Services (MES) segments. POL possesses the largest footprint and customer outreach in the oligopolistic Industrial and Medical gases industry. The electrodes market comprises Tier-I, Tier-II & Tier-III segments. POL is the leader in the Tier-I category besides having a prominent presence in the other two primarily unorganized segments. During CY23, The country faced numerous macroeconomic challenges resulting in stagnation in GDP growth, high inflation, and elevated interest rates that engulfed the growth trajectory of many industrial sectors. Resultantly, the demand from the steel, automotive, and shipbreaking industries remained weak. However, POL recorded ~18% growth in the topline contributed by price adjustment and an incline in the sales in the healthcare, industrial gases, and hard goods segments signifying POL’s broad customer base across a wide spectrum of industries. The massive hike in energy prices remains one of the key challenges to the industry as it constitutes a significant portion of COGS. To cater to this, the Company has successfully commissioned its new state-of-the-art 270TPD Air Separation Unit (ASU) and a new electrode plant of 11TPS to meet the demand for industrial/medical gases and all tiers of the electrode market segments, respectively with better specific power consumption technology. Improved efficiencies from the new plants have also contributed towards the improvement in the profitability matrix of the company as reflected by the GP margin of ~25.9% during 1QCY24 (~18.2%, CY23: 18.2%, CY22) considering an exorbitant increase in the energy costs during the year. An improvement in the Net Profit Margin was observed during 1QCY24 as it was recorded at ~6.5% after a significant dilution to ~1.7% during CY23 owing to a significant increase of ~229% in the finance costs of the company. POL benefits from a strong governance structure which Is augmented by skilled and professional management. The financial risk profile of the Company is characterized by a slightly stretched working capital cycle and adequate coverages. The Capital structure is leveraged where borrowings are dominated by LTBs to facilitate capacity expansion and BMR the Company has also availed a subsidized long-term borrowing facility (TERF). Going forward, the Company is expected to benefit from the reduction in interest rates and its efforts to increase its cost efficiency and export portfolio.
The ratings are dependent on the Company's ability to sustain its market share by effectively utilizing its production capacity. At the same time, sustainability in the growth trajectory and profitability matrix along with the efficient management of financial risk, particularly debt coverages, remains important.

About the Entity
Pakistan Oxygen Limited, incorporated in 1949 and listed on Pakistan Stock Exchange in 1958, is engaged in the manufacturing of industrial and medical gases, welding electrodes and marketing of medical equipment. Mr. Siraj Dadabhoy is the major beneficial shareholder. POL’s ten-member board consists of six non-executive and four independent directors. Mr. Waqar A. Malik is Chairman of the board and Mr. Matin Amjad holds the office of CEO.