Descon Oxychem Limited (hereinafter referred to as “DOL” or “the Company”) is a public listed entity incorporated under the Companies Ordinance, 1984 (now “Companies Act, 2017”). Its registered office is located at 18-KM Ferozepur Road, Lahore. DOL has free float shares of 30% as of May 2026. The share price remained between ~PKR 25.37 and ~PKR 28.84 during the period under review.

Descon Oxychem was incorporated as a private limited company in 2004 and was listed on September 15, 2008. It is a project of the Descon Group. The Company is a subsidiary of DEL Chemicals (Private) Limited (the parent company), an unlisted private company incorporated in Pakistan. Following commissioning in October 2008, the Company’s plant started commercial production in March 2009. The Company has also incorporated a wholly owned subsidiary, “Descon Oxychem FZE,” in the Hamriyah Free Zone, Sharjah, UAE, that is engaged in the import, export, and trade of chemicals & related products, detergents & disinfectants, water treatment & purification chemicals, and raw materials.

The prime business of Descon Oxychem is the manufacturing & distribution of Hydrogen Peroxide (HPO) of up to 60% concentration. Descon Oxychem has launched its brands for different grades of Hydrogen Peroxide with different concentration levels including: i) Technical Grade, ii) Aseptic Grade, and iii) Food Grade. Product mix remains concentrated in technical-grade HPO; Food Grade contributes a relatively small revenue share despite its higher margin profile, limiting near-term earnings diversification. DOL’s production facility is located at 18-KM Lahore Sheikhupura Road, consisting of an HPO plant and a Hydrogen plant. The Hydrogen plant, is capable of producing hydrogen sufficient for two-fold expansion of HPO facility. Descon Oxychem has technical collaboration with Chematur Engineering Sweden, a well-known engineering firm that has delivered more than 1,100 different chemical industrial plants worldwide. It has provided detailed engineering for construction of HPO plant to Descon Engineering Limited (Flagship Company of the Descon Group) and assisted in the plant’s commissioning. The Company’s installed capacity of HPO stands at ~42,000 MT per annum at 100% concentration (~21,000 MT per annum at 50% basis). In FY25, Descon Oxychem achieved production of ~42,420 MT, and continued near-full utilization in 6MFY26 with 21,329 MT produced, indicating that the volume base has remained broadly intact.

The principal sponsor of Descon Oxychem holds a majority shareholding of ~72.63% through associated companies while the remaining ~27.37% stake rests with the financial institutions and the general public.

The transfer of the Company's ownership to a holding company provides clarity to Descon Oxychem’s ownership structure, boding well for its stability.

Originating from Pakistan, the Descon Group has, over the years, expanded its horizons to Abu Dhabi, Saudi Arabia, Qatar, Oman and Egypt. With presence in the chemical sector since 1980, Descon Oxychem is well placed to benefit from the Group’s technical knowledge, vast distribution network and established relationship with clients. Mr. Abdul Razak Dawood, former Advisor to Ex-Prime Minister Imran Khan for Commerce, Textile, Industry and Production of Pakistan, was founder and former Chairman of the Descon Group. Now, Mr. Taimur Dawood, son of Mr. Abdul Razak Dawood, leads the Group. The Dawoods are one of the well-known business families of the country and known for their business acumen.

Descon Group has expanded its footing in diversified business avenues with a sizable portfolio of strategic investments, enhancing the Group’s financial strength. Its business portfolio spans across various sectors including engineering, power and chemicals. The Group aims for sustainable profitability of its business ventures while expanding its outreach globally through timely exploitation of business opportunities. The Group has shown willingness and ability to support the Group companies in times of need.

The Company’s board comprises eight members including five non-executive, two independent directors, and one executive who also serves as the CEO. Descon Oxychem's board structure is considered strong.

Descon Oxychem’s board comprises highly qualified members and has a blend of business studies, engineering, and finance professionals. The Chairman, Mr. Faisal Dawood holds a Bachelors degree in Materials Science and Engineering from Cornwell University and an MBA from Columbia University. He has served at multiple management positions within the engineering and chemical divisions of the Descon Group and currently also serves as the Vice-Chairman of Descon Engineering. Furthermore, Mr. Taimur Dawood has over 20 years of diversified experience in engineering, product marketing, project finance, strategy development and implementation and mergers and acquisitions. He is serving as Chairman of other Descon Group companies including Descon Engineering Limited and Descon Power Solutions (Pvt.) Limited. He is also the Managing Director of Gray Mackenzie Engineering Services BV, the Netherlands. From 2001 to 2011, Mr. Taimur served as the CEO of Descon Chemicals. The other directors of the Company hold senior positions in associated companies and serve on the Boards of other Group companies. They further strengthen the Board with their diverse professional backgrounds and extensive expertise.

Meeting agendas provided to Board members and documentation of meeting minutes remain strong. The Board further ensures effective governance through four committees, namely: i) Enterprise Risk Management Committee, ii) Audit Committee, iii) Human Resource & Remuneration Committee and iv) Compliance Committee. The Audit Committee is chaired by a non-executive Director. The Board also ensures strong monitoring and control through monthly meetings with management – conducted by nominated Board members. Prior to this meeting, MIS reports are sent to all Board members and a thorough discussion is held on key performance areas. This bodes well for the Board’s effectiveness.

M/s Crowe Hussain Chaudhury & Co., listed in Category “A” of the State Bank’s panel of auditors, is the external auditor of the Company. The auditors have reviewed the Company’s financial statements for the period ended March 30, 2026. Meanwhile, public disclosures remain strong. The Company has outsourced its internal audit function to KPMG Taseer Hadi & Co., also listed in Category “A” of the State Bank’s panel of auditors.

The Company operates through seven functional departments, each headed by an experienced manager. The departments include: i) Plant Management, ii) Investments, iii) Marketing & Sales – North & South, iv) Finance & Accounts, v) Human Resource, vi) Quality & Assurance and vii) Sourcing & Planning. All departmentheads/managers’ report directly to the CEO. In order to rationalize costs some business functions (IT, HR and Accounting & Finance) are shared at Group level. Currently, all key positions within the organization are fully staffed, reflecting the Company’s commitment to maintaining a robust and efficient workforce.

Mr. Yasir Siddique Sheikh is currently serving as the CEO of Descon Oxychem, appointed in 2025. He is a seasoned business leader with over two decades of experience across engineering, finance, and technology, currently serving as CEO of Descon Oxychem Limited. He previously held senior roles at Descon Engineering, including CFO and Head of Functional Services, where he drove financial optimization and integrated core functions to support growth. His earlier experience includes corporate banking roles at HSBC and HBL, and a start in software engineering at Techlogix. He holds an MBA and a B.Sc. (Hons.) in Computer Science from LUMS and brings a strong focus on value creation and sustainable growth. He is assisted by a team of experienced and seasoned professionals, including the CFO, Ms. Rabia Shoaib, a qualified Chartered Accountant, who joined the Descon Group in 2022. With over 18 years of experience across multiple finance domains, she brings expertise in project control, stakeholder management, and financial operations.

Descon Oxychem’s senior management receives daily performance reports of the plant’s operations which results in optimal monitoring. While there are no formal management committees, key management personnel meet on daily and weekly basis to discuss key issues. Furthermore, there are regular need-based meetings for discussion of issues.

The Company has implemented R12 version of the Oracle E-business suite application, which is also used at other associated companies of Descon. The ERP solution is capable of generating various MIS related to production, inventory management, sales and trade receivables/payables. Oracle Financials, Manufacturing and Projects modules have been completely implemented. The implementation of the ERP system further strengthens the control environment of the Company due to in-built controls of the system, in addition to better reporting and increased efficiency due to automation of the business processes.

Years back, the Hydrogen peroxide (H2O2) as a relatively new product for the domestic chemical sector and owing to the initial setup arrangements with Chematur Engineering, Sweden; the technical specifications of Descon Oxychem’s plant appear sound. Regular visits by Chematur’s staff also ensure efficient capacity utilization and quality of final product. Descon Oxychem has been given the license to be sole operator of Chematur technology in Pakistan. The plant is highly automated and is operated by DCS (Digital Control System). It assists management in controlling and monitoring the production process and chemical levels. To improve operational reliability Descon Oxychem has built organizational capacity by implementing Quality hygiene Safety Model and Reliability Centre Management. Introduction of Reliability Centre Management has changed the perspective of Company’s operation from ‘fix it’ culture to ‘run it’ culture. This culture has helped Descon Oxychem to improve plant reliability significantly.

Pakistan’s HPO sector operates within a globally oversupplied commodity market, with worldwide demand of ~5.5–6.0mln MT (100% concentration basis) growing at 3–4% annually. China’s capacity exceeding 3.0mln MT sustains a structural surplus, keeping global prices suppressed and transmitting persistent downward pricing pressure to import-competitive markets such as Pakistan. Domestically, the market has transitioned from a monopoly to a two-player structure following Engro’s commissioning of a ~28,000 MT (50% concentration basis) plant in March 2025. Total domestic demand stands at ~100,000 MT (50% basis) under normal circumstances, with combined domestic supply now nearing full coverage. Geographically, the two players are structurally differentiated: Descon’s plant in central Punjab provides proximity to the country’s core textile manufacturing clusters, supporting lower inland freight costs and stronger customer integration, while Engro’s southern location offers logistical proximity to port infrastructure, favouring cost efficiencies in import substitution and southern market access. This freight differential defines the primary competitive boundary between the two producers. Beyond the technical-grade segment, Descon retains a relative advantage in higher-margin Aseptic and Food Grade segments, where product quality requirements and customer specifications limit substitutability.

Imports represent the most critical and continuous competitive threat facing domestic producers. Bangladesh has emerged as a particularly disruptive source, with structurally lower energy costs, efficient port logistics, and a lean manufacturing base enabling HPO supply at landed costs that approach or undercut domestic variable cost levels. This cost advantage is materially amplified by Pakistan's Export Finance Scheme (EFS), which allows importers to access concessional financing, effectively subsidising import procurement and further compressing the price at which foreign HPO enters the domestic market. The combined effect renders import-origin HPO artificially cost-competitive against domestically produced volumes, disproportionately pressuring margins in the technical-grade segment. While anti-dumping duties offer some origin-specific protection, their scope remains narrow and fails to address the systemic pricing distortion introduced by EFS, leaving domestic producers structurally exposed to below-cost import competition.

Near-term pricing showed some recovery toward end-March 2026, as geopolitical disruptions in the Middle East caused temporary shipping delays and cost escalations for importers. This relief although not structural; however, remains contingent on geopolitical conditions because any easing of shipping disruptions could reverse this headroom rapidly. Over the medium term, sector dynamics are expected to gradually improve, supported by the NTC’s engagement on anti-dumping mechanisms, potential tightening of EFS applicability to chemical imports, and Sitara Peroxide’s continued absence from the market. Domestic demand is projected to grow at 5–7% per annum, driven by textile sector expansion and incremental HPO adoption in paper, food, and wastewater treatment applications.

Descon Oxychem remains Pakistan’s largest HPO producer with ~42,000 MT installed capacity, operating at near-full utilisation in FY25 and 6M FY26. Engro's entry in March 2025 (~15,000 MT technical-grade output) has largely displaced imports rather than directly eroding Descon's volumes. Combined domestic production now covers ~60% of estimated demand of ~100,000 MT, with imports filling the balance. Descon’s competitive durability rests on its Chematur (Sweden) technical collaboration, DCS-based automation, proximity to Punjab’s textile cluster, and 15+ years of institutional relationships across textile, mining, and food sectors, advantages a newly commissioned competitor has yet to replicate. These factors support customer retention in higher-specification segments, which carry stronger margins than commodity technical-grade products. Engro is a credible long-term competitor, leveraging port-based logistics, petrochemical integration, and southern market presence. Competitive pressure will intensify in the technical-grade segment as Engro ramps up, with the South as the primary contested geography. Descon’s edge lies in product breadth, established relationships, and northern market proximity; Engro’s in cost positioning and southern access. Sector-wide margin recovery hinges on import normalisation, correction of EFS-driven cost distortions, and demand absorption of incremental domestic supply.

During 9MFY26, the Company reported net sales of PKR 3,697mln, reflecting a decline of ~20.2% compared to PKR 4,631mln in the corresponding period of FY25. The decline in revenue is primarily attributable to reduced selling prices amid an influx of lower-priced imports, particularly from Bangladesh, which also exerted mild pressure on domestic market share. Despite these headwinds, volumetric performance remained largely stable, indicating resilience in customer retention and market positioning. The Company sustained its sales volumes and continued to serve its core customer base, reflecting the strength of its long-standing relationships and distribution network.

On a full-year basis, FY25 revenues stood at PKR 5,999mln (FY24: PKR 5,738mln), reflecting a modest recovery due to its sole producer status. The Company’s product mix remains concentrated in technical-grade hydrogen peroxide, while food-grade HPO, though a higher-value segment, currently contributes a relatively small share to overall revenues. Export revenues have shown gradual improvement, reaching PKR 325mln in 9MFY26 (FY25: PKR 305mln), supported by the Company’s expanding international footprint, including trading operations in the UAE. While exports remain a relatively small proportion of total sales, they provide an avenue for diversification and partial insulation from domestic pricing pressures.

Revenue composition continues to be skewed toward the domestic market, which accounts for ~91% of net revenues, with exports contributing ~8.8% in 9MFY26. The Company’s demand base remains concentrated in the textile sector, supplemented by exposure to food processing, mining, and select public sector entities, reflecting moderate sectoral concentration.

The Company’s profitability metrics contracted during 9MFY26, primarily reflecting adverse pricing dynamics and elevated energy costs. Gross margin declined to ~19.5%, compared to ~29.7% in FY25 (FY24: ~20.1%; FY23: ~41.0%), largely due to selling price pressure amid the influx of lower-priced imports, alongside higher feedstock costs. This compression at the gross level translated into a reduced operating margin of ~9% (FY25: ~22.2%; FY24: ~13.4%). Finance costs increased during the period, driven by higher reliance on short-term borrowings, which further weighed on bottom-line profitability. Consequently, net margin declined to ~8.6% in 9MFY26 (FY25: ~14.3%; FY23: ~20.8%), albeit remaining broadly in line with FY24 levels (~8.8%). Looking ahead, margin recovery is expected to be supported by the commissioning of a 2 MW solar power project in early 2026, which is projected to reduce power input costs by ~8%, partially offsetting energy-related pressures. Additionally, management anticipates gradual margin stabilization, supported by recent signs of price recovery toward the close of FY26.

Descon Oxychem’s sustainability profile reflects a company navigating a structural shift in its competitive environment while maintaining operational discipline and pursuing incremental efficiency gains. On the operational side, the Company completed its annual plant turnaround in March 2026 in 10.5 days, ahead of the planned 12-day schedule, reflecting improving maintenance protocols under its Reliability Centred Management framework, which has transitioned the plant’s maintenance culture from reactive to preventive over several years. The commissioning of a 2 MW solar power installation during FY26 is expected to reduce power input costs by approximately 8%, with a further expansion to 4 MW under consideration for the next phase. Given that energy constitutes ~20–25% of the cost of goods sold, sustained reduction in the power cost component carries meaningful margin implications and represents a credible self-help measure in an environment where selling price recovery remains uncertain. The medium-term sustainability of earnings is dependent on the operational factors including import threats through Bangladesh and Export Facilitation Scheme (EFS).

Going forward, DOL’s strategic response to the challenges centres on three axes: deepening penetration in higher-margin, non-technical-grade segments (Aseptic and Food Grade) where Engro does not currently compete; expanding the export channel through its wholly owned subsidiary, to capture regional HPO demand; and pursuing further cost optimisation through energy efficiency initiatives and process improvements. Each of these represents a rational response to the changed competitive landscape, though the pace of execution and the revenue contribution from non-technical-grade segments remain to be demonstrated at scale. Contingent liabilities, the GIDC provision of PKR 55.32mln and the contested RLNG retrospective tariff adjustment of PKR 119mln, represent manageable but unresolved exposures that add a degree of cost-side uncertainty to the medium-term earnings trajectory. Descon Oxychem’s sustainability profile is assessed as modest, underpinned by strong financial flexibility and a conservative capital structure. However, it remains sensitive to key business risk factors, particularly persistent pricing pressure from low-priced imports, especially from Bangladesh, and the impact of the EFS, which continues to affect competitive dynamics in the local market.

The Company’s working capital management remains broadly disciplined, supported by a predominantly cash-based sales model and structured procurement arrangements. However, the working capital cycle has lengthened during 9MFY26, with net working capital days increasing to ~54 days (FY25: ~41 days; FY24: ~38 days; FY23: ~15 days). This expansion is primarily driven by a buildup in inventory days, which rose to ~52 days from ~39 days in FY25. Receivables remain well-controlled at ~11–14 days, reflecting the Company’s strong cash conversion characteristics and limited credit exposure in domestic sales. On the payable side, creditor days remain relatively low at ~12 days, largely due to the nature of arrangements with key suppliers, including Descon Engineering, which constrains the Company’s ability to offset working capital requirements through extended payment terms.

The elongation in the working capital cycle has led to a notable increase in short-term borrowings, rising to PKR 919mln in 9MFY26 from PKR 114mln in FY25. This increase is attributable to a combination of (i) strategic inventory buildup in anticipation of potential supply chain disruptions in early 2026, and (ii) relatively slower inventory turnover amid subdued demand conditions during a period of cyclical price weakness. Overall, while working capital intensity has increased compared to earlier periods, the Company has maintained operational control over receivables and inventory management. The recent normalization in the cycle between FY24 and 9MFY26 indicates a measured response to external pressures, albeit with increased reliance on short-term funding to support higher inventory levels.

The Company’s cash flow generation and coverage profile remained adequate during 9MFY26, albeit reflecting moderation in line with margin compression. Free Cash Flow from Operations (FCFO) stood at PKR 314mln in 9MFY26, compared to PKR 1,419mln in FY25, primarily due to lower profitability during the period. Coverage indicators, while normalizing from the exceptionally elevated levels observed in FY25, remain strong. The interest coverage ratio stood at ~21.1x in 9MFY26 (FY25: ~392.0x; FY24: ~8.0x), indicating sufficient headroom to service finance costs. Similarly, the core coverage ratio was recorded at ~9.0x (FY25: ~46.5x; FY24: ~2.8x), reflecting continued strength in debt servicing capacity despite lower cash generation. The Company’s moderately-leveraged capital structure remains a key support factor, ensuring that reduced cash flows do not materially impair its ability to meet financial obligations. Overall, coverage metrics continue to reflect an adequate financial risk profile, with adequate buffers against earnings volatility amid prevailing competitive and cost pressures.

The Company’s capital structure remained conservative over FY25–FY23, with leveraging ratios of ~5.9%, ~3.8%, and ~8.2%, respectively, reflecting limited reliance on debt funding. However, during 9MFY26, leverage increased due to a rise in short-term borrowings, which grew to PKR 919mln from PKR 114mln in FY25, primarily to support higher working capital requirements. This increase is largely attributable to strategic inventory buildup ahead of anticipated geopolitical supply chain disruptions in early 2026. As a result, the debt mix has shifted toward short-term funding, with short-term borrowings now constituting ~92.1% of total debt, compared to ~53.5% in prior periods. Total debt comprises a combination of the residual long-term facility and working capital lines. While this transition reflects a move toward a moderately geared profile, overall leverage remains manageable. The higher reliance on short-term debt introduces some refinancing and liquidity considerations; however, the Company’s historically low leverage and strong coverage indicators provide adequate financial flexibility.