PACRA Maintains Entity Ratings of Descon Oxychem Limited

The ratings recognize the company's leading position in the local H2O2 market, supplemented by efficient production process, sound technological infrastructure, and effective control environment. The ratings draw comfort from DOL's association with a financially sound and experienced business group - DESCON - which has continuously demonstrated support. The conversion of company's outstanding liability to associated companies into preference shares signifies the sponsor's strong commitment. The company has significantly improved its operational reliability by introducing reliability centre management. Meanwhile, management's methodical marketing strategy along with service quality helped the company to increase the margin with further penetration in the north region. Furthermore, anti-dumping duty imposed by NTC bodes well for the company's profitability. Current debt free capital structure of the company strengthens its financial risk profile.

The ratings are dependent on sustained competitiveness of the company. Meanwhile, any deterioration in the overall business dynamics adversely impacting the company's viability would be critical for the ratings. Deemed support of the group is a key consideration. Prudent management of new borrowings related to expansion, thereby impacting coverages, is important.

About the Entity
Descon Oxychem Limited (DOL), incorporated in 2004, is listed on Pakistan Stock Exchange and produces Hydrogen Peroxide (H2O2). The plant started commercial production in Mar09. DESCON, the principal sponsor of DOL, holds majority shareholding (~55%) through associated companies (17% ) and sponsoring family members (~38%). 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 the Middle East.

DOL's board, comprising eight-members, is dominated by representatives of DESCON. Mr. Razak Dawood - founder and Head of DESCON - is the Chairman of the board. Mr. Aamir Niazi, CEO of the company since 2015, carries more than three decades of local and international experience, mainly in textile, FMCG and chemical sectors. With his seasoned profile, the company has higher focus towards reliability, efficiency, and profitability.

Going forward, DOL is eyeing to evaluate number of options for manufacturing capacity expansion actively, which will enable the business to provide stronger and seamless supply chain to all its customers domestically.