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The Pakistan Credit Rating Agency Limited
Press Release

Date
01-Jul-20

Analyst
Bakhtawar Abid
bakhtawar.abid@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Descon Oxychem Limited

Rating Type Entity
Current
(01-Jul-20)
Previous
(02-Jul-19)
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Positive Positive
Rating Watch - -

The ratings recognize Descon Oxychem’s leading position in the local Hydrogen Peroxide (HPO) 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. The recent upturn in global HPO prices accompanied by Pakistan Rupee devaluation has impacted the Company’s profitability positively. However, since COVID-19 outbreak and subsequent lockdown, HPO prices have gone down despite further rupee devaluation due to lower demand, especially from the textile sector. Demand from textile is expected to remain low despite eventual easing of lockdown and resumption of operations. The Company managed to sustain its revenue during these challenging times through product diversification. The Company has introduced multipurpose disinfectant / sanitizer products to support its business profile. Meanwhile, the financial risk profile remains strong characterized by efficient working capital management and strong coverages. The Company has converted long term loan obtained for an associated company into ordinary shares resulting in improved leveraging. Leveraging may go up once expansion project related borrowings are obtained but will remain manageable. 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 through product diversification to mitigate slowdown in demand. Timely execution of the expansion plan and translation of the same into better profitability would positively impact the ratings. Meanwhile, smooth operations from the current plant would remain important. Maintaining strong coverages and sustainable leveraging will remain critical.

About the Entity
Descon Oxychem Limited, incorporated in 2004, is a listed concern engaged in the production of Hydrogen Peroxide (HPO). The Company started commercial production in Mar 09. Descon Group, the principal sponsor of Descon Oxychem, holds majority shareholding ~73.56 % through associated companies while 26.44% stake rests with the general public and financial institutions. Descon Group has strong foothold 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 over 2 decades in chemicals and allied industries.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.