The Pakistan Credit Rating Agency Limited
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Raniya Tanawar

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PACRA Maintains Entity Ratings of Pakistan Oxygen Limited

Rating Type Entity
(29-Jul-21 )
(29-Jul-20 )
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings reflect eminent position of Pakistan Oxygen Limited in industrial, medical gases, healthcare solutions, hard goods & welding segment. The industry largely possesses oligopolistic structure, benefiting the players. Lately, the demand side in case of both industrial and medical gases have gained momentum when the industrial segments gradually resumed to normality post-Covid lockdown and large scale manufacturing showed some respite as well, and to capitalize LSM growth the Company has planned to enhance production capacity of electrodes with a new plant. As it was anticipated, third wave of pandemic pushed up the medical gases consumption to its peak, eventually enabling the market players to earn more revenues including Pakistan Oxygen. The company came forward to serve the community from the forefront when the country had to face capacity limitation and turned to imports in order to combat the looming situation. Since this was a low margin based area, the company’s profitability did not reflect the incremental effect of revenues. Pakistan Oxygen serves customers across a wide spectrum of industries ranging from chemical and petrochemical to steel, food and healthcare. The ratings take comfort from the rich heritage on account of previous ownership of international group (LINDE) with a solid name in the chemical and gases industries globally, which continues to lend support. Pakistan Oxygen, is on its way to set-up the largest and most efficient air separation unit in Pakistan sourced from Linde. Going forward, the process of expansion has expedited which was previously delayed due to COVID-19. The related modalities and funding arrangements has been finalized and will figuratively reflect in coming quarters. The incumbent sponsors have added more investments into the company which are expected to bear fruits in near future, Reversal of key economy driven challenges; interest rate, have strengthened the financial risk appetite of the Company.
The ratings are dependent on the company's ability to effectively utilize its existing capacity and management of financial risk particularly the debt coverages, wherein any significant dilution would be imperative for the ratings. Debt-Equity mix and repayment plan for the investment would play a pivotal role in determining financial risk profile. The management is deploying a conservative expansion plan with borrowings carrying terms and conditions that the company can conveniently manage. The entity has been ably catering to a market more than its production capacity. Maintaining strong coverages and sustained market share with better profitability will remain vital.

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. Adira Capital Holdings (Private) Limited, Hilton Pharma (Private) Limited, Soorty Enterprises (Private) Limited and Mr. Shahid Umerani are the major shareholders of the company, together holding ~ 76% of the total shareholding. Mr. Siraj Dadabhoy is the major beneficial shareholder.
The company has geographical presence across Pakistan with multiple sale offices and sale depots to serve customers from South to North.
Pakistan Oxygen’s eleven members board is majorly represented by members of sponsoring group (seven), and four independent. All members are non-executive. Mr. Waqar A. Malik is Chairman of the board and Mr. Matin Amjad holds the office of CEO. To maintain highest level of independence, the Internal Audit has been outsourced to M/s EY Ford Rhodes, Chartered Accountants, which has a functional reporting relationship directly to the Board Audit Committee (BAC). Management of the company comprises of qualified and experienced professionals with a wide range of skills and diversified experience.

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.