PACRA Maintains the Entity Ratings of Descon Oxychem Limited

Descon Oxychem Limited (‘DOL’ or ‘the Company’), a listed concern, is primarily engaged in the manufacturing, procurement, and sale of Hydrogen Peroxide (HPO) & allied products. Offering Technical, Aseptic, and Food Grades in different concentrations, DOL’s diverse HPO applications span key sectors including textile, mining, pulp & paper, water treatment, sugar, food & beverages, cosmetics, and poultry. The Company’s leading market position is supported by a strong sponsorship and established client relationships. Notably, its sustainable, non-chlorine-based food-grade HPO offers substantial growth prospects within the food sector, requiring focused strategic development. Within Pakistan’s competitive HPO market, local supply is dominated by domestic production of ~80.0%, with imports making up the remaining ~20.0%. Market growth in FY24 was solely attributable to a ~14% increase in imported HPO volume, as local capacity remained stable and fully utilized. However, the market’s evolving dynamics are expected to be further reshaped by the arrival of a new player (Engro Peroxide), leading to anticipated shifts in demand and supply patterns in CY25, specifically in the South region. During 1HFY25, DOL’s topline exhibited modest improvement, reaching ~PKR 3,197mln, representing a marginal year-over-year growth of 11.4%, attributable to a price increase. However, the Company’s export revenue has trended downwards, registering ~PKR 176mln in 1HFY25 (FY24: PKR 419mln, FY23: PKR 643mln), owing to the closure of routes to Commonwealth of Independent States (CIS) markets, but the impact has been neutralized by a shift towards local sales. During 1HFY25, the profitability matrix of the Company improved at all levels on the back of price and cost efficiencies. Looking ahead, a new entrant in the local market necessitates a proactive focus on the business strategy, sales growth, and profitability. Management indicates a strategic initiative to broaden its customer base in international markets, including the UAE, KSA, Bahrain, and Ashgabat. Historically, DOL has successfully expanded its revenue base through investments in advanced technology, efficient production processes, and a focus on higher-margin regions and segments. The financial risk profile of the Company remains good, characterized by efficient working capital management and healthy coverages. DOL’s capital structure is low-leveraged, comprising a mix of long-term and short-term borrowings supported by a solid equity base. Ratings draw comfort from DOL’s association with the financially sound and experienced business group - DESCON. Going forward, the Company will enhance production capacity to leverage economies of scale and expand its presence in the competitive market.
The ratings are dependent on the DOL’s ability to sustain its position in a competitive environment and management’s ability to execute strategies to capitalize on new opportunities. With the growth in DOL’s revenue, prudent financial performance and an effective liquidity profile shall remain imperative.

About the Entity
Descon Oxychem Limited, incorporated in 2004, commenced commercial production of Hydrogen Peroxide in March 2009. Descon Group, the principal sponsor of Descon Oxychem, holds a majority shareholding of 72.63% through associated companies, while 27.37% stake rests with financial institutions and the general public. Descon Group has a strong foothold in the engineering business through its flagship company – Descon Engineering Limited. The Company’s Board, comprising eight members, is dominated by representatives of Descon Group. Mr. Faisal Dawood is the Chairman of the Board, while Mr. Muhammad Mohsin Zia is the CEO of the Company.