Draft PR
logo
The Pakistan Credit Rating Agency Limited

Date
30-Jun-2017
Analysts
Rai Umar Zafar
rai.umar@pacra.com

Hamza Ghalib
hamza.ghalib@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Rating Modifiers | Outlook and Rating Watch (Jun 16)
  • Correlation between Long-term and Short-term rating (Jun 16)
  • Corporate Rating (Jun 16)

Related Research

  • Sector Study | Hydrogen Peroxide (Jun 17)
Disclaimer
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
(30-Jun-2017)
Previous
(22-Sep-2016)
 Action Maintain Maintain
 Long Term A A
 Short Term A1 A1
 Outlook Stable Stable
 Rating Watch - -

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.
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.