Lahore, July 02, 2020 (PPI-OT): 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.
For more information, contact:
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425