Descon Oxychem Limited (DOL) announced its FY21 result today, posting below-expected PAT of PKR 279Mn, down 33% YoY. During 4QFY21 alone, the company announced disappointing earnings of PKR 43Mn, down 71/67% YoY/QoQ. Despite improved demand for Hydrogen Peroxide (H202) from the textile sector, increase in RLNG prices and higher finance costs kept the profitability in check. Along with the result, the company also announced a final dividend of PKR 1.0 per share. Key highlights of the result are discussed below:

During 4QFY21, net revenue increased by 24% YoY to PKR 686Mn due to better demand, however, it declined sequentially by 13% owing to lower hydrogen peroxide prices following the decline in imported hydrogen peroxide prices. This takes the FY21 top-line to PKR 2.8Bn, up 6% YoY.

Gross margins witnessed an attrition of 31ppts YoY to clock-in at 16% in the last quarter, taking FY21 margins to 22%. The decline is on account of lower hydrogen peroxide prices and higher RLNG costs.

Finance costs jumped by 5.0x to PKR 25Mn during 4QFY21 due to higher debt taken to finance the capacity expansion project. On the other hand, other income also improved by 8x YoY to PKR 15Mn during the same period.

The effective tax rate during 4QFY21 clocked-in at 18%, relatively lower compared to 29% from the last close.

We maintain our Buy stance on the scrip with our Jun’22 TP of PKR 36/sh, which implies a total upside of 45% from the last close.

Courtesy – BMA Capital Management Ltd.