DOL holds its corporate briefing session today

Descon Oxychem Limited (DOL) held its corporate briefing session today to shed light on 1HFY21 financial result and business outlook. To recall, the company reported earnings of PKR 105Mn (EPS: PKR 0.6) in 1HFY21, down 26% YoY. On the other hand, it recorded profitability of PKR 91Mn (EPS: PKR 0.5) in 2QFY21, up 1.0/6.5x YoY/QoQ.

Key takeaways from the briefing are discussed below:

During 1HFY21, the company recorded production of 12.7K tons, ↓ 24% YoY. Reason behind the decline was the planned shutdown of plant for 45 days owing to routine maintenance and expansion project.

Despite lower volumes, net revenue during the same period only dipped slightly by 3% YoY to PKR 1.3Bn on account of higher hydrogen peroxide prices (H202). During 1HFY21, H202 prices averaged around PKR 80/Kg.

Consequently, gross margins also witnessed an attrition of 7.0 ppt YoY to stand at 19% in 1HFY21, mainly due to higher costs incurred on plant maintenance (around PKR 33Mn) and additional depreciation recorded on the newly added capacity. As per the management, normalizing these expenses, gross margins would have clocked-in at 26%.

The company successfully completed its plant expansion project in 1HYFY21 and has enhanced their capacity by 25% to 42,000 tons per annum. As per the management, capacity utilization stood at 117% in 1HFY21. With the newly enhanced capacity, the company expects to improve the efficiency of the plant going forward.

The company currently caters to Textile, Foods, and Mining sector. It held around 50% share in the hydrogen peroxide market during 1HFY21, followed by SPL and imports at 32% and 18%, respectively.

As per the management, given the newly enhanced capacity, they expect their market share to improve and substitute imports. They are also planning to give bulk discounts on their product to tap larger market.

Commenting on the demand outlook, the company expects better demand going forward as the textile sector is gaining momentum. They are also planning to export hydrogen peroxide to regional markets as well. Currently, the company only sells small quantity of the product to Central Asia and Middle East.

The management also disclosed that they are currently in negotiations with a Textile company that has set up a water treatment plant in Lahore. The company is expecting demand of around 600-700 tons per month from this contract. They are also working out on a contract with a paper company that has shown interest in buying H202 from DOL.

Commenting on the 3.0x QoQ increase in finance cost, the company mentioned that they had taken loans to finance for the expansion project and paid interest on the prevailing market rate. However, the company is hoping to avail benefits under the TERF facility on the BMR expansion clause.

 

 

Courtesy – BMA Capital Management Ltd.

Sharing is caring

Leave a Reply