PACRA maintains entity ratings of PAKOXY

July 26, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Pakistan Oxygen Limited (PSX: PAKOXY) at "A" for long term and "A1" for short term with a stable outlook forecast, a latest press release issued by PACRA showed.

The ratings reflect the eminent position of PAKOXY in the industrial & medical gases, welding, hard goods & Medical Engineering Services (MES) segments.

The industrial & medical gases industry largely possesses an oligopolistic structure and the electrodes market comprises Tier-I, Tier-II & Tier-III segments and POL is the leader in the Tier-I category and prominent presence in the other two segments which are primarily unorganized.

OXYMED was launched as an indigenous product line for their MES business vertical.

The OXYMED core business is installing the supply sources of medical gases, and pipeline distribution systems with complete associated equipment installation.

During Covid-19, the installation of dedicated medical gas capacities in hospitals changed the revenue mix and showed considerable growth in the healthcare segment.

As of now, the product portfolio has stabilized along the demand yield curve, indicating a more balanced and consistent state in the industry.

The demand from the steel, automotive, and shipbreaking industries remained weak due to the country’s macroeconomic challenges.

The company planned to regain its customer base in the industrial gases segment through geographical expansion.

POL serves customers across a wide spectrum of industries.

The massive hike in energy prices is one of the key challenges to the industry as it constitutes a significant portion of COGS.

To cater this, the company is soon expected to successfully commission its new state-of-the-art 270TPD Air Separation Unit (ASU) and the electrode plant to meet the demand for industrial/medical gases and all tiers of the electrode market segment, respectively with better specific power consumption technology.

The company's top line has shown a growth of 4.2% YoY basis with an optimal mix of medical and industrial gases.

The margins of the company remained at an adequate level despite a considerable surge in KIBOR, and electricity prices followed by massive PKR devaluation and revoke of sales tax exemption on the sale of medical gases to hospitals.

PAKOXY has benefited from a strong governing board and has skilled and professional management.

The company's financial risk profile is considered adequate with comfortable coverages, cashflows, and working capital cycle.

Capital structure is leveraged where borrowings are comprised of short-term and long-term. To facilitate capacity expansions and BMR the company has a subsidized long-term borrowing facility (TERF).

The ratings are dependent on the company's ability to sustain its market share by effectively utilizing its production capacity.

At the same time, management of financial risk, particularly debt coverages, remains important.

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