DGKC on a roll
The local cement manufacturing giant D.G. Khan Cement reported on Friday that its 1HFY12 earnings improved by a hefty 566 percent, year on year. The highly favourable local cement pricing scenario worked for DGKC as its revenues for the period swelled by a significant 31 percent, despite a slight decline in local cement dispatches and almost stagnant export dispatches versus the corresponding period of last year. The earnings appear as a surprise for the market consensus estimates as the improvement in gross margins eventually came out as better than expected. It seems that the Waste Heat Recovery project has started showing its positive impact on the gross profit margins as evident by a healthy improvement in gross margins, which jumped from 21 percent in 1HFY111 to 31 percent in the period under review. Local cement prices reached their all-time high during 1HFY12, averaging Rs.390/bag - a hefty 18 percent increase from the corresponding period of last year. Export prices, which remained under pressure throughout FY11, are now believed to have improved marginally and supplementing the top line growth. Local sales constitute nearly two-third of DGKCs revenues, which is why the sales growth painted a rosy picture. Coal prices during 1HFY12 remained 17 percent higher than the corresponding period of last year, at $125/ton, but the increased cost was successfully passed through as evident from a sizeable improvement in gross margins. Coal prices started to cool down during 2QFY12 as global demand weakened and supply resumed from Australia, resulting in 35 percent gross margins. The selling and distribution expenses as a percentage of sales went up to 11.5 percent during 1HFY12 versus 9.5 percent in the same period last year. This increase is attributed to rise in freight cost and a slight increase in export dispatches. However, this was mitigated by the decline in finance cost, which shrunk on account of reduction in short-term borrowings. Industry observers expect both the local and export cement prices to stay firm for the remaining fiscal year. With the Waste Heat Recovery already in operation and Refuse Derived Fuel in the pipeline, the gross margins are expected to stay on the higher side, going forward.