Although DG Khan Cements earnings for 3QFY12 were below analysts expectations, they did show a phenomenal year-on-year growth, much in line with the improved industry trends this year. With a year-on-year top line growth of over 22 percent in 3QFY12, the companys gross margins improved by about eight percentage points relative to the same period last year. Much of the improvement in revenues is attributable to better retention prices of cement in the local market, rather than a significant improvement in volumes. Uptil the first half this fiscal year, the companys local dispatches had decreased around 10 percent relative to the first half of FY11, while export sales had improved by about 12 percent during 1HFY12 relative to 1HFY11. DGKCs better cost management deserves mention here too. From over 74 percent of sales in 3QFY11, they went down to around 66 percent in 3QFY12. The differential as a percentage of sales was similar when the entire 9 months of FY12 were taken into account, with alternate fuel projects helping bring down the cost burden for the company through coal substitution. The operating margins in 3QFY12 were helped by a reduction in distribution costs, with the distribution costs as a percentage of sales going down by over 5 percentage points. Given the conventional link between export sales and distribution costs, the decrease in distribution costs this quarter may be indicative of the companys export sales volumes having decreased this quarter due to seasonal factors and less-appealing margins in export markets. Yet, for 9MFY12, distribution costs soared by 20 percent relative to the same period last year, likely due to improved export sales volumes during 1HFY12. East African and Southeast Asian regions have been key demand-drivers for the company in foreign markets, with Afghanistan and Djibouti having been key export destinations this year. Overall, DGKCs operating margins improved considerably during both 3QFY12 and 9MFY12 relative to the same periods last year. The companys finance costs also decreased during 3QFY12 and 9MFY12 relative to the respective periods last year, with finance costs as a percentage of sales going down to 8 percent in 9MFY12, as against 12 percent in 9MFY11. A reduction in the companys liabilities, as per available accounts for 1HFY12, explains the downturn in finance costs. All in all, while DGKC had recorded net losses in 3QFY11, 3QFY12 shone with a profit of Rs0.8 billion and a net margin of over 13 percent. For 9MFY12, the net profit was a whopping Rs2 billion as opposed to a relatively meager 0.2 billion in 9MFY11. Going forward, the company is expected to finish off FY12 on a cheery note thanks to better cement prices in local markets, as well as prospects of improved volumetric sales in local sales due to expectations of post-flood reconstruction and greater PSDP expenditure. On the export side, sales to Afghanistan and India are expected to further buoy up the companys revenues in the coming months.
============================================================ DG Khan Cement ============================================================ (Rs mn) 3QFY12 chg Y/Y 9MFY12 chg Y/Y ============================================================ Net sales 6,003 22% 16,704 28% Cost of sales 3,967 9% 11,192 10% Gross profit 2,035 61% 5,512 87% Gross margin 33.9% 33.0% Distribution costs 595 -21% 1,823 20% Operating profit 1,550 134% 4,079 106% Operating margin 25.8% 24.4% Finance costs 418 -23% 1,303 -16% Profit after taxation 792 82% 2,072 1069% Net margin 13.2% 12.4% EPS (Rs) 1.81 4.73 ============================================================
Source: KSE notice
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