Brownie points for DGKC in 1HFY13

Cement sectors fortunes continued to stand out in the second quarter of the ongoing fiscal year. The result season further propped up the investors interest in the sector, which achieved the total traded volume of 34,628,600 shares this week.
DGKC, being the flagship company of the sector, also performed in line. During 1HFY13, companys top line touted a staggering 11 percent YoY growth, clocking in at Rs 11.825 billion. The sales growth mainly came on the heels of sectors underlying fundamentals perking up - higher retention prices and fairly stable local demand.
While the industrys local sales volume grew by 7.61 percent during 1HFY13, DGKC local sales volume also rebounded by six percent YoY, said Inayatullah Niazi, CFO, DGKC. The improved sales performance mainly came on the heels of PSDP spending spree coupled with around 25 percent rise in retention prices during the period.
Talking about the export performance, Niazi said DGKCs export volume plunged by 12 percent YoY during 1HFY13. This is mainly attributable to a slump in demand from Afghanistan, the key export market for Pakistani Cement, accounting for 60 - 70 percent of the total exports. Moreover, exports to India also slumped by 40 percent during 1HFY13, on account of NTBs and stoppage of cement exports via rail network.
During the period under consideration, stable coal prices greatly buttressed companys gross margin which boosted by 33 percent during 1HFY13. Besides, DGKCs efficient cost rationalisation measures - Waste Heat Recovery Projects and Alternate Fuel - Tire Derived fuel, also gave sound sustainability to the margins.
Operating expenses dropped by 15 percent YoY during 1HFY13 primarily because of 56 percent slide in the distribution expenses on the back of skimpy exports. Furthermore, income diversification through dividend income specifically from MCB also proved to be a feather in the cap providing edge to the company over its competitors.
Whats more, low interest backdrop bore fruit for the highly leveraged company. During 1HFY13, DGKCs financial cost dropped by 35 percent, thus adding up to the list of bottom line propellers.
All the aforementioned factors culminated into a striking EPS growth of 1.28 times to tally Rs 6.65 in 1HFY13 as against Rs 2.92 in 1HFY12.
Going further, Niazi believes the companys performance will further recoil as unlike the first two quarters, exports are expected to prop up in the 3QFY13 particularly to Sri Lanka and Africa. The company is also planning to enhance the capacity of its alternate fuel projects (agricultural wastes, RDF, rubber tires, and other industrial wastes) which will greatly contribute towards the solution of energy problems that are being faced currently by the country.
Besides, credible sources highlighted that DGKC; having its two plants in the northern region, would be one of the major beneficiaries of any new mega dam project and MFN status to India.

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DG Khan Cement Company Limited.

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(Rs mn)                               chg     1HFY13     1HFY12

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Sales                                 11%     11,826     10,701

Cost of sales                      -0.21%      7,209      7,225

Gross (loss) / profit                 33%      4,617      3,477

Distribution and marketing cost      -28%        888      1,238

Other income                          19%        773        650

(Loss)/ profit from operations        59%      4,032      2,529

Finance cost                         -35%        577        886

(Loss)/ profit after taxation        128%      2,913      1,279

EPS (Rs.)                            128%       6.65       2.92

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Source: KSE Notice