DG Khan Cement

Amid weak sales volume, high manufacturing and operating costs squeezed the bottom-line of D.G Khan Cement Company by more than half to Rs192 million in the first half of the current fiscal year.
On account of heavy rains and floods, that ravaged Pakistan between July and September, DGKCs total volumetric sales dropped by 13 percent to 2.02 million ton in 1HFY11.
Had there not been an improvement in exports, which rose to 0.596 million tons in 1HFY11 compared to 0.362 million ton a year earlier, the company would have witnessed a major drop in total volumetric sales. Domestic sales fell to 1.425 million tons in 1HFY11 compared to 1.962 million tons in the same period last year.
Despite lower volumetric sales, the company managed to record sales revenues close to the last years level on the back of improvement in the retention prices. But higher production cost, stemming from high energy and coal prices, has annulled the positive impact arising from higher prices on the gross profit margin.
On top of that, higher operating expenses have also exerted pressure on the companys profitability.
In keeping with improvement in overseas sales together with rising freight charges, the companys selling and distribution costs rose to Rs769 million from around Rs523 million in the year ago period. In the meanwhile, the hike in the export refinance rate and Kibor inched up the firms finance cost.
After a tough first half of the fiscal year, financial performance in the second half is likely to improve, as the market expects local demand to kick-start growth starting after February on the heels of better agriculture income from Rabi crop.
Moreover, the companys growing interest in power generation sources, such as Waste Heat Recovery project and Refuse-derived fuel, will ease cost pressures by reducing expenditure on energy and coal.
The company has been looking forward to further invest Rs3.5 billion to install a WHR plant at the Khairpur site, and also towards the expansion of Refuse-derived fuel projects. In this regard, it has planned to issue 20 percent ordinary right shares at Rs20 per share, which will generate a total of Rs1.4 billion. The company is aiming to raise a total of Rs 2 billion through loans.

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DG khan cement Ltd.

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Rs (mn)                          1HFY11      1HFY10         Chg

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Sales                             8,174       7,958        2.7%

Cost of sales                     6,488       6,253        3.8%

Gross profit                      1,686       1,705       -1.1%

Gross profit margin                 21%         21%       -3.7%

Selling and distribution expense    769         523       47.0%

Other income                        545         470       16.0%

Finance cost                       1016         955        6.4%

Profit                              192         469      -59.1%

EPS (Rs)                           0.53         1.3      -58.9%

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Source: Company notice to KSE