DG Khan Cement managed to more-than-triple its profits in the six months ended December. But that doesn seem to woo investors, as the firms stock price dropped for the second straight day after the result - taking the year to-date decline to 14 percent.
It appears investors are concerned about the companys performance in the second quarter when the revenues shrank by 22 percent, year-on-year, while margins squeezed by more than 60 percent.
Though local dispatches remained positive during the second quarter - about 0.58 million tons - DGKC faced the pressure of low retention prices at Rs235 per bag, lower 25 percent over the same period last year.
Meanwhile, the companys exports remained damp at around 0.2 million tons, where margins were hit by higher freight charges and lower international cement prices.
With additional capacities in the region coming online soon, cement prices will likely stay under pressure going forward - implying further squeeze in operational profits. Rising coal prices on the back of additional demand from China would also continue to exert additional burden on the firms profitability.
These, however, may be partially offset by higher volumetric growth in domestic sales. Consensus forecasts suggests domestic demand will pick up by nearly 10 percent after winter that in turn is seen driving prices by 5-6 percent higher in the second half, after picking up 7 to 8 percent in the third quarter.
The companys management has decided to raise Rs1.2 billion through 20 percent right shares, issued at a premium of Rs10 per share, with an aim to de-leverage its balance sheets. Though, investor sentiment on the transaction is still unclear; however, to pay this premium at the time of dearth in liquidity can be a cause of concern.
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DGKC P&L
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Rs (mn) 1HFY10 1HFY09 ()% 2QFY10 2QFY09 ()%
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Sales 7,958 8,652 -8% 3,366 4,315 -22%
COGS 6,253 6,059 3% 2,978 3,022 -1%
Gross profit 1,705 2,594 -34% 388 1,293 -70%
Gross margin 21% 30% -29% 12% 30% -62%
Finance cost 956 1,457 -34% 488 698 -30%
Other income 471 432 9% 303 240 26%
L/PBT 475 246 93% 15 101 -85%
Taxation 5 373 -99% 100 195 -49%
L/PAT 470 127 270% (115) 296 -139%
L/EPS(Rs) 1.54 0.42 (0.38) 0.97
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Source: Company Results
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