Total cement demand in FY17 waned as compared to FY16 where the slowdown was particularly witnessed in the last couple of months of FY17. Total dispatched growth reached 3.6 percent year-on-year in FY17, significantly lower than 9.8 percent year-on-year growth witnessed in FY16. While exports continued to fall, the local sales also faltered on account of seasonal slowdown in Ramadan and extended Eid–ul–Fitr holidays along with price rationalisation post budgetary measures.
The same decline in cement dispatched can also be seen for DG Khan Cement (PSX: DGKC), which saw almost no growth in revenues. Earnings of the cement giant trotted downwards by nine percent year-on-year due to no revenue augmentation, and decreasing margins. Gross margin declined from 43 percent to 39 percent in FY17, which came from higher cost of sales that largely emanated from higher coal prices in the fourth quarter particularly. Another factor for decrease in profitability was supply of LNG instead of system gas that is comparatively expensive.
Gross margins shrunk as well due to higher finance cost and lower other income. The company’s project with Loesche GmbH, a Danish company is underway, which is a likely cause of higher financial charges.
However, DGKC is moving ahead with solid growth plans. It is one of the largest cement manufacturers in the cement industry trailing closely behind Lucky and Bestway with a market share of around 9 percent. After the planned expansions, the firm will have nearly 12 percent share in the market in terms of capacity. Moreover, the cement sector remains fundamentally sound as the government continues its focus on infrastructure; energy diversification projects, and the possibility of correction in coal prices also keep the sector’s charm up in FY18.
The cement company announced a final cash dividend of Rs7.5 per share, and the BOD of DGKC also approved a working capital loan of Rs1 billion to its associate company Nishat Hotels.
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