DG Khan Cement took the market by surprise yesterday. It announced a nearly 50 percent jump in after tax profits, not because its core operations were doing fabulously great but because it booked a sweet tax credit over its expansion due to commence operations by the last quarter of current fiscal year.
The firm’s topline rose on account of sheer sales volumes, as growth in domestic sales volume (22%) offset the 17 percent fall in overseas sales in the quarter ending September 2018. This is in line with sector-wide volumetric sales during the period that grew 15 percent year-on-year, with local sales growing at 22 percent and exports falling by 17 percent. DGKC’s average realized prices remained little changed year-on-year, according to Inayat Ullah Niazi, DGKC’s Chief Financial Officer.
DGKC’s margins, however, were lopped sharply due to high coal prices and the application of RLNG tariffs on its gas bill. Niazi says his coal cost averaged more than $100 per ton in 1QFY18 compared to $80-$90 in the year-ago period. Coal is about 40 percent of the firm’s cost of production, whereas gas bill ranges between 20-25 percent of total costs.
The company’s new plant near Karachi is expected to commence operations in the last quarter of this fiscal year. Speaking to BR Research, Niazi said that instead of booking the tax credit on ongoing expansion in the last quarter, the firm’s management decided to book it equally in the four quarters, beginning the just-ended period. As a result the company is expected to boast a deferred tax asset by the end of the year, which means regardless of whether DGKC is able get a handle on its margins in the ensuing quarters, the year ahead looks promising.
This column is not in the business of making stock price forecasts but by yesterday’s close of trade the firm’s stock had bounced 3.45 percent over the day before. Similar gains were posted by other cement players, notably Lucky and Fauji, amid market floor rumors that the cement association has decided to jack up cement prices by Rs20. No confirmation has been received from the association. But if that were indeed the case, then perhaps a revision in target price of DGKC and other cement players could be in the offing.
As of yesterday’s close brokers’ target price DGKC ranged between Rs190/share (EFG Hermes) and Rs286/share (of course Topline Securities), as against yesterday’s close of Rs150.9 per share. Is it good hunting? Best contact your preferred broker.
Comments
Comments are closed.