Weighed by the tough industry climate, D.G Khan Cements annual profit nearly halved to Rs233 million in FY10. The cement-maker felt squeezed due to depressed cement prices in the local market, as its average retention price slid to around Rs3,300 per ton in FY10, from about Rs4,500 per ton a year earlier.
DGKCs location in the countrys North, exorbitant inland freight cost and lower FOB cement prices, which eased to an average $50 in FY10 from $60 per ton in FY09, made exports a less enchanting option.
Exports shrank by around 20 percent, but upping the ante in the local market helped the company realize around 40 percent growth in local dispatches. Therefore, astounding growth in volumetric sales, which surged to 4.9 million tons in FY10 from 3.89 million tons a year earlier, protected the topline from a greater fall - a cushion that was eroded by lower gross margins.
Falling exports helped the DGKC make deep cuts in selling and distribution expenses, while the relatively stable rupee resulted in lower other operating expenses. Finance cost was alleviated by relatively lower interest rate and reduction in debt along with greater usage of export refinance scheme. Moreover, higher dividend income from its investment portfolio resulted in higher other operating income.
DGKC has come a long way in cutting production costs. Installation of Waste Heat Recovery project and Refused Drive Fuel project, along with a growing focus on the use of alternative fuel resources will help the company achieve cost efficiency down the line.
In keeping with poor construction during the monsoon season, floods and Ramadan, cement demand is expected to remain weak during the first quarter of the current fiscal year, as evident from July and August data.
Though, DGKC had encountered supply disruptions in the first 15-20 days after the onset of the floods, the roads have now become operational in the outskirts of the companys production units.
However, the firm is optimistic about the latter half of the fiscal year, as damaged infrastructure and the need for reconstruction will fuel demand for cement.
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D.G. Khan Cement Company Ltd
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Rs (mn) FY10 FY09 %chg
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Sales 16,275 18,038 -10%
Cost of sales 13,569 12,358 10%
Gross profit 2,706 5,680 -52%
Gross margin 17% 31% -47%
Administrative exp 172 142 21%
Selling and distribution exp 994 1,871 -47%
Other operating exp 189 796 -76%
Other operating income 911 770 18%
Impairment on investments - 257 -
Finance cost 1,902 2,606 -27%
Net profit 233 525 -56%
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Source: KSE Announcement
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