DGKC: Other income supporting bottom-line!

PAT down 96% YoY: D.G Khan Cement Company Limited (DGKC) posted a PAT of PKR22mn (EPS: PKR0.06) during 1QFY11, down 96% YoY, while on QoQ basis DGKC recovered from a loss of PKR77mn (LPS: 0.21) incurred in 4QFY10.

Top-Line down due to lower dispatches: Cement offtake of the company was down by 26% YoY/31% QoQ to 920k tons during the quarter, mainly due to devastation caused by floods,  slow construction activity during Ramadan and the monsoon season. Consequently, top-line witnessed a decline of 23% YoY/31% QoQ to PKR3.5bn.

Gross margins down 1000bps YoY/up 100bps QoQ: The retention prices improved by 4% YoY and were down by 1% QoQ to PKR3,832/ton. However due to 18% YoY increase in cost/ton gross margins declined by 1000bps YoY. Whereas on QoQ basis, 2% decline in cost/ton to PKR3bn led to 100bps increase in gross margins.

Other Income up 36% QoQ / 39% YoY: Other Income from investments jumped by 36% QoQ and 39% YoY to PKR213mn, mainly on the back of healthy dividends received from AICL (PKR1/share) and MCB (PKR3/share).

Investment perspective: We expect cement dispatches to pick up going forward due to post flood construction activities and we believe DGKC shall be one of the key beneficiaries.  At yesterday’s closing DGKC of PKR30.8/share, the scrip is trading at a discount of 34% to its portfolio value of PKR47/share.

Top-line low due to lower dispatches

Cement Dispatches were down 26% YoY/31% QoQ to 920k tons mainly due to devastation caused by floods and slow construction activity in the month of Ramadan and monsoon season. Cement retail prices, however improved by 5% YoY and 15% QoQ to PKR316/bag due to some price consensus being developed among cement manufacturers. Furthermore, market share of the company declined by 115bps QoQ to 18.4% during 1QFY11. The top-line declined by 23% YoY and 31% QoQ to PKR3,528mn.

Gross margins down 1000bps YoY/up 100bps QoQ

Gross margins of the company improved by 100bps QoQ to PKR3bn while on YoY basis it declined by 1000bps. The reduction in gross margins YoY was mainly due to 18% YoY increase in cost per ton. While increase in margin on QoQ basis was due to decline in cost per ton by 2% to PKR3,095/ton. On the other hand retention prices improved by 4% YoY while on QoQ basis it declined by 1% to PKR3,832/ton. Lower retention prices in the quarter were mainly due to higher margins earned by dealers.

Other Income up 36% QoQ / 39% YoY

DGKC’s investment in other group companies, made the company earn dividend income of PKR213mn up 36% QoQ / 39% YoY. The company received PKR1/share from AICL and PKR3/share from MCB as dividend during 1QFY11.

Investment perspective

In post flood scenario construction activities are expected to pick up. With local cement prices remaining firm and DGKC having market share of 18.4% in Northern area, it shall be one of the key beneficiaries.  At yesterday’s closing DGKC of PKR31/share, the scrip is trading at a discount of 34% to its portfolio value of PKR47/share.

Economic & Political News

India, BD block move at WTO: EU delays trade relief for Pakistan

Faced with strong resistance from India at the World Trade Organisation (WTO) in Geneva, the European Union has delayed duty-free concessions for 67 products from Pakistan till March 2011. It was earlier expected to be effective from January.
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