Analyst:

Muhammad Sarfraz Abbasi

Summit Capital
Sarfraz.abbasi@atlascapital.com.pk
(+92-21)-111-226-100 Ext 404
Update Pulse Mar 7, 2011
(Formerly Atlas Capital Markets (Pvt.) Limited)

Cement Sector: DGKC – Subdued recorded slight upsurge of 3% YoY to PKR8.18bn against
PKR7.95bn in 1HFY10. The augment in top line was
BUY
demand and rising input costs owing to 22% YoY higher retention prices as per bag
cement price was hovering around PKR335 against
hurting core business… PKR275 in 1HFY10. It is worth mentioning, that 83% of the
total operational capacity of the industry is located in Market Snapshot
Synopsis…
Pakistan Research

north zone, which leads to stiff competition. Due to the Index Chg %
The D.G. Khan Cement Company Ltd (DGKC) during KSE 30 11716.67 254.11 2.22
1HFY11 posted a substantial decline of 59% YoY in its existence of most of the players in North, prices remain
KSE 100 12000.03 238.03 2.02
earnings. The company recorded PAT of PKR192m lower by 8-10% compare to South. KSE ALL 8329.49 157.68 1.93
translating into an EPS of PKR0.53 against the last Lower profit margins due to rising input costs.…
corresponding period when company had recorded Soaring input costs, excess supply and depressed
PAT of PKR470m and EPS of PKR1.29 respectively. On Q- demand hit hard to profitability of the company. During
o-Q basis, the company posted PAT of PKR170m (EPS 1HFY11 cost of sales showed an up surge of 4% YoY to Key Data
PKR0.47) in 2QFY11 against PAT of PKR22m (EPS PKR0.06) PKR6.48bn against PKR6.25bn in 1HFY10. However, per Market Cap(PRs bn) 9.81
in 1QFY11. In this report we present our detailed analysis ton cost revealed gloomy facts as raw material, Shares Outstanding (m) 365.10
of financial performance of company for 1H/FY11 and electricity & gas charges and furnace oil & coal Bloomberg DGKC PA
the future outlook. 12M Avg. Volume (m) 3.79
consumption showed a sharp up surge of 11%, 28% and
(PKRm) 1HFY10 1HFY11 Chg 34% YoY respectively. Consequently, total cost of sale
Sales 7,958 8,175 3% on per ton basis posted a rise of 20% YoY which turned
gross profit in negative.
Cost of Sales 6,253 6,489 4%
Gross Profit 1,705 1,686 -1% Other income - a real friend in need.…
12M DGKC relative performance vs KSE
S & D exp 605 868 43% The DGKC is the only cement company in the sector 150%

DGKC KSE-100
Other income 471 546 16% reporting a decent figure of the other income owning 125%

EBIT 1,431 1,315 -8% its holdings in other group companies. In 1HFY11 the 100%
other income grew by 16% YoY to PKR546m against
Financial charges 956 1,016 6%
PKR471m in 1HFY10 due to dividends from NML, MCB 75%

Profit before Tax 475 299 -37%

and AICL. Dividend income from associates played a 50%
Taxation 5 106 1989% pivotal role in rescuing bottom line as its core business

Apr-10

Aug-10
Jun-10

Jul-10

Sep-10

Oct-10

Dec-10

Jan-11

Feb-11
Mar-10

May-10

Mar-11
Nov-10
Profit after tax 470 192 -59% posted a loss (LPS PKR 0.97).
EPS 1.29 0.53 -59%
Source: Company accounts, Summit Research
Future Outlook and recommendations…
Unprecedented power crises, rising electricity & gas
Volumetric sales remained lackluster … tariffs, and horribly increasing coal prices led Summit Capital (Pvt.) Ltd
During 1HFY11 local dispatches of the company company’s management to act more prudently to B-209, Park Towers, Clifton, Karachi
witnessed a substantial decline of 28% YoY as the meet with the emerging challenges. Thus by perusing Equity Research: Equity Sales:
company sold 2.02m tons of cement against 2.32m in cheap alternatives, the company has decided to the Tel: 92 (21) 5376125 Tel: 92 (21) 5368261-8
1HFY10. The reason behind sluggish volumetric sales was install waste heat recovery unit (WHRU) of 8.5MW at Fax: 92 (21) 5376126 Fax: 92 (21) 5376122
reduced construction activities both in housing and Khairpur plant which is expected to come on line by Money Market: Corporate Finance:
public sector. Nevertheless, top line of the company 1QFY13. In addition to this, first phase of Refused Tel: 92 (21) 5376128 Tel: 92 (21) 5824991
Fax: 92 (21) 5376129 Fax: 92 (21) 5376122
Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time
Financial Products Distribution:
of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Summit Capital (Pvt.) Limited
Tel: 92 (21) 5376125
accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is
Fax: 92 (21) 5376126
provided without warranty and Summit Capital (Pvt.) Limited makes no representation of warranty of any kind as to the accuracy or completeness of any
information hereto contained.
 Summit Capital
(Formerly Atlas Capital Markets (Pvt.) Limited)

plant which is expected to come on line by 1QFY13. In

addition to this, first phase of Refused Derived Fuel (RDF)
project has been completed at Khairpur and the
company is also planning to execute a same project at
D.G. Khan site which is explected to reduce fuel cost.
n sReeasrecahr c h

In our view, there are some key catalysts curtailing

growth in local demand 1) lack of new public sector
projects, 2) rising market prices on the back of higher
input costs and 3) reduced private consumption due to
high inflation. Thus, poor demand conditions would
remain to be a serious cause of concern for the industry
as a whole.
On the other hand, any further increase in local cement
prices would provide breathing space to
manufacturers.
We maintain our BUY stance on the scrip as it has an
upside potential of 45% over our ‘SoTP’ based fair price
of PKR39.
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