The Bell about Construction & Materials – Elixir Securities Limited

Karachi: DGKC: Better margins make up for flattish volumes

Top‐line surges despite dismal volumes

According to Elixir Securities, despite a nominal 1% YoY growth in total off take during 1QFY12, top‐line surged by 44% YoY owing to increase in retention prices. Average net retention increased by 43% YoY to PKR263/bag; due to stronger price consensus amongst manufacturers which along with lower govt levies led to increase in domestic retention. Increase in retention prices had more than offset 24% YoY jump in COGS/ton which had proliferated from expensive coal inventory and greater reliance on Wapda for electricity requirement. Resultantly, EBITDA margins shot up by 79% YoY to PKR1,229/ton; however it was partly due to low base effect of 1QFY11. EBITDA margins were up 63% QoQ. Growth in EBITDA margins was weighed down by higher selling expense (up 95% YoY) owing to higher manifestation of CNF based export contracts and rising cost of inland freight. Also, with higher share of exports in sales mix, DGKC booked a deferred tax charge of PKR192 mn which filtered into an effective tax rate of 43% vs Elixir Securities’ expectation of 45% for the quarter.


Key FinancialsOutstanding shares:438mn
(PKR mn)1QFY11A1QFY12A  YoY 4QFY11AQoQ
Net Sales3,528 5,08844% 5,499-7%
Gross Profit6781,531126%1,4386%
EBITDA6621,192 80%78951%
Other operating income233 26112%329 -20%
Other Charges2995 225%(36)-369%
Finance cost488449  -8%496-10%
Net Income/Loss 22318 1339% (6)-5202%
EPS/LPS (PKR)0.050.731339% (0.01)-5202%
Retention/ton3,663 5,24543%5,241 0%
Dispatches(mn tons)0.960.97 1%1.05-8%
Source: Elixir Research, Company Accounts


Local dispatches put on a soft pedal while exports running on full throttle

DGKC’s cement off take remained flat YoY during 1QFY11 due to decline in local dispatches; however, decline in total dispatches was contained by rise in exports. Local dispatches for DGKC went downhill, declining by 12% YoY to 0.63mn tons during FY11 owing to slow construction activities and oversupply of cement in the northern region. Due to un‐alluring local market conditions, DGKC continued to park its excess capacity in export markets during 1QFY12, as it did during last the 3 quarters. Export off take for DGKC rose by 36% YoY to 0.34 mn tons during 1QFY12 owing to higher demand of cement from East Africa and Southeast Asia.

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