Corporate results: DG Khan Cement knocks it out of the park

Company profit rises sharply due to higher market prices.

KARACHI:

DG Khan Cement knocked its half-yearly result out of the park with net profit growing more than six times led by higher prices.

Bottom-line stood at Rs1,279.4 million during July to December 2011 against net profit of 192 million in the same period last year, according to a notice sent to the Karachi Stock Exchange on Friday.

Higher prices saved the day as the cement manufacturer’s production level is expected to stay in the same range, if not fallen during the period under review. IGI Securities estimated a few days ago that DG Khan Cement’s production will decline 7% to 1.89 million tons in the first half of fiscal 2012.

Selling price, the saviour, rose 25% to Rs425 per bag during the period under review against Rs339 posted in the same period last year.

Hence, gross margins rose by a massive 12% to stand at 32%, making the business environment friendlier for the entire industry which saw a gloomy couple of years. Another industry giant Lucky Cement recently announced its half-yearly profits recently with profits growing to folds to Rs3.02 billion.

Net sales increased significantly by 31% to Rs10.7 billion during July to December 2011 compared with the preceding year’s Rs8.2 billion.

Other income witnessed a sharp jump of 19% to Rs650 million and contributed about 51% to the total net profit, said Summit Capital analyst Sarfraz Abbasi. Higher other income was primarily on the back of heavy dividend income received from associate companies including MCB Bank, Nishat Mills and Nishat Chunian.

Moreover, financial charges declining a sharp 13% to Rs886 million against Rs1.02 billion let more cash flow down to the bottom-line.

The company’s effective tax rate also stood lower at 22% as against the 36% last year.

Better days ahead

While the upward trend of cement prices will continue to keep profits growing, the alternate fuel plant set up by the company will help take these profits to another level. The company has decided to use agriculture and other wastes as fuel instead of expensive coal and petroleum products.

The company re-started the alternate plant during October to December 2011 and replaced 20% of its coal requirement. Total fuel cost saving from coal replacement is likely to stand at Rs318 million, according to IGI Securities.

In addition to this, increasing sales to neighbouring countries India and Afghanistan should support exports growth in the near future.

Published in The Express Tribune, February 18^th, 2012.