Corporate result: Huge tax credit propels DG Khan Cement’s earnings

Cement manufacturer reports 58% higher profit at Rs2.73b

KARACHI: DG Khan Cement posted a consolidated net profit of Rs2.73 billion in the first quarter of fiscal year 2017-18, up 58% compared to Rs1.73 billion in the same period of previous year, according to a company notice sent to the Pakistan Stock Exchange (PSX) on Wednesday.

Earnings per share (EPS) jumped to Rs6.24 in July-September FY18 compared with EPS of Rs3.94 in the corresponding quarter of FY17.

Topline Securities commented that the better-than-expected result was due to a huge tax credit available to the company because of investment in a new production line in Hub, Balochistan.



According to Section 65B of the Income Tax Ordinance 2001, a company is entitled to a 10% tax credit on investment (based on a certain time frame) in the purchase of plant and machinery for the purposes of extension, expansion, balancing, modernisation and replacement of the plant and machinery.

The company did not book any corporate tax because of tax adjustment under depreciation allowance on its new Hub production line. The plant is expected to come on stream in the current fiscal year 2017-18.

A further tax benefit of up to Rs1.1 billion (Rs2.5 per share) is expected to be achieved in the remaining quarters of FY18.

However, the consolidated pre-tax profit of the company remained in line with expectations, down 8% year-on-year in the first quarter, primarily due to a reduction in margins.



Consolidated sales were up 14% year-on-year in Jul-Sep FY18 due to 18% volumetric growth in high-margin local cement sales.

Published in The Express Tribune, October 19^th, 2017.

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