DG Khan Cement surprises market with 55% drop in net profit

DG Khan Cement announced a 55 per cent decline in net profit for fiscal year 2010, much below market expectations.

The company posted a net profit of Rs233 million for the year ended June 30 against the preceding year’s Rs526 million, according to a notice sent to the Karachi Stock Exchange on Friday.

The drop in profit is mainly on the back of lower selling price of cement, analysts said. Prices in the local market fell 27 per cent while in the international market they dropped 20 per cent during fiscal 2010.

The results fell way short of market expectations. The consensus of three research firms revealed that they had expected the net profit to stand at Rs346 million, 48 per cent higher than actual earnings.

The company’s net sales fell 10 per cent to Rs16.3 billion, a result of lower selling price despite an increase in sales.

Changing dynamics

The company shifted its outlook from export markets and decided to concentrate on boosting sales locally, according to BMA Capital.

The fallout of marketing arrangements meant more aggressive operating levels for the company, said BMA Capital analyst Omar Rafiq.

High finance cost continues to hurt bottom line

Though the finance cost declined by 27 per cent to Rs1.9 billion, it continues to dampen the earnings performance of the company.

The company’s other income increased by 18 per cent to Rs903 million mainly due to higher dividends from its investment in MCB Bank.

Outlook

Although recent floods have rekindled hopes for investors who expect cement sales to improve in fiscal year 2011, it will only experience a small improvement of 0.6 to 0.7 million tons, according to Rafiq. Weaker outlook on the sector comes from delayed farm incomes, higher prices and likely cut in Public Sector Development Programme, said Rafiq.  Furthermore, DG Khan Cement is expected to more or less maintain its market share in local dispatches, added Rafiq.

Published in The Express Tribune, September 18^th, 2010.