Fiscal year 2012-13 has been good for the cement sector, where most analysts expect them to beat industry estimates as apart from higher cement prices driving profits, other macroeconomic factors were also favourable for them.
In the first nine months of fiscal 2013, DG Khan Cement, a unit of Nishat Group, doubled its unconsolidated earnings to Rs4.24 billion compared to Rs2.072 billion in the corresponding nine-month period of fiscal 2012, according to a notice sent to the Karachi Stock Exchange.
Analyst Asad Siddiqui of Topline Securities attributes meteoric growth in profitability to better margins amid higher cement prices, where additional support was provided from dropping financial costs and surging other income.
JS Global Capital estimates that the cement producer’s average net retention prices were up 10%.
Efficient cost control measures by DG Khan Cement played a major role in stellar results as cost of sales remained virtually flat, resulting in full impact of the growing top-line on earnings.
Depreciation of the rupee also proved to be a blessing in disguise for the company’s export markets. Because of rupee’s depreciation the company is actually earning decent revenues, said an official of the company.
Revenues for the country’s second largest cement producer topped at Rs18.13 billion, growing 8.6% compared to Rs16.7 billion in the same period of last year. Cost of sales rose 1% to Rs11.305 billion, resulting in gross margins to climb 470 basis points to 37.7% from 33% in the corresponding period of last year, with the commencement of DG Khan’s waste heat recovery plant and falling international coal prices.
As the State Bank of Pakistan slashed the benchmark interest rates by 250 basis points during the period to 9.5%, financial charges of the company dropped 38.5% to Rs0.802 billion from Rs1.3 billion in the same period of last year. Additionally, 22% higher dividend income from associates – MCB Bank, Nishat Chunian and Nishat Mills – to Rs1.085 billion boosted the bottom-line of the company.
In an exclusive interview with The Express Tribune, DG Khan Cement Director Marketing Fareed Fazal said that the cement producer is planning to expand to India despite non-tariff barriers put up by the Indian market.
“We have a plan to invest $10 million in setting up cement silos along with a mixing plant in India,” said Fazal. DG Khan also plans to pack the cement in India and sell it directly to the market from its planned facility on the Indian side of Wagah-Attari border.
Commenting on the Pakistani cement industry, he said that the sector has a lot of potential for exports as the industry has 20 million tons of spare production capacity and Pakistani cement was appreciated globally.
DG Khan’s major export destination in south Afghanistan and Kandahar has been taken over by Iranian cement, however, the company has developed its presence in Kabul and northern areas of the country.
Moreover, the cement producer has also explored other potential export markets, which included South Africa, Mozambique, Ethiopia, Djibouti, Tanzania, Kenya, Sudan, Congo and West Africa. In Asia, the company is developing channels in Sri Lanka, India, Myanmar, and Tajikistan.
Despite stagnant economic activity and stalled infrastructure development due to the election period, Fazal was confident that the company will continue to grow in the remaining months of the fiscal year.
“In spite of this being the election year and all other unfavourable conditions, we are still projecting growth of two to three per cent,” said Fazal.
Published in The Express Tribune, April 18th, 2013.
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