DGKC: Robust growth amidst higher retention prices, recognition of dividend income

April 26, 2021 (MLN): D.G. Khan Cement Company Limited (DGKC) has returned to profitability, as it earned net profits of Rs3.25bn (EPS: 7.42/sh) during 9MFY21, compared to the net loss of Rs2bn (LPS:4.63/sh) incurred in the corresponding period last year.

The significant jump in earnings is primarily due to higher retention prices in the north and a higher dividend income from MCB, an upbeat construction sector, and impressive export numbers.

DGKC has a presence in both the south and north market which has helped its sales penetration. Topline during 9MFY21 depicted an uptick of 6%YoY to Rs35.37bn on the back of a significant improvement in retention prices which offset the impact of volumetric decline (7% YoY to 5,360k tons).

The Gross margins during 9MFY21 expanded to 18% against 4% in SPLY largely due to recovery in retention prices coupled with lower coal prices, which quelled the impact of volumetric decline.

Furthermore, due to higher dividend income from MCB, DGKC’s other income witnessed an upsurge of 13% YoY from Rs1.82bn to Rs2bn.

Among other major heads, the company witnessed a decline in its core operating expenses as its admin cost, selling and distribution costs and other operating expenses all went down by 7%, 3%, and 52.5% YoY respectively. Similarly, Financial charges decreased by 41% to Rs2.38bn from Rs4bn, attributable to lower interest rates in the said period.

On the taxation front, the company paid Rs888.2mn worth of taxes during the period under review compared to the tax incentive of Rs1.47bn in the corresponding period a year ago.

Overall, taking the upbeat demand from the construction sector and stable cement prices into account, DGKC has performed exceptionally compared to previous years.

Moreover, according to the report by BMA Capital, the company is expected to capitalize on the sector upcycle with its own capacity expansion. This would enable the impressive profitability of DGKC in the current fiscal year to continue going forward.

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