Analyst Briefing: DGKC’s export margin to improve if South Africa lifts antidumping duty on Cement

November 27, 2020 (MLN): D.G. Khan Cement Co. Ltd (DGKC) conducted an analyst briefing session yesterday where the management discussed the latest financial results as well as the company’s future strategy.

To recall, the company reported a net loss of Rs 293 million (LPS: Rs 0.67), depicting a massive 80% YoY decline against a net loss of Rs 1.44 billion (LPS: Rs 3.30) in the corresponding period last year.

The company’s performance improved remarkably as a result of a jump in total dispatches to 1,897k tons, recovery in retention prices together with the soft coal prices (USD 60/ton CNF in 1QFY21) which offset the impact of PKR depreciation.

During the analyst briefing session which was organized by Foundation Securities, the management communicated that the company is maintaining coal inventory at US$65-67/ton for the current quarter so far. Whereas, new coal prices for the remaining quarter are shipped at ~US$72/ton. Subsequently, the passing on impact would be Rs100/ton. However, new coal prices for shipment is currently clocking in at US$82/ton. The management is optimistic to pass on the impact of increasing energy costs to the consumers.

The company expects demand to grow by 12% YoY in FY21, which will be steered by private sector demand amid the government’s strong emphasis on the construction sector,  CPEC related construction, demand from Diamer Bhasha and Mohmand Dam along with expected demand in South due to the Karachi package of PKR 1.1tn.

The management disclosed that the company is not directly involved in selling cement to dams. However, DGKC plans to target demand regions of those plants (CHCC/KOHC/Askari, etc) that would be supplying cement to dams.

In terms of power requirements, two of the company’s production sites are self-sufficient. DG Khan Site is 100% sufficient in terms of electricity while Khairpur site is only 15- 20% reliant on the national grid. Hub site is expected to become more reliant on the Waste Heat Recovery and Coal-Fired Power Plant (commissioning expected by the end of FY21), as per key takeaways covered by Fortune Securities.

On the export front, the management of the company revealed that the anti-dumping duty imposed on Pakistani cement by South Africa will expire on December 15, 2020. If this duty is lifted, it will open another export avenue for producers via Sea route to tap the big cement market to improve export margins.

Regarding potential new expansions, the management stated that they are presently assessing both greenfield and brownfield expansions. A green-field expansion will be c.12,000tpa (3.6mn tons pa) and a brown-field will be c.7,000tpa (2.1mn tons pa). DGKC presently has a total capacity of around 7mn tons, as per Intermarket Securities.

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