DGKC: On a roll

February 18, 2022 (MLN): FY22 kicked off with the government’s ambitious ride to achieve high growth numbers at almost every macroeconomic level. However, worldwide inflation in commodities, particularly coal threatened the margins of cement players in Pakistan. Despite facing these cost-related difficulties, D.G. Khan Cement Company Limited's (DGKC) recorded consolidated net profits of Rs2.46 billion (EPS: Rs5.61) in 1HFY22, more than two times higher than Rs1.01bn (EPS: Rs2.31) achieved during the same period in the previous fiscal year.

This impressive increase in net income was attributed to better gross margins and improved other income due to the absence of dividend contribution from MCB last year.

It is important to note that rising commodity prices have badly hit the current account balance which led the domestic currency towards depreciation of PKR18.96 or 10.75% against the dollar in 1HFY22 also intensified inflation. SBP came as a rescue to hold the reins by increasing the discount rate by 275 basis points to mitigate this inflationary pressure. These factors contributed towards an increase in related costs across all industries.

Going by the financials, the company’s top line registered a growth of 23% primarily due to a surge in retention prices and higher volumes. As a result, the gross margins clocked in at 18.28%, up by 2.32ppt during the said period.

On the costs front, DGKC’s admin expenses swelled by 23% YoY while its selling and distribution cost fell by around 2% YoY during the period under review on the back of a decline in clinker exports.

Notably, the other positive highlight is a more than a 3-fold increase in other income to stand at Rs1.28bn. this increase was due to a dividend from MCB which was not received in the corresponding period last year due to restrictions from SBP, providing a cushion to its bottom line.

The company’s finance cost inched down by 0.45% YoY only as the central bank increased interest rates in the second quarter of the ongoing fiscal year on the back of growing inflation.

In addition, DGKC also booked net impairment loss amounting to Rs38.76mn as against net impairment gain of Rs30.88mn in the corresponding period last year.

On the tax front, the effective tax rate stood at 18.3% in 1HFY22 as opposed to 16% in SPLY.

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