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PACRA maintains entity ratings of DGKC at ‘AA-‘

PACRA maintains entity ratings of DGKC at 'AA-'
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March 04, 2024 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of D.G. Khan Cement Company Limited (PSX: DGKC) at 'AA-' for the long term and 'A1+' for short term with a stable outlook forecast, latest press release issued by PACRA showed.

DG Khan Cement Company’s ratings are derived from the entity’s enduring presence in the local cement sector along with the sponsor's distinguished financial and business acumen.

The local cement industry witnessed a downtrend in total sale volumes of 15.7% in FY23 as compared to the previous year. (FY23: 44.5 million MT, FY22: 52.8m MT).

Local dispatches dwindled by 16% to ~40.01mln MT during FY23 from 47.63m MT in FY22.

Likewise, Export dispatches declined by 0.7mln MT during the period (FY23: 4.56m MT, FY22: 5.25m MT).

The overall decline in the volumes was nurtured by soaring inflation in the country which led to demand constraints. Furthermore, the economic and political instability in the country during the year hindered the developmental activity in the country which contributed towards a fall in consumption of cement.

The company’s total sale volumes declined by 20% during the fiscal year from 5.36m MT in FY22 to 4.274m MT during FY23. Based on the total sale volumes during FY23, the company occupies a 10% market share.

Despite the decline in volumes, the company reported growth in Net Revenues of 14.3% (FY23: Rs70.495bn, FY22: Rs61.653bn) primarily due to stable local cement prices that accounted for inflation to some extent.

However, high energy and fuel prices coupled with lower demand resulted in a decline in gross margins.

The transition in FY24 brought some relief for the cement sector in the form of growth in total industry volumes of 23.5 % during the first quarter (1QFY24: 11.9m MT. 1QFY23: 9.6m MT). Recovery in both local and exports contributed towards the positive shift.

Likewise, the DGKC's total sale volumes increased by 14.1% during the first quarter as compared to the same period the previous year. (1QFY24: 1.086m MT, 1QFY23: 0.952m MT) resulting in Net Revenues of Rs16.517bn (1QFY23: Rs13,585m).

Going forward, negligible growth is expected during the remaining fiscal year due to a slowdown in economic activity and other infrastructure projects.

The company is adhering to cost-efficient measures including the use of alternate fuels to sustain its margins.

Furthermore, the company is also evaluating export opportunities to the USA market which if materialized may contribute to the profitability.

Unlike its peers in the industry, DGKC has no capacity expansion plans and is committed to efficient capacity utilization and lowering its debt burden.

The company’s association with the Nishat Group coupled with strategic investments in group companies that deliver a stable dividend income further provides additional support.

Furthermore, the company's strong operational history which is evident from its market presence complements the ratings.

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Posted on: 2024-03-04T15:08:30+05:00