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Karachi, November 12, 2012 (PPI-OT): DGKC: Improving efficiencies to support margins; reiterate BUY
According to Elixir Securities Limited,
| Key Financials Outstanding shares: 438 million | |||||
| (PKR million) | 1QFY12A | 1QFY13A | YoY | 4QFY12A | QoQ |
| Net Sales |
5,088 |
5,874 |
15% |
6,246 |
-6% |
| Cost of Sales |
3,557 |
3,661 |
3% |
4,251 |
-14% |
| Gross Profit |
1,531 |
2,213 |
45% |
1,995 |
11% |
| SG and A |
687 |
649 |
-6% |
468 |
39% |
| EBITDA |
1,192 |
1,935 |
62% |
1,936 |
0% |
| Other income |
261 |
356 |
36% |
298 |
19% |
| Other Charges |
95 |
103 |
8% |
181 |
-43% |
| Finance cost |
449 |
303 |
-33% |
367 |
-18% |
| Profit before tax |
561 |
1,514 |
170% |
1,277 |
19% |
| Tax |
244 |
75 |
-69% |
(759) |
na |
| Net Income |
318 |
1,439 |
353% |
2,036 |
-29% |
| EPS (PKR) |
0.73 |
3.28 |
353% |
4.65 |
-29% |
| Source: Elixir Research, Company Accounts | |||||
Higher margins amid low tax rate triggered earnings growth
Cement dispatches of DGKC during 1QFY13 clocked in at 0.96 million tons, up 4% YoY. Modest growth in dispatches was topped by margin expansion. Gross profit margin for the company posted significant 39% YoY growth to PKR 2,297/ton on account of 11% higher retention amid 1% lower cost of production. Earnings growth was further supported by lower effective rate (5%) during the quarter as profit before tax grew by 1.7x YoY.
Stable prices reaffirm strong pricing power
PKR 100/ton reduction in FED coupled with continuously falling coal costs and low industry utilization provided cement producers ample margin to reduce prices in order to expand offtake. However, cement manufacturers have managed to keep prices stable, absorbing the entire benefit of lower government taxes and cost reduction. This reaffirms Elixir Securities Limited’s expectation that the marketing arrangement amongst cement manufacturers will hold strong for FY13.
Cost reduction measures to further support margins
Installation of waste heat recovery plant at the Khairpur site is expected to be completed by the end of the first half of FY13. The company’s investment in this project is expected to lower power costs by PKR 73/ton HoH during 2