The Bell about Construction & Materials – Elixir Securities Limited

Karachi: DGKC: Strong earnings likely during 2Q despite weak volumes

Weak volumes expected during 2Q
Low cost operations of DGKC have increased its competitiveness in the Northern Region while exports are still viable for DGKC despite weak export prices.

According to Elixir Securities Limited expects DGKC to have maintained its market share in local dispatches at 12% during 2QFY12, whereas exports market share would likely be higher by 1pp at 15%.

EBITDA margins to prop up earnings
EBTIDA margins for 2QFY12 are expected to clock in at PKR1,325/ton, up 64% YoY, mainly driven by local EBITDA margins at PKR2,005/ton, up 1.5x YoY. Local EBITDA margins are likely to be driven by higher market prices of cement in North region, which shall translate into net retention of PKR5,534/ton. Local cement prices further strengthened during 2QFY12 to PKR400/bag, up 3% QoQ. COGS/ton for DGKC is expected at PKR3,818/ton, up 12% YoY.

Deleveraging to benefit DGKC
Debt levels of DGKC at Sep‐11 eased by 10% YoY, which suggests the company is moving towards de‐leveraging with improving EBITDA margins. Discount rate cut of 150bps during Oct‐11 monetary policy have eased interest rates and loan re pricing in Jan‐11 would likely lead to further lowering of interest cost in 3QFY12. Elixir Securities Limited expects finance cost for 2QFY12 to clock in at PKR466mn, down 12% YoY. Elixir Securities Limited’s initial estimates suggest that DGKC would yield an EPS of PKR0.78 for 2QFY12, up 1.0x YoY due to strong EBITDA margins and lower finance cost.