Earnings Report /
Pakistan

DG Khan Cement: 1QFY23 Review - Lower-than-expected margins lead to earnings miss

  • DGKC has posted an unconsolidated profit of PKR389mn (EPS: PKR0.89) in 1QFY23, down 57% YoY.

  • Revenue increased by 22% YoY/down 8% QoQ to PKR13.6bn. QoQ decline in sales is due to 22% QoQ reduction in local sales.

  • GMs have clocked in at 15.3% (down 3.6/2.5ppt YoY/QoQ), lower than our expected GM of 17%.

Intermarket Securities
25 October 2022

DG Khan Cement (DGKC) has posted an unconsolidated profit of PKR389mn (EPS: PKR0.89) in 1QFY23, down 57% YoY. This came in lower than our expected EPS of PKR1.44, where the major deviation stemmed from lower-than-expected GMs.

Key observations

  • Net sales have increased by 22% YoY and down 8% QoQ to PKR13.6bn. The sequential decline in topline is majorly due to 22% QoQ reduction in local sales. However, the increase in local cement prices have cushioned the topline. Revenue came in line with our expectation of PKR13.7bn.

  • Gross margins have clocked in at 15.3% (down 3.6/2.5ppt YoY/QoQ), lower than our expected GM of 17%. This may be due to higher realization of coal prices than estimated, in our view.

  • Finance cost has increased to PKR1.6bn, up 117% YoY (in line with expectations). This is due to increased borrowings and interest rates.

  • Among other line items: i) other expenses have reduced significantly to PKR16mn, from PKR226mn in SPLY, and against our estimate of PKR140mn, (ii) distribution expenses surged by 5% YoY and 44% QoQ owing to higher transportation expenses, and (iii) effective tax rate during the quarter clocked in at 33% vs. 23% in 1QFY22 due to super tax.

DGKC has posted weak quarterly result amid higher realized energy prices. Moving forward, higher dispatches post floods, elevated cement prices, and ease off in coal prices will increase DGKC’s margins and earnings in the upcoming quarters. We have a Buy rating on DGKC with a June 2023 TP of PKR96/sh..