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D. G. Khan Cement’s domestic sales up, exports down in first half of fiscal year

D. G. Khan Cement Company Limited (DGKC) always offers the high quality of cement dispatched in Pakistan and also focuses on its financial performance in the competitive market. The management of the company mentioned that the DGKC’s plants and operations are complying with global and nationwide environmental standards. DGKC is completely cognizant of its responsibility towards society and welfare programs. To enhance economic performance of Pakistan, the company is spending on education, health, medical and fire-fighting facilities, water supply to nearby localities, aiding in emergency and disaster situations in nearby areas, awareness campaigns etc.

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In the FY2018 half yearly performance report, the financial experts of the company mentioned in the financial statement that the clinker production stood at 106 percent (HYFY17: 103 percent) efficiency level while cement production efficiency reached at 116 percent (HYFY17: 107 percent). Cement dispatch utilization attained levels of 116 percent (HYFY17: 105 percent) on overall basis, 104 percent (HYFY17: 91 percent) in local sales and 12 percent (HYFY17: 15 percent) in exports sales. The report also revealed that this half year recorded 3 percent rise in clinker production, 8 percent growth in cement production, 10 percent upward trend in overall volumetric sales, 14 percent growth in domestic market sales while 17 percent fall in exports sales in comparison with comparative half year.

Exports of cement have come to 10 percent of total sales. Regarding sales statistics, the financial experts also mentioned that overall net sales rose by 7 percent in value terms with a corresponding rise of 25 percent in cost of sales. This puts gross margin to decline by 17 percent of what was in half year of FY2017. Profit before tax declined by 17 percent.

Taxation expense declined by 18 percent. It all reduced profit after tax by 17 percent. GP margin registered at 33 percent (HYFY17: 43percent) and PAT ratio to sales remained at 24 percent. Furthermore, for second quarter of this year GP ratio is 32 percent. In second quarter sales growth in volumes is 2 percent and GP fall is 24 percent in comparison with second quarter of last financial year. Main cause for this fall in PAT is shrinkage of GP. GP reduction is because of reducing cement prices in domestic market. Market price condition is tough but not negative. This hampered the conversion of volumetric growth into monetary terms. It is also said that the market condition currently is also not allowing to pass on the impact of higher FED and input costs. Other major factor for reduction in GP is growing coal rates and increased cost of gas because of RLNG tariff.

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In the financial report of the company, DGKC managed to decline reliance on national grid because of comparatively cheap captive power generation. Kiln operational days remained 6 percent greater than comparative 6-month. Tax credit for investment, predicted to be Rs.2.9 billion under section 65B of the Income Tax Ordinance, 2001 will be recognized upon commencement of operations of its new production line being set up at Hub, Balochistan.

The management is predicted to begin operations by June 2018. In January 2018, State Bank of Pakistan (SBP) grew discount rate by 25bps to reach at 6 percent. This was somewhat unexpected move. PKR lost about 5 percent against USD during 2nd quarter in December and may lose its strength further. SBP predicts to attain real GDP growth rate of 5.8 percent. This is better than last year but will nearly miss the target for the year.

The financial experts of the company also mentioned in the statement that oil prices grew predicted to hover almost USD70. This may add to woes in country’s economic management. In fiscal terms, this may lead to magnification of inflation in Pakistan. Industrial growth for this half year was 12 percent with 17 percent growth in domestic and 17 percent fall in exports. Industrial utilization remained at 95 percent on overall basis with 85 percent used in domestic and 10 percent in exports. FY2018 Q2 to Q1 local sales are 19 percent higher with 15 percent overall growth.

Given the trend of cement sales so far and economic projections of country, it is expected that cement sales will grow on local front. Various activities mainly CPEC in Pakistan and household sector all are predicted to drive the demand in coming time. No doubt, cement industry is among the highest contributors In Pakistan to the national exchequer over the last few years with a contribution of Rs. 110 billion in 2016-17. It is also recorded that the currently Federal excise duty on cement is Rs. 1,250 per ton i.e. Rs. 62.5 per bag.

The buoyancy in local/domestic cement demand has been complemented by surging exports for the second month as cement exports from the country rise by a whopping 85 percent in March 2018. Total cement despatches in March 2018 was 4.652 million tons the highest ever in history of cement industry. This was 17.33 percent larger than the total despatches of 3.965 million tons attained in March 2017.

Conclusion

In the cement industry of Pakistan, DGKC is trying to provide quality products to customers and exploring new markets to expand sales of the company through good governance and foster a sound and dynamic team by which the management can achieve future goals.

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