DG Cement Suffers a Huge 80% Drop in Profits for FY19

DG Cement has announced its financial results for the fiscal year 2018-19.

Being one of the top players in the industry, DG Cement failed to make it big this time. The company’s profitability went down by a massive 80%, posting a profit of just Rs. 1.86 billion during the year. DG had booked a profit of Rs. 8.86 billion in the same period last year.

Despite nearly 30% growth in revenues, DG Khan Cement watched its FY19’s earnings drop by 80%. The sales of the company were recorded at Rs. 43.62 billion, up by 30.37% as compared to Rs. 33.46 billion in the corresponding period.

The drop was mainly due to an extraordinary hike in costs, in-line with the rest of the sector due to sluggish demand and persistent pricing pressures of cement. Cost of sales increased by 54% to Rs. 37.95 billion compared to Rs. 24.64 billion in the same period last year. Gross profit of the company was down by 35.65% to Rs. 5.67 billion as compared to Rs. 8.81 billion in the same period last year.

The company’s gross margins dropped mainly due to a hike in power tariffs by the National Electric Power Regulatory Authority (NEPRA) and high inflation levels. Rupee’s devaluation caused the company’s margins to drop further.

Domestic demand has been slow due to PSDP cuts, an overall slowdown in development and commercial/real estate activity. DGKC is exporting excess production to different markets globally.

The finance cost saw a significant increase of 528.25% to Rs. 3.61 billion from Rs. 574 million in the period under review, as the company was in an expansionary phase with high interest rates.

Other income of the company was down by 17.56% to Rs. 2.4 billion. The company paid taxes worth Rs. 415 million against a tax rebate of Rs 1.62 billion in the corresponding period.

The company reported earnings per share (EPS) of Rs. 4.16 down by 80% compared to previous year’s EPS of Rs. 20.25. It also announced a final cash dividend of Rs 1.00 per share.

DGKC’s script at the bourse was closed at Rs. 47.13, down by Rs. 0.68, with a turn over of 6.71 million shares on Monday.

The company also notified that it had raised its investment in Hyundai Nishat Motors to Rs 1.05 billion from Rs 850 million and renewed a Rs. 1 billion loan to Nishat Hotels at one-month Kibor plus 100 bps for a period of one year.

  • As expected, gross margins of DGKC declined 8ppsYoY to 17% in 3QFY19. The contraction in margins is primarily due to higher cost of production in the wake of PKR devaluation. In absolute terms, gross profitability clocked in at PKR 1.781 billion in 3QFY19, down 7%YoY.

    Moreover, finance cost surged 627% YoY to PKR 912 million in 3QFY19. However, company booked a tax credit of PKR 71 million during the quarter which restricted decline in DGKC’s profitability.

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