19 September 2004	Sunday	03 Shaban 1425

KARACHI, Sept 18: The financial results of DG Khan Cement Company Limited for the year ended June 30, 2004 announced on Thursday, came within the range of majority of the sample of five brokerage houses: Elixir; Jahangir Siddiqui; Taurus; Arif Habib and KASB.

The company posted profit after-tax amounting to Rs830 million, representing growth of 71.5 per cent over the taxed profit of Rs483 million the previous year. Give or take Rs20 million, most analysts hit quite close to the mark. The board proposed final cash dividend at Rs1.50 per share together with bonus at 10 per cent. Since interim payout had been omitted analysts suggested that final between Re1 and Rs2 per share could be in the offing. Also almost everyone put stakes on bonus issue at 10 per cent, which did materialize. While this goes to enhance credibility of equity analysts, it also is a sad reflection on the fact that such professional research work is not available to the small investor.

The share in DG Khan gained 10 paisa to close at Rs54.95 on Friday; the results and payout were perhaps already factored into that price. On the FY04 basic earning per share (eps) of Rs4.74, the price-to-earnings (p/e) ratio worked out at 11.6x. The stock looks a little expensive compared to the market p/e of around 10x.

Sales for the year ended June 30, 2004 grew 30 per cent to Rs3,882 million, from Rs2,992 million in FY03. Gross profit surged 104 per cent to Rs1,385 million from Rs678 million and the gross margin improved to 35.7 per cent, from 22.7 per cent. Operating profit rose by 113 per cent to Rs1,278 million, from Rs599 million and the operating margin increased to 32.9 per cent, from 20 per cent last year. Financial charges decreased by 54 per cent to Rs189 million, from Rs410 million. For the year under review, the company provided for taxation in the sum of Rs326 million, against favourable tax adjustment of Rs128 million last year, which also went to put added gloss to the bottom line.

Some excerpts from pre-result reviews by various stock brokerage firms: Analyst Ali Sibtain at Elixir Securities said that 24 per cent increase in retention price to Rs2,087 per bag from Rs2,578 per bag and the expected 4 per cent decline in fuel costs were the main reasons for improvement in gross margins. Tanvir Abid, head of research at Jahangir Siddiqui Capital Markets estimated DG Khan's FY04 capacity utilization at around 86 per cent. Financial charges were expected to dip on the company's earlier major debt restructuring. The company was stated to have replaced its foreign currency debt and expensive rupee loans with fresh debt costing between 4-6 per cent and thus benefited from low interest rate. The analyst said that DG Khan Cement was implementing an optimization plan, which was expected to increase cement production capacity by 1,200 tons per day. The company was also said to have placed an order for euro60 million to construct a new production line. Expected to be commissioned at the beginning of 2007, the production line was to be the country's largest having capacity of 6,700 tons of clinker a day. Analyst Sadaf Yousuf at Taurus Securities thought that higher profitability resulted from higher local and export sales, at 1.286 and 0.168 million tons, respectively.

Margins remained high on the back of company's savings on fuel oil from shifting to coal coupled with firm selling prices. The analyst also discussed company's expansion plans. Regarding the expected cash dividend and bonus issue for FY04, analysts at Arif Habib Securities came closest to the actual numbers; the company projecting cash dividend between Re1 to Rs1.50 tied to a bonus at 10 per cent. Analyst at AHSL said that increase in bottom line could be attributed to re-profiled debts and rising cement sales during the year under review. Turnover was stated to have been highest during 4Q04.

Analyst Shagufta Irshad at KASB observed that coal conversion process at DG Khan was completed during 3Q03. The $37 million foreign currency loan re-profiling exercise conducted by the company was estimated to provide Rs198 million saving in financial expenses for FY04. The analyst expected the company to announce shortly, a right issue to finance either of its new cement plants.