The Bell about Construction & Materials – Elixir Securities Limited

Karachi: DGKC: FY11 EPS expected at PKR0.83

According to Elixir Securities Limited,


Key FinancialsOutstanding shares:438mn
(PKR mn) 4QFY114QFY10YoY FY11FY10YoY
Net Sales5,718 4,42429%18,796 16,27515%
Gross Profit 1,631593175%4,5782,70569%
SG and A991353181%2,6641,167128%
Other operating income 23220911%1,01091211%
Other Charges2846-39%102189-46%
Finance cost55948116%2,1141,90311%
Net Income142 (149)-196%32023337%
Weighted average shares outstanding438365383365  
EPS (PKR) 0.33(0.41)-180% 0.83 0.6431%
EBITDA/ton 857 448 91%78158833%
Retention/ton4,873 3,335 46%4,382 3,26634%
COGS/ton3,4832,88821% 3,315 2,723 22%
Dispatches(mn tons)1.171.33-12% 4.29 4.98 -14%
Source: Elixir Research, Company Accounts      


Higher margins to drive earnings growth

Amid 14% YoY decline in total dispatches during FY11, impetus for bottom‐line growth will likely be higher EBITDA margins. Elixir Securities expects EBITDA margins to show an increase of 33% YoY during FY11, along with a 13% QoQ increase during 4QFY11, both emanating from higher retention prices. Average retention for FY11 is expected at PKR 4,382/ton (up 34% YoY); due to increase in domestic cement prices, which shall more than offset 22% YoY increase in COGS/ton. However, growth in EBITDA margins beyond expected levels shall be obstructed by higher distribution costs during FY11 (up 148% YoY) due to higher CNF based export contracts and rising cost of inland freight. Also, with higher share of exports in sales mix, the company is likely to book a deferred tax charge due reduction in recoverable tax losses as exports are subject to turnover tax.

Higher exports to limit decline in total dispatches to 14% during FY11

Elixir Securities expects DGKC’s FY11 local dispatches to fall by 26% YoY to 2.97mn tons owing to slow construction activities and oversupply of cement in the northern region. Local off take in the north region was down 11% YoY during FY11. Moreover, northern players had stopped dumping cement in the south region during FY11 owing to contraction of the relative price premium. Due to un‐alluring local market conditions, DGKC is likely to have continued to park its excess capacity in export markets during 4Q as it did during 9MFY11, despite fetching lower export retention prices. Elixir Securities expects DGKC’s export dispatches to rise by 32% YoY to 1.32 mn tons during FY11 primarily led by higher demand of cement from Africa and Afghanistan. Elixir Securities estimates local retention to have averaged PKR4,215/ton during FY11, whereas export retention, after adjusting for logistic charges is estimated at PKR3, 164/ton.