20000321

Brief recordings

BY SCANNER

Cement

D.G. Khan Cement Company Ltd

Year Ended June 30, 1999

Overview

The company could not announced dividend this year. Since 1996, the company has not been able to make profit distribution. This year the company suffered gross loss and massive net loss after taxation which eroded its equity base forcing down the break-up value of the share to Rs 24.30 from Rs 28.69, being the lowest since 1995. After tax loss reached the large amount of Rs 580.37 million which can be compared from the 5-year highest profit after tax at Rs 386.79 million. Depreciation charges at Rs 767.62 million (FY 1996-97: Rs 145.18 million) and financial charges at Rs 578.16 million (FY 1996-97: Rs 69.89 million) escalated exorbitantly by 429% and 727% respectively over the previous year's charges. Liquidity crunch is visible from the current ratio of 0.37 (1995: 2.25) and debt to equity ratio at 45:55 does not convey any endangering of long term debt coverage but shows large shift to highly leveraged balance sheet if compared to 1995.

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D.G. Khan Cement Company Limited is a public limited company incorporated in the province of the Punjab and is listed on all stock exchanges in the country. The company was listed at the Karachi Stock Exchange in 1992.

At present the share in the company is trading at Rs 8.95 at 10.5% discount to its par value. During the fiscal year 1998-99, market value of the share went down to very low at Rs 2.75 from Rs 11.50 while the share turnover was quite large at nearly 51 million shares. The present price, bottomed out and now the trend is upward towards at least the par value. Even at the present price, the investors who would have built stocks at around the lowest price in the last fiscal year, would have enriched their investment portfolio or made good of their losses by averaging out. However, the present price is simply no where near to the last 6-year's peak price of Rs 128 quoted in 1994.

This Nishat Group's cement company has installed capacity of clinker production at 1.650 thousand tonnes annually. During 1996-97 its production capacity was 0.660 million and capacity utilisation at 96.2% so maximum economies of scale was attained. But in the year under review with capacity utilisation was low at 61.9% and lower than the previous year's 57%.

The unit is located in the Northern Region at Khofli Sattai in District Dera Ghazi Khan in the province of the Punjab. The expansion project was also financed by IFC, CDC and ADB.

During 1996-97, it was visualised that the cement industry would get a boost with the implementation of the projects like Islamabad-Peshawar Motorway, Karachi Mass Transit Scheme, Port Bin Qasim Oil Refinery, industrial zones around Lahore-Islamabad and construction of few dams. Now after even several years, these projects could not be materialised. On the other hand even at the time of the project's trial run, in December '97, when the unit's capacity was about to be raised to 1.65 million tonnes, the net profit in the cement industry was decreasing. Even at that time the scanner had raised the question of solvency of expansion projects in the industry. In the 12th January 1998 of this column it was mentioned, "two critical factors of far reaching consequences emerge in the present scenario. The expansion project has large capital outlay in the shape of foreign currency loan.

In the face of frequent and massive Pak rupee devaluation, the question of foreign exchange cover comes. If the exchange cover has been taken care of then there is no apprehension of massive exchange losses otherwise the resources will come under severe pressure, affecting viability of the operations. The second question is the effective rate of the cost of debt. So the solvency of the expansion project hinges on three main factors.

First, exchange cover. Then effective rate of the cost of debt and the magnitude of repayment. And third the timely repayment of debt in the present scenario, when there is a glut situation in the cement industry exerting extreme pressure on margins."

In the present Annual Report lower production is ascribed to "the depressed market condition led by political instability and worst economic conditions of the country is the main cause of lower production." The statement in one of the annexed notes may be looked into in the light of the apprehensions as far back as in 1997. The fact has not changed since 1997, then why lament now and why expansion was taken in the whole cement industry when the supply/demand gap was then visible and why the foreign loan providers did not look into the glut situation in the industry. The foreign loan providers claim to posses crystal balls of economic forecast and are future scenario constructors. If that be the situation, then they should own the wrong side of their economic analysis exercise done several years back and should not lament for the worst economic situation now. Rather the foreign loan providers should cut down their harsh rates of interest.

During the year under review, the company's sales expended by 82.3%, but turned gross loss of Rs 57.62 million replacing the previous year's gross profit of Rs 141.11 million. Loss per share reached to a very high figure of Rs 4.38. The expansion project created large unutilised capacity and at the same time enhanced depreciation charges to Rs 767.624 million from Rs 145.176 million in the previous year and telescoped the financial charges to Rs 578.16 million from Rs 69.89 million in the preceding year.

As it would appear now, the hope for the early recovery is no where in the sight.

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Performance Statistics (Million Rupees)

June 30 1999 1998

Capital & LiabilitiesÉÉÉ

Paid-up Capital: 1,323.91 1,323.91

Reserves: 2,532.04 2,532.04

Accumulated (Loss): (638.20) 57.83

Equity: 3,217.75 3,798.12

L.T. Debts: 2,539.00 3,008.64

L.T. Deposits & Deferred Liabilities: 42.88 40.49

Current Liabilities: 3,000.68 2,201.80

AssetsÉÉÉ

Fixed Capital Expenditure: 7,044.58 7,340.93

L.T. Investments: 635.60 675.11

Other Non Current Assets: 23.28 23.78

Current Assets: 1,096.85 1,009.23

Total Assets: 8,800.31 9,049.05

Sales, Profit & PayoutÉÉÉ

Sales: 2,259.81 1,238.98

Gross Profit (Loss): (57.62) 141.11

Operating Profit (Loss): (109.36) 61.18

Other Income: 99.55 37.21

Depreciation: 767.62 145.18

Financial Charges: 578.16 69.89

(Loss) Before Taxation: (577.68) (46.57)

(Loss) After Taxation: (580.37) (58.28)

Accumulated (Loss)/Profit B/F: (57.83) 0.45

Financial RatiosÉÉÉ

Share Price (Rs) 14/3/2000: 8.95 Ñ

Book Value Per Share (Rs): 24.30 28.69

Price/Book Value Ratio: 0.37 Ñ

Debt/Equity Ratio: 45:55 44:56

Current Ratio: 0.37 0.46

Asset Turnover Ratio: 0.26 0.14

Gross Profit/(Loss) to Sales (%): (2.55) Ñ

Net Profit/(Loss) to Sales(%): (11.39) Ñ

EPS (Rs): (4.38) (0.44)

Price/Earning Ratio: (Ñ) (0.44)

R.O.E. (%): (Ñ) (Ñ)

R.O.A. (%): (Ñ) (Ñ)

R.O.C.E. (%): (Ñ) (Ñ)

Plant Capacity & Production (Million M. Tonnes)ÉÉÉ

A) ClinkerÉÉÉ

Capacity: 1.650 1.650

Production: 1.021 0.940

Capacity Utilisation (%): 61.88 56.97

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Company information: Chief Executive: Ms. Naz Mansha. Director (ICP Nominee): H. Hatim Dayala. Company Secretary: Khalid Mahmood Chohan. Registered Office: Nishat House, 53-A, Lawrence Road, Lahore. Factory: Khofli Sattai, Distt. Dera Ghazi Khan.