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Khan Cement
TERM REPORT
ON
Of
D.G. Khan Cement
Company Limited
Submitted to
Mr. M. Sadiq Shahid Malik
Submitted by
M. Zuhair Altaf MBC-08-36
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Financial Analysis of D.G. Khan Cement
Acknowledgement
I have the only pearl of my eyes to admire the
blessing of the compassionate and omnipotent because the
words are bound, knowledge is limited and time is short to
express his dignity. All thanks are due only to Almighty
ALLAH, most gracious, the most merciful, who gave me the
strength and I did this job. My special praises are for Holy
Prophet Muhammad (SAW) who is, for even humanity as
a whole.
It is a matter of great honor and pleasure for me
to express my ineffable gratitude and profound indebtedness
to my venerable supervisor Mr. Sadiq Shahid Malik for his
kind supervision, valuable suggestions and sympathetic
attitude throughout my analysis. I am much impressed of
his intellectual activities, inexhaustible energy to steer forth
the student. His sympathetic and sincerest attitude is highly
qualified experience.
This research report includes analysis of financial
statements of DG Khan Cement. Special thanks to all those
who have helped me in collecting the data.
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Financial Analysis of D.G. Khan Cement
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Financial Analysis of D.G. Khan Cement
Table of Contents
• Balance Sheet
• Income Statement
Balance Sheet
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Financial Analysis of D.G. Khan Cement
Current Liabilities
2005 2006 2007 2008
(,000) (,000) (,000) (,000)
Trade and other payables - 1,406,869 1,027,274 1,370,336
Accrued markup 1,154,426 340,757 342,612 364,664
Short term borrowing - secured 960,620 2,613,695 3,942,972 7,597,020
Derivative foreign currency forward 306,048 - - -
options
Current portion of non - current liabilities 599,674 1,619,025 2,042,281 2,687,608
Provision for taxation 35,090 35,090 35,090 35,090
Total current liabilities 3,055,858 6,015,436 7,390,229 12,054,718
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Financial Analysis of D.G. Khan Cement
Current Assets
2005 2006 2007 2008
(,000) (,000) (,000) (,000)
Stores, spares and loose tools 1,035,081 836,049 1,496,291 2,299,250
Stock-in-trade 100,994 226,286 295,140 445,856
Trade debts 76,238 74,165 144,245 366,173
Investments 2,769,134 8,543,763 16,933,79 15,082,582
0
Advances, deposits, prepayments and other 121,486 152,465 229,315 782,358
receivables
Cash and bank balances 93,836 77,167 116,173 226,372
Total current assets 4,196,769 9,909,895 19,214,95 19,202,591
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Financial Analysis of D.G. Khan Cement
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Financial Analysis of D.G. Khan Cement
Income Statement
2007 2006
2008 (,000) (,000) (,000) 2005 (,000)
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Financial Analysis of D.G. Khan Cement
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Financial Analysis of D.G. Khan Cement
Current Assets
2005% 2006% 2007% 2008%
Stores, spares and loose tools 5.75 2.44 2.89 4.42
Stock-in-trade 0.56 0.66 0.57 0.86
Trade debts 0.42 0.22 0.28 0.70
Investments 15.37 24.91 32.73 29.01
Advances, deposits, prepayments and other 0.67 0.44 0.44 1.50
receivables
Cash and bank balances 0.67 0.44 0.44 1.50
Total current assets 23.29 28.89 37.13 36.93
Analysis:
Current Assets of the company are steadily increasing but in FY08 it has
decreased slightly. Cash and bank balance has improved in FY08. Non current assets are
decreasing where as property, plant and equipment was decreased in FY06 but later years
it has improved. Investments, long term loans and deposits are fluctuating during the
years. Assets subject to finance lease is decreasing. Total current liabilities have increased
substantially in current year. Short term borrowing has increasing trend during the years.
Where as the non current liabilities have been decreasing during the years. Reserves have
also decreased during the current year which results in lower equity.
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Financial Analysis of D.G. Khan Cement
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Financial Analysis of D.G. Khan Cement
Current Assets
2005% 2006% 2007% 2008%
Stores, spares and loose tools 100.00 80.77 144.56 222.13
Stock-in-trade 100.00 224.06 292.24 441.47
Trade debts 100.00 97.28 189.20 480.30
Investments 100.00 308.54 611.52 544.67
Advances, deposits, prepayments and other 100.00 125.50 188.76 643.99
receivables
Cash and bank balances 100.00 82.24 123.80 241.24
Total current assets 100.00 236.13 457.85 457.56
Analysis:
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Financial Analysis of D.G. Khan Cement
Analysis:
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Financial Analysis of D.G. Khan Cement
increased substantially. These all result in least operating profit. Financial cost has been
also increased and it has doubled in FY08 which result in net loss.
Analysis:
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Financial Analysis of D.G. Khan Cement
distribution expenses and other operating expenses have increased substantially. These
all result in least operating profit. Financial cost has been also increased and it has
doubled in FY08 which result in net loss.
Financial Ratios
Years FY'05 FY'06 FY'07 FY'08
Liquidity
Current Ratio 1.37 1.65 2.60 1.59
Cash ratio 0.031 0.0128 0.0157 0.0188
Profibility
Gross Profit
36.91% 49.81% 31.65% 15.39%
Margin
Profit Margin
31.86% 30.40% 25.27% -0.43%
on Sales
Return on
9.34% 7.05% 3.14% -0.10%
Assets
Return on
18.05% 12.55% 4.78% -0.18%
Equity
Asset
Management
ITO (Days) 77.47 48.07 100.46 79.6
Days Sales
5.20 3.36 8.09 10.73
Outstanding
Operating
82.66 51.43 108.55 90.33
Cycle
Sales/Equity 0.57 0.41 0.19 0.41
Total Asset
0.29 0.23 0.12 0.24
Turnover
Debt
Management
Debt To Asset 48.28 43.83 34.44 42.15
Debt /Equity 93.35 78.04 52.53 72.85
Long term debt
60.56 46.82 30.75 32.77
to equity
Times Interest
7.98 8.67 4.71 0.86
Earned
Market Ratios
EPS 9.12 13.12 6.40 -0.21
DPS 1.50 1.36 1.50 -
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Financial Analysis of D.G. Khan Cement
Calculations
Current Ratio = Current Assets = 19202591 = 1.59 times
Current Liabilities 12054718
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Financial Analysis of D.G. Khan Cement
DG Khan Cement Company Limited (DGKC) was established in 1978 under the
management control of State Cement Corporation of Pakistan Limited (SCCP). It
produces and sells ordinary portland and sulphate-resistant cement.
Profibility
The gross profit margin increased in FY06 but declined in FY07 and FY08. The
profit margin has decreased continuously along with return on assets (ROA) and
return on equity (ROE). Despite a strong growth in cement dispatches, the
cement sector experienced decline in profits during FY08. Over the years all
cement manufacturers undertook huge capacity expansion plans. Although the
sales volume of the cement companies increased, almost doubling of sales in
FY08, net income did not increase to an equal extent. This created a situation of
excess supply in the market. Companies resorted to price wars leading to lower
the profits.
The cement manufacturers were affected with rising fuel and power prices during
FY08. The cost of production for the cement companies went up due to rise in
the prices of imported coal. All cement manufacturers now use coal as a basic
fuel. Pakistan has huge reserves of coal, but cement companies import it, as
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Financial Analysis of D.G. Khan Cement
local coal has high sulphur content.. The rise in the costs of international coal
prices has been one of the major reasons behind dampening of gross margins of
cement companies during FY08.
Along with the hike in the international coal prices, the depreciation in rupee
value against the US dollar also added to the cost of importing coal. Financial
charges rose due to higher interest rates, long term finances, short-term
borrowing and the interest rate increased by the State Bank of Pakistan.
Liquidity Liquidity
Current Ratio
DGKC's liquidity stance
had been strengthening 3
since the past few years 2
and in FY07, its liquidity 1
position was most
0
favorable. The increase in
1 2 3 4
current assets had brought
about this change.
Furthermore, cash ratio had also risen. In FY08 the current assets of the
company declined slightly
but a 63% rise in current Liquidity
liabilities caused a
decrease in the liquidity of Cash ratio
the company.
0.04
0.03
Asset 0.02
0.01
Management 0
1 2 3 4
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Financial Analysis of D.G. Khan Cement
the days to convert inventory into sales became less (from 100 days in FY07 to
79 days in FY08). Although the days to convert sales into cash (DSO) increased
slightly, the substantial decrease in ITO (days) led to the shortening of the
operating cycle in FY08. The days sales outstanding was higher because the
trade debt (receivables) increased substantially during FY08.
Debt Management
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Financial Analysis of D.G. Khan Cement
The reason is substantial rise in finance charges due to high interest rates in the
economy and State Bank of Pakistan has also increased the interest rate due to
the current economic crisis. Also the operating income in FY08 decreased
because the operating expenses increased a lot. Due to the losses the company
incurred in FY08, its Earning Per Share (EPS) has been negative. The
management did not recommend any dividend for FY08 due to dismal profitability
situation.
Future Outlook
In the budget FY09, government of Pakistan has increased central excise duty
on cement to Rs 900 per ton from current Rs 750 per ton. But this increase is not
expected to impact the profits of the cement sector because this increment in
CED (Central Excise Duty) will be passed on to the consumers. However, the
rise in the GST by 1% will increase the local cement prices and may dampen the
cement demand.
In the budget 2009, an allocation of Rs. 75bn. has also been made for
construction and improvement of dams and water reservoirs in the country. In
addition, an amount of Rs. 37bn. has also been allocated for roads and
highways. Pakistan is short of housing compared with regional countries. To
address the issue the Govt. has announced to add 1000K units of low cost
houses. All these steps announced if followed will increase the cement demand
in the country during FY 2009.
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Financial Analysis of D.G. Khan Cement
Indian market has been closed as India banned import of cement from Pakistan
due to escalating tensions between the two countries. . This will negatively
impact the gross margins of the cement sector.
Pakistan has huge reserves of coal, but the manufacturers are compelled to
import coal due to high sulphur content in local coal. In last few years the coal
prices has risen considerably. But the depreciation in rupee value has also
created problems for cement industry. The gas prices have also risen. This will
increase the cement manufacturers' cost of production and impact their
profitability in FY09 as it is also conditioned by the IMF. The company's largest
Vertical Cement Grinding Mill at DG Khan site has been commissioned and is
expected to start commercial production in FY09.
After the start of grinding mill, additional quantities of cement will be available.
Increased production will help DGKC to aggressively export to new markets and
generate higher sales. However, cost of production and operating expenses will
be critical in determining the profitability of the cement sector in FY09. To reduce
electricity cost, DGKC has started a project of power generation from waste heat
at DGK site. The project is expected to generate substantially cheap electricity of
about 10.4MW without using any fuel. This would help to cut down the cost of
production. The project is expected to start in first quarter of FY09.
DGKC has also decided to use municipal solid waste as fuel for its heating
purposes. Thus, negotiations with equipment suppliers are underway and
expected to be finalized soon. Also, DGKC is in contact with different city
governments to enter into agreements for acquiring solid waste. This project will
be beneficial, as it would bring down the company's costs of production, help
resolve the environmental issues related with disposal of solid waste and most
important, it would save huge foreign exchange, which spent on import of fossil
fuels.
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