Table of Contents

PART 1 - PROJECT OBJECTIVES AND RESEARCH APPROACH...........3

Reason for selection of this topic..............................................................3
Reason for selection of this organization..................................................3
Project objective and research questions.................................................4
Overall research approach........................................................................4
PART 2 - INFORMATION GATHERING AND ACCOUNTING / BUSINESS
TECHNIQUES.............................................................................6
Source of information and methods of data collection.............................6
Limitations of Information Gathering........................................................6
Ethical issues during information collection and their solution................7
Business and financial analysis techniques and their limitation...............7
SWOT Analysis.......................................................................................7
PESTEL Analysis.....................................................................................8
Ratio Analysis........................................................................................9
PART 3 - RESULTS, ANALYSIS, CONCLUSIONS AND
RECOMMENDATIONS................................................................11
Cement Industry of Pakistan...................................................................11
DG Khan Cement Company Limited.......................................................11
Market share...........................................................................................11
PESTEL Analysis......................................................................................12
Political Factors....................................................................................12
Economic Factors.................................................................................13
Social Factors.......................................................................................13
Technological Factors...........................................................................13
Environmental Factors.........................................................................14

Legal Factors........................................................................................14
SWOT Analysis........................................................................................14
Strengths.............................................................................................14
Weaknesses.........................................................................................15
Opportunities.......................................................................................15
Threats................................................................................................16
Financial Analysis...................................................................................16
Sales Analysis......................................................................................16
Profitability Analysis............................................................................18
Efficiency Analysis...............................................................................22
Liquidity Analysis.................................................................................24
Investors Analysis...............................................................................26
Conclusion..............................................................................................29
Recommendations..................................................................................30

APPENDICES
APPENDIX I Profit & Loss
APPENDIX II Balance Sheet
APPENDIX III Ratios Analysis
APPENDIX IV Charts
APPENDIX V Formula sheet

PART 1 - PROJECT OBJECTIVES AND RESEARCH

APPROACH
Reason for selection of this topic
The topic I have selected for my project is topic 8 An analysis and
evaluation of the business and financial performance of an
organization over a three-year period. There are some reasons for
selecting this topic are discussed below;
The most important part of an organization is business and financial
aspects because it helps to know the performance of organization in
long time period.
I have chosen the topic 8 for my project because I am student of
accountancy and i am well known and familiar about business and
financial models because am also studied these in my ACCA.
Secondary information sources are used in this project which can be
easily assessable in the shape of newspapers, journals, websites and
annual reports of company using the internet.
I have enhanced my analytical skills and boost up my confidence level
with the help of this topic.
I have also improved my excel skills (which can help me in future) with
the help of this topic.

Reason for selection of this organization

The organization I have selected for my research topic is DG Khan Cement
Company Limited (DGKC) and the organization for comparison is Lucky
Cement Limited (LCL). I have used consolidated figures of both
organizations for analysis. There are some reasons behind the selection of
LCL are described below;
DGKC is the third biggest producer of cement and dealer of the
Pakistan and familiar for its quality cement while LCL is also familiar
cement company as well as one of the greatest cement producers.
Both companies are in the list of Karachi, Islamabad and Lahore stock
exchanges while LCL also listed on London stock exchange as well. So

it is easy for me to find relevant information and sufficient information

over the internet in the form of websites, annual reports, newspapers,
and other sustainability reports etc. It is all because both companies
are listed in stock exchanges which requires appropriate disclosures of
information.
DGKC & LCL & both have quality systems in place which acknowledged
through certifications of ISO 9001:2008 & ISO 14001:2004.
DGKC is subsidiary Nishat Group while LCL is part of Yunus Habib both
among the few largest business groups of Pakistan.

Project objective and research questions

To analyse the business and financial performance of last three years of
DGKC is the first and primary objective of my research project. After this
analysis another object is to draw conclusion and make recommendation
for firm which is helpful for future.
There are some research questions needs to be met to achieve above
stated objectives are described below;
What is the market growth and market position of cement industry?
How macro environment impacts the business operations of DGKC in
last three years and cement industry as well?
What are internal and external factors which impact business and
financial performance of DGKC in the last three years?
What are the earning trend of DGKC in last three years?
How DGKC performed in financial terms in last three years?
PESTEL, SWOT and Ratio analysis used as accounting and business
techniques to find the answers of above mentioned research questions
which explained in part 2 of this report.

Overall research approach

Secondary sources are used in this research project. My mentor guided
me about project step by step in three physically meetings with him apart
from phone calls. First of all, I selected the topic and organization for my
project and then clarify the objectives of research and then set some
research questions need to be answered to achieve these objectives. After

this I have started research in order to meet the objectives of research

and to answer the questions. The ratios are calculated in excel and I have
interpreted these in my own words. The ratio analysis is used to evaluate
the financial performance of DGKC. I have answered the questions relating
to business environment and strategic portion of industry with the help of
PESTEL and SWOT. For the purposes of data collection websites and
annual reports of DGKC are used. I have found the information about the
DGKC and cement industry using English newspapers. I have used
industry association reports and trade journals to find the information
about industry norms. I have used OBU info pack 2015-16 and ACCA
books for guidance and prepare the research project and technical
updates. The project finalized in third meeting with mentor through
PowerPoint presentation.

PART 2 - INFORMATION GATHERING AND ACCOUNTING /

BUSINESS TECHNIQUES
Source of information and methods of data collection
Secondary sources of information are deployed to gather relevant
information and data as mentioned earlier.
Secondary sources used in research are described below;

I have used the annual reports of DGKC and LCL to acquire financial

figures and other relevant information.

I have obtained the general information about DGKC and LCL using

their websites.
Website of ACCA and OBU info pack 2015-16 is used for guidance
regarding project preparation, fees, report layout and structure,

ethical guidance, plagiarism issues and referencing styles.

I have used various ACCA books such F7, F9, P2 & P3 to revise the

SWOT, PESTEL and Ratio analysis framework.

In order to get the general information about cement industry of
Pakistan online newspapers such Daily Pakistan, The News, Dawn,
Business Recorder, Express Tribune have used along with some

international news website also used.

Many sources such as websites, industry association reports, blogs
and google books, websites of stock exchanges and leading
newspapers are used to get information about industry and about
company that i have chosen for analysis.

Limitations of Information Gathering

Research techniques and contemporary attitude is needed for

collecting information from reliable sources for production of

effective reports (Burnett, 2007).

Time difference can mitigate the accuracy of report due to the
difference of time existing while collecting secondary sources of

information and their origination (Kolb, 2008).

Secondary sources are the information that has been generated by
other researchers for personal researches and reports are designed

by considering their research. The sense of reporting is lost when

reports rely on secondary information it is difficult mould ideas and

conclusions of others research (Housden, 2007).

The method used in preparation of secondary source of information
may different form that of the report which lead to the need of
sufficient degree of exercise and scrutiny by preparer(s) of the

report (Timmerman, 2014).

The inaccuracies of reports could be a result of secondary sources of
information lacking reliability and authenticity (Stevens, et al.,
2013).

Ethical issues during information collection and their solution

I am well known about the issues regarding ethical values in research
because they are the fundamental in the success of any education
research project. I am guided by me mentor along with I have read the
OBU info pack 2015-16 guidelines. In order to avoid ethical issues, I
followed the guidelines exactly about confidentiality and plagiarism.
Different online sources such as websites and annual reports of company
are used to collect information, and I have matched this information with
news and reports of industry for authenticity of figures. I am directed by
my mentor to give credit to those authors and researchers which work is
used in this project to make it sound and added reliability to this project.
For this I have used Harvard Referencing style to acknowledge them.

Business and financial analysis techniques and their limitation

SWOT Analysis
SWOT analysis is used for analysing the strengths, weaknesses,
opportunities and threats that any organization is facing. For shaping
strategic position of an organization SWOT analysis is a useful tool for
identifying internal and external factors. External analyses are conducted
through PESTEL and Porters five forces analysis that determines threats
and opportunities. Internal analysis is conducted through resource audit,
value analysis and cultural analysis for assessing strengths and
weaknesses of organization. The weakness of an organization is identified

as bad performance and it can cause organizational failure. Threats are

determining as factor hindering organizational objectives and weakens its
competitive position. A powerful SWOT analysis is capable of providing
complete overview of organizations strategic positioning and presents
future course of action (Duhaime, et al., 2012).
Limitations
Though SWOT analysis is capable of highlighting organizations
strengths, weaknesses, opportunities and threats but it is not capable
of determining factors needing attention in particular (Wale, et al.,
2010).
SWOT analysis brings to light the current strategic state of organization
but conditions are dynamic and they change rapidly. SWOT analysis
should be updated on regular basis (Henry, 2011).
An effective SWOT analysis is an outcome of skilled analysts, resources
availability and time (Malcolm, et al., 2005).
One reason for SWOT ineffectiveness is obscure conclusions resulting
from subjectivity of internal and external factors (Pearce & Robinson,
2011).
Vague analysis emerged if any important factor in skipped in SWOT
analysis which reduced the effectiveness of reports produced on them
(Wetherly & Otter, 2011).

PESTEL Analysis
PESTEL analysis is used for determining political, economic, social, legal
and technological factors. The analysis is used for examining general
business environment that any organization is facing and helps in
reshaping its strategic and competitive position. The factors that are
responsible for affecting organizational norms and goals oriented
strategies are determined through senior management. This allows
organizations to determine threats and opportunities and take appropriate
actions accordingly. Factors associated to political environment that the
company is facing and governmental decision are political factors.
Economic factors are associated to countrys economy including GDP,
interest rate, tax policies and taxation etc. social factors include the

demographic factors of the country such as social and cultural norms of

the country. Technological factors are the factors that results in
improvements and advancements of business processes through
innovation and technological transformation. The organization practices
that affect the natural eco system are referred as ecological factors.
Factors related to the legal processes and regulations under which
organization operates are known as legal factors (Cadle, et al., 2010).
Limitations
External factors obtained through PESTEL analysis are capable of
changing rapidly thus leading to the need for updating analysis
regularly (Dess, et al., 2013).
Analysis has limitations as it is not capable of determining the factors
needing more attention and causing ambiguity for senior management
(Daidj, 2015).
PESTEL analysis involves evaluation of many factors continuously
needing more financial resources. Limited resources and time
unavailability can affect the analysis (Lynch, 2007).
The difficulty in extraction and evaluation of external factors could
result in inefficiency of PESTEL analysis (Bensoussan & Fleisher, 2013).

Ratio Analysis
All companies that are listed publicly have financial statements that
include both financial information and non- financial information. For
enhancing users understanding both qualitative and quantitative
information are added in financial statements. Ratio analysis is helpful for
users and they are able to understand qualitative information easily but it
is complicated to understand quantitative information. Ratio analysis
makes it easy to understand quantitative information. The relative
measure that involves comparison of figures obtained from past provides
the future forecasts and competitive positioning of the organization. When
these figures are expressed in percentages it is known as ratio. The
primary reason for conducting ratio analysis is to explore the current
financial standing and position of the company on the basis of past trend.
Commonly ratio analysis includes important statements such as sales

trend, total expenses and costs, profitability, liquidity, efficiency, leverage,

competitive standing and investors analysis (Grier, 2012).
Limitations
Though ratio analysis is important for determining the current financial
standing of the company but there are some limitations of the analysis.
The ratio analysis is used for analysing historic performance of an
organization including its financial position so firm can take future
actions on the basis of past trends. But ratio analysis does not mean
that the company will earn same profits or sales and there are chances
of fluctuations (Brigham & Ehrhardt, 2011).
Ratio analysis is capable of suggesting any increase or decrease in
financial figures or any growth or decline in the financial ratios.
Analysts relate the contributory factors inside or outside an
organization that results in effective and accurate financial analysis
(Guerard & Schwartz, 2007).
It is not ensured that the financial figures obtained through ratio
analysis are free from errors and bias. Analysts tamper the financial
figures thus leading to poor analysis (Moyer, et al., 2008).
Sometimes it is difficult to compare ratios obtained from different
companies because every company has used the accounting technique
that is suitable for them thus leading to different financial results
(Griffin & Fleet, 2013).
Though ratio analysis is capable of focusing on the financial
performance of company but it neglects many important non- financial
factors that include customer satisfaction, learning, and process
involvement etc. (Duhaime, et al., 2012).

PART 3 - RESULTS, ANALYSIS, CONCLUSIONS AND

RECOMMENDATIONS
Cement Industry of Pakistan
The cement sector of Pakistan is the 8th largest exporter of cement in the
world which concludes an assertion that this industry is the one of major
source of foreign exchange revenue for Pakistan. The cement industry of
Pakistan employs more than 150,000 people around the country and
support several allied industries such as logistics, construction, packaging,
and shipping (Palladian, 2014). The construction industry has grown by
11.31% from 2013 to 2014 as government investment increased by 50%
during the same period (Starling, 2014). The total export of the Cement
and Clinker decreased by 11.57% to 7,195,069 Metric Tons from 2013 to
2014 (APCMA, 2015). As of July 2015, the total installed capacity of the
cement industry of Pakistan has 45,446,428 Metric Tons for Clinker and
45,618,750 Metric Tons for Cement (APCMA, 2015a).

DG Khan Cement Company Limited

DG Khan Cement Company Limited trades on Lahore, Karachi, and
Islamabad with ticker name DGKCC. DGKC has gas three production
plants in Dera Ghazi Khan and Khairpur Districts of Pakistan (DGKC,
2015a). All of these production plants are based on latest dry process

technology and environmentally certified by ISO 9002 & 14001. The

distribution system of DGKC is robust to satisfy the local and international
demand for cement (DG Cement, 2015). The DGKC has production
capacity of more than 4.02 metric tons for Clinker and 4.22 metric tons for
Cement (APCMA, 2015a).

Market share
The market share of DGKC in local market of Pakistan stands constant at
11.30% while exports suffered a downfall to 9.19% (Chart 1). LCL is the
leader in cumulative market share which has 19.2% (LCL, 2015, p. 32).
Chart 1 (DGKC, 2015, p. 60)

Market Share
Local
14.96

14.41

13.01
11.57

Export

13.51
11.54

12.55
11.30

11.30
9.19

FY2011

FY2012

FY2013

FY2014

FY2015

PESTEL Analysis
Political Factors
The political environment of Pakistan has been hostile for a long period of
time and ever since the beginning of twenty-first century, the situation
has further escalated due to US led Invasion in Afghanistan on back of
Pakistan. This commitment has cost Pakistan more than 100 billion dollars
in loss to its economy, 80,000 lives of Pakistanis, social disruption, and
worsen internal & order situation (The Nation, 2015a). The successful

transition of power to PML-Ns government increased the confidence of

international community. However, there were allegations of election
rigging and 4 month long political sit in which also tarnished the image of
Pakistan in international community (GlobalSecurity, 2014).
Despite of energy crisis, low tax to GDP ratio, and governance issues;
Pakistan still holds potential resources to turnaround its situation. The
$45bn worth of investment in energy and infrastructure development
projects of Pakistan is the outcome of Pakistans long term association
with China (Tharoor, 2015). This would seriously boost the cement
industry in Pakistan due to the construction on several projects. Having
said that, there are several other challenges for cement companies such
as higher taxation, inconsistent gas supply, adequate cement industry
plan, and government regulation (Imaduddin, 2014).

Economic Factors
Even though, the rise in gross domestic product of Pakistan satisfied
several intentional institutions, there are several economic problems faced
by the country such as loss making public enterprises and budget deficits
which leaves government with the choice to charge higher taxation
(Salman, 2015). The budget deficit of Pakistan during 2014-15 accounted
for 4.90% of gross domestic product which forced the government to
restrict its public sector development activities short of Rs. 88 billion
during 2013-14 (Rana, 2015). The exports of the cement sector has been
declining over the past few years due to non-tariff barriers and strengthen
of regional rivals from India, china, and Iran (Tribune, 2015). The
competitive nature of international market require cement companies to
reduce their cost of doing but the rise in import duties in coal and
imposition of Gas Infrastructure Development Cess would increase the
problems of cement companies (Tribune, 2015a). The fall in oil prices in
international prices and construction surge in the country has also eased
down the problems of cement industry (APP, 2015). The China-Pakistan
Economic Corridor (CPEC) projects worth of $45bn would increase demand

for cement due to the construction of energy projects and infrastructure

development (Muhammad, 2015).

Social Factors
The imbalanced nature of taxation collection and governance system in
Pakistan has increased the gap between rich and poor. Current, almost
more than quarter of nation live below the line of poverty (APP, 2015). The
per capita income in Pakistan increased to US$1,386 from 2013 to 2014
while cost of living has also increased over the year which affected the
disposal income and saving levels in the country (BlueChip, 2013). There
is need for housing in the country which the real estate entities has seen
as opportunity to head start and increase their profitability at the loss of
agricultural lands and increased volatility. The customers seem concerned
with the price hike of cement aimed at construction growth of 11.3% from
2013 to 2014 (Tribune, 2014d).

Technological Factors
The products manufactured by most of cement companies in Pakistan are
mostly standard Portland cement which these companies are able to
produce due to the abundance of natural resources in the country. These
companies lack research and development initiative to produce other
products such as Blended and Fly-Ash Cement (Haq, 2014). The lack of
technological improvement in production capacity is also hindered due to
inconsistent regulation by government which restrict cement companies
from embarking into product development activities (DGKC, 2014).

Environmental Factors
The cement plants in Pakistan mostly operate on coal based technology
which cause severe damage to the eco system including the water
reservoirs, air, and lands (Tribune, 2014a). This has forced the regulators
to forces cement companies to improve the efficiencies of their
operational process and incorporate environment friendly technologies in
their processes (Dhakku, 2014).

Legal Factors
The industry operators are alienated by the decision of government to rise
in duty on imported coal, and imposition of Gas Development
Infrastructure Cess (GDIC) which severely affects their cost structure
(Tribune, 2014).The import duty on coal, tyres, and alternative fuel along
with imposition of GIDC and higher sales has increased the problems for
cement companies (Tribune, 2014a).

SWOT Analysis
Strengths
Market share of DGKC is its strength as the company holds 11.30%
market share in local cement market and 9.19% market share in total
cement exports of Pakistan (Chart 1). This allows DGKC to maintain its
profitability (DGKC, 2015, p. 60).
Operational capacity of DGKC is the strength as it has operational
production capacity of 4.02 metric tons for Clinker and 4.22 metric tons
for Cement which allows it to maintain the revenue stream (APCMA,
2015a).
The talented human resource of DGKC is one of the main strength
which allows it maintain the efficiency and effectiveness of its
operations (DGKC, 2014).
DGKC is subsidiary company of Nishat group of companies which one of
highly diversified group operating within Pakistan. This provides
significant support in order to maintain its profitability and market
share (Hussain, 2015).
DGKC has obtained environmental certification for its production
operations under ISO-9001 and ISO-14001 which allows the company
to maintain its environmental sustainable practice (DGKC, 2014).
DGKC has strong brand image and high liquid position which enable it
to compete with other established cement manufacturers like LCL, Fauji
Cement, and Bestway Cement (Table 4).

Weaknesses
Like other cement companies in Pakistan, one of the main weakness of
the DGKC is the lack of research & Development (Haq, 2014) and

product development activities which restricts its standardized cement

(DGKC, 2015b).
The rise in cost of turnover and other indirect costs has severely
affected the profitability leading to questions over its financial
efficiency indicated by lower GP margins (Table 2).
More than necessary liquidity being maintained by DGKC which could
have been invested somewhere else for longer term and reap earnings
(Table 4).

Opportunities
The construction projects under Public Sector Development Programme
(PSDP) and China Pakistan Economic Corridor (CPEC) which DGKC and
other cement companies in Pakistan would approach as opportunity to
expand their profitability (Rehman, 2015).
The construction work in Afghanistan has been increasing which is
generating demand for cement in the country which cement companies
such as DGKC would see as opportunity to increase their export
revenue (Khan, 2015).
Research initiatives by the competitor companies would enable them in
increasing their revenue stream and market share which DGKC should
consider venturing if it intend to preserve and increase its market share
in local and international cement market (Hobbs, 2015).
The decline in oil prices has significantly affected the suitability of
other source of energy which provides the opportunity for changing the
energy mix. DGKC should see this as opportunity to move to
environmental friendly source of energy (Jafri, 2015).

Threats
Following removal of sections on Iran, export of cement is likely to
suffer due to their competitive cement products and pricing. This would
pose serious threat to cement exports of country as well as DGKC
(Khan, 2015).
Tax duties, higher power tariffs, axle load restrictions, and lack of
governments attention on cement export would serious hurt the
competitiveness of cement companies in Pakistan as well as
international market due to cost disadvantage (Khan, 2015).

 The energy shortage, political turmoil, and economic mismatch in

Pakistan is unfriendly for businesses which would continue to affect the
potential of the cement industry including Cement companies like
DGKC (Salman, 2015).
Exports has been declining over the past few years due to rise in the
competitiveness of its regional rivals from China, India, and Iran. DGKC
should pursue it as threat to its competitiveness (Nation, 2015).
The illegal smuggling of cement from Iran is hurting the potential of
Cement companies like DGKC which should perceive it as threat to its
potential revenue stream (Baig, 2014).

Financial Analysis
Sales Analysis
Table 1

The group net turnover of DGKC increased but growth rate has decreased
by 10.38% during the same period (Table 1). The increase was due to rise
in cement prices by 12% during the period (PSL, 2014). DGKC operated at
89.18% and 94.49% of its production for Clinker and Cement, respectively
(Tribune, 2014b). In addition, local sales increased by 2.17% while its
export observed 9.31% decline from 2013 to 2014 (Chart 2). The local
sales has improved because of construction boom in the country during
2013-14 (DGKC, 2013) as well as announcement of PSDP programs by
current government (Brecorder, 2014). The exports decline due to strong
competition abroad as well as appreciation of PKR (InPaperMagazine,
2014).
Chart 2 (DGKC, 2015, p. 60) (DGKC, 2014, p. 26)

Sales (MT)
Local
661,967

3,196,103

FY2015

Export

1,021,329

1,126,174

2,954,943

2,892,266

FY2014

FY2013

The trend continues in next year where net sales increased but growth
rate was lower than previous year by 77.1% (Table 1). The increase in net
turnover due to increase in local sales by 8.16% but decline in growth rate
due lower exports by 35.19% is major factor behind lower growth rate as
well as net increase in volumetric sales. Local sales are in line with the
industry expectations as well as strong demand of cement due to number
of infrastructure projects started by federal and Provincial governments
(Jamal, 2015). While exports decline due to tough competition faced on
the basis of prices in African markets which force DGKC to shift the focus
towards local despatches. Afghanistan and India are major markets of
DGKC which accounts 35.81 and 31.79% of total exports in FY 2015
respectively while influx of Iranian cement in Afghanistan and non-tariff
barriers with India hurts exports during year (IBEX MAG, 2015).
In comparison, net turnover of LCL increased at lower rate than DGKC
(Table 1). local sales of LCL decreased by 0.8% while exports increase by
8% (LCL, 2015) which shows LCL outperform DGKC in export market while
DGKC as stated above shift in policy towards local despatches (Chart 2).
The rise in construction activities and higher cement prices pushed DGKC
sales to higher level while LCL was unable to reap the full benefit of these
circumstances (Zaheer, 2015). In volumetric terms LCL almost 3 times

higher than DGKC due higher market reach and extensive operational
capacity to meet local and international demands.

Chart 3

N e t Tu rn o ve r
90,000,000
80,000,000

82,117,802

8.30%

8.00%

7.44%

70,000,000

9.00%
7.00%

60,000,000

6.00%

50,000,000

5.00%

40,000,000

4.00%

30,000,000 25,826,642

27,748,869

28,221,467

20,000,000
10,000,000
-

1.70%

3.00%
2.00%
1.19%

1.00%
0.00%

Source: Table 1

Profitability Analysis
Table 2

Gross Profit Margin

GP margin of DGKC decreased in 2014 due to increase in gross profits by
1.35% (Table 2) and increase in net turnover by 7.44% (Table 1). The gross
profit could not increase in line with its net turnover due to rise in packing
cost, power tariffs, freight cost and low clinker production leading to surge
in its cost of turnover by 10.87% during 2013-14 (Brecorder, 2014). Other
factors include the doubling the royaltys fees as well as RDF project
capitalization in Multan and Lahore (Tribune, 2014c) push 14% higher

depreciation than previous year which erode margins despite increase in

sales (DGKC, 2014).
In FY2015, ratio further declined (Table 2) but slight margin due to
increase in COGS by 1.9% while sales only grew at 1.70% so difference
create impact in GP margin. Energy cost is the main element of COGS
which up mainly due to increase electricity and gas expenses by 14.38%.
These expenses increased related to the reversal of GIDC provision in
previous year due to Honourable Supreme Court of Pakistan strike down
GIDC (Mohla, 2015). Now government passes the bill in National assembly
which push DGKC to create this provision again in their accounts (Geo,
2015).
In comparison, GP margin of LCL was lower than DGKC (Table 2). It is clear
from the comparison that GP margin of DGKC is higher than LCL which
indicates efficient control over direct costs by DGKC as compare to LCL
(LCL, 2015).
Chart 4

37.00%

100.00%

36.49%

Gross Profit Margin

200.00%

300.00%

400.00%

36.00%
35.00%

34.43%

34.28%

34.00%
33.00%
32.00%

31.28%

31.00%
30.00%
29.00%
28.00%
Source: (Table 2)

Net Profit Margin

NP margin of DGKC increased in 2014 (Chart 3) due to increase in net
profits by 11.68% and increase in net turnover by 7.44% (Table 1). The net
profits increased due to increase in gross profit and other income by

1.35% and 13% respectively. In addition, DGKC managed to reduce its

distribution costs, finance cost, and other charges by 17%, 33%, and 5%
respectively (DGKC, 2014). The installation of 8.4MW Waste Heat Recovery
Plant at Khairpur site saved power charges of DGKC while rise in cement
prices allowed DGKC to post higher net profit margin (Tribune, 2014b).
In FY2015, trend continues and push 6.13% higher GP margin than FY2014
(Chart 5). The decrease in distribution (48%), finance cost (52%) and
increase in other income (46%) by almost a half than previous years are
the major factors behind this improvement. Distribution cost lower down
due to lower freight charges that correlate with lower export volume
(Chart 2). Finance cost lower down due to excellent management of cash
flows along with discounted rates of KIBOR during year helps in reduction
financial charges (The Nation, 2015). Other incomes increase on the
account of gain on investments at fair value through profit or loss as well
as dividend incomes which is 18.24% higher than FY2014 due excellent
mix investment portfolio that accounts 72% of total other income (DGKC,
2015).
Chart 5

30.00%

100.00%

Net Profit margin

200.00%

300.00%

400.00%

27.83%

25.00%
20.88%

21.71%

20.00%

17.85%

15.00%
10.00%
5.00%
0.00%
Source: (Table 2)

In comparison, NP margin of LCL stands lower than DGKC (Table 2). It is

clear from the comparison that NP margin of DGKC is much higher than

LCL which suggest efficient profitability and control over cost. However,
LCL is market leader and has twice the size of net profits of DGKC in
volumetric terms (LCL, 2015).
Return on Capital Employed (ROCE)
ROCE of DGKC decreased in 2014 due to increase in PBIT by 6.90% and
increase in capital employed by 24.33% (Table 2). The PBIT increased due
to rise in gross profits by 1.35% rise in other income by 13%, decline in
distribution cost by 17%, and decline in other charges by 33%. The capital
employed increased mainly due to rise in shareholders equity by 28.21%
on account of higher profit margins and decline in non-current liabilities by
4.73% (DGKC, 2014). The decline in ROCE of DGKC is indication of
inefficient use of capital employed or perhaps high initial capital
investment for expansion projects (Brecorder, 2014).
The trend reversed in FY2015 and ROCE increased by 9% (Chart 6). This
is mainly due to higher increase of BPIT than capital employed. This
happens due to strong profitability which continuously improved over the
years that helps achieve higher figures (BMA Capital, 2015). The factors
were same mentioned in profit margins but non-controlling interest
accumulated by 86.3% as compared to previous year which push capital
employed growth of 4.5% (DGKC, 2015). This shows that DGKC were good
at utilization of its capital resources to generate returns.
Chart 6

30.00%

100.00%

ROCE

200.00%

300.00%

400.00%

28.38%

25.00%
20.00%

16.85%

15.00%

14.05%

15.31%

10.00%
5.00%
0.00%
Source: (Table 2)

In comparison, ROCE of LCL is 28.38% in FY2015 (Table 2). It is clear from

the comparison that ROCE of LCL is much higher than DGKC which
suggests inefficient utilization of capital employed by DGKC (LCL, 2015).
Earnings per Share (EPS)
EPS of DGKC increased in 2014 due to increase in profit available to
shareholders by 10.03% while weighted average number of shares
remained same (Table 2). The improvement in net profitability following
favourable increase in cement prices and cost efficiencies resulted in
higher earnings per share for shareholders (PakInvestorsGuide, 2014).
The same trend continues in FY2015 which push EPS further (Chart 7) and
follow net margins pattern because its based on net profits (30%
increase) so factors behind increase in earnings available for ordinary
shareholders were the same as stated above in net profit analysis. While
there was no change in ordinary share capital (SCS Trade, 2016).
In comparison, EPS of LCL is Rs.42.54 in 2015 (Chart 7). It is clear that EPS
of DGKC is very low as compare to EPS of LCL because LCL has higher
earnings available for its ordinary shareholders during FY2015 (Reuters,
2016a).
Chart 7

Earnings per share (Rs.)

42.54

45.00
40.00
35.00
30.00
25.00
17.72

20.00
15.00

13.68

12.43

10.00
5.00

1.00

2.00

3.00

4.00

Source: (Table 2)

Efficiency Analysis
Table 3

Inventory Days
The inventory days of DGKC decreased by 17.17% in FY2014 (Table 3) due
to decrease in inventory by 8.10%, due to efficient forecasting of market
dynamics which helps to manufacture cement as per the requirements.
The increase in cost of turnovers by 10.94% which mainly due to higher
consumption of raw material that in turn lower down stocks (DGKC, 2014).
The decline in inventory days is indication of better inventory
management practices of DGKC and saving in finance cost (Brecorder,
2014).
The inventory days further declined in FY2015 (Chart 8) due to lower
inventories (.53%) and higher cost of sales (1.92%) which helps in
reduction in days. Inventories lower due to lower amount stuck in trade
which on the account lower productions activities during the year that
reduced 3.4% and 2% of cement and clinker. On other hand sales
increased (Table 1) which further lower down inventories. This shows that

DGKC was effective in its inventory management forecasting (DGKC,

2015).
Chart 8

Inventory Days
160.00
140.00

138.27
114.53

120.00

111.77

100.00

80.50

80.00
60.00
40.00
20.00
-

1.00

2.00

3.00

4.00

Source: (Table 2)

It is clear from comparison that inventory management practices of LCL

are far better than those of DGKC as it takes 80.5 days in converting its
inventory into sales while DGKC takes extra 31.27 days for the same
process which implies extra cost (LCL, 2015).
Receivable Days
The receivable days of DGKC decreased in FY2014 (Chart 9) due to
decrease in receivable by 12.92% and increase in net turnover by 7.44%.
The decline in receivable days indicates effective management of DGKC
because most of amount recovered were from secured debtors which
implies that DGKC has employed debt factoring policy in place (DGKC,
2014). While increase in turnover despite decline in receivables shows
that most of sales made by DGKC were on cash (Dawn, 2014).
The trend changed in FY2015 and receivable days has slightly increased
by 1% (Chart 9). This is mainly due to increase in receivables by 2.73%
while sales grew at 1.70% (Table 1) leave the impact. The breakdown of
ratio shows that DGKC has effectively managed the recovery amount from
related parties and debt factoring but sales made to other than that

mostly on credit. This shows relaxed credit policy which in line to

companys policy shift towards the local despatches which force to relax
credit terms (DGKC, 2015).
In comparison, LCL has higher receivables days (Chart 9). It is clear from
the comparison that receivable management practices of DGKC are far
better and efficient than LCL as DGKC takes less days to recover from its
supplier while LCL takes almost 10 days extra for the same process which
implies extra finance cost (LCL, 2015).
Chart 9

Receivable Days
18.00
15.44

16.00
14.00
12.00
10.00
8.00

6.81

4.00
2.00

5.58

5.52

6.00

1.00

2.00

3.00

4.00

Source: (Table 3)

Liquidity Analysis
Table 4

Current Ratio
The current ratio of DGKC increased in 2014 due to increase in current
assets by 23.13% and decrease in current liabilities by 35.29% (Table 4).
The current assets increased due 21% rise in deposit & prepayments, 37%
rise in investments, and 163% rise in cash & bank balances. The current
liabilities increased because of 51% decline in short term borrowings &

running finance, 50% decline in accrued mark-up, and 38% decline in

derivative financial instrument (DGKC, 2014). The rise in current ratio
indicates more than necessary liquidity being maintained by the company
which could have been invested somewhere else for longer term
(Brecorder, 2014).
The trend changed in FY2015 where current ratio has declined (Chart 10)
by almost 10% due to higher increase in current liabilities (11.18%) than
current assets (0.4%). The 64% increase in trade payables due to
provision related to Workers' profit participation fund and Workers' welfare
fund as well as huge sum due to related party (subsidiary) against
packaging cost. while the 2% increase investment was reason behind the
nominal incline in currents assets. Overall DGKC has way above the
standards of desirable current ratio (Reuters, 2016).
Chart 10

Current Ratio (times)

6.00
4.83

5.00

4.36

4.00

4.00
3.00

3.00
2.54

2.00

2.00
1.00

1.98

1.00

0.00
Source: (Table 4)

It is clear from the comparison that current ratio of DGKC is far higher
than current liquidity ratio of LCL (Chart 10). However, liquidity position of
LCL seem most optimum in comparison to that of DGKC (LCL, 2015).
Quick Ratio
The Quick ratio of DGKC increased in 2014 due to (Chart 11) increase in
quick asset by 38.70% and decrease in current liabilities by 35.29%. Quick

assets increased because of 37% rise in investment and 163% rise in cash
& bank balances. The current liabilities increased because of 51% decline
in short term borrowings & running finance, 50% decline in accrued markup, and 38% decline in derivative financial instrument (DGKC, 2014). The
rise in quick ratio is far above necessary level which indicates too much
resources being tied up in order to meet short term obligations in case of
emergency.
The quick ratio also follows the same pattern like current ratio and
declined in FY2015 (Chart 11). Where current liabilities increased due to
trade payables, the reasons already mentioned in current ratio while quick
assets declined by 2.23% due to decline in cash & bank balances by 80%.
The cash resources decline due to loan to suppliers which increased
almost 3 times than previous year. Overall, quick ratio is still higher than
standards and its seem good strategy to invest in supply chain (DGKC,
2015).
Chart 11

Quick Ratio (times)

4.50

4.00

3.84

4.00

3.38

3.50
3.00
2.50
2.00
1.50
1.00

3.00

2.00

1.79

1.10

1.00

0.50
0.00
Source: (Table 4)

It is clear from the comparison that quick ratio of DGKC is far higher than
LCL and liquidity position of LCL looks most optimism indicating too much
resources being tied up by DGKC at the expense of profitability (LCL,
2015).

Investors Analysis
Table 5

Dividend Pay-out Ratio

The dividend pay-out ratio of DGKC increased in 2014 due to increase in
dividend per share by 16.67% and increase in EPS by 10.06% (Table 5).
The strong profit margin was the major reason behind higher payout ratio.
The rise in dividend pay-out suggest its intention to deliver higher
proportion of its earnings to its shareholders following improved financial
performance (Tribune, 2014b).
DGKC continuously delivering the benefits to its shareholders due to
strong net margins in FY2015 too (Chart 12). Dividend per share increased
(42.86%) at higher rate than EPS (29.53%). This is due to strong
performance which force DKGC to accommodate the shareholders more as
per changes in economic conditions of country (DGKC, 2015). This implies
that DGKC always up to transfer the benefits to the owners while keeping
in mind the expansion requirements as well (SCTrade, 2015).
Chart 12

30.00%
25.00%

100.00%
24.14%

Dividend Payout (%)

200.00%

300.00%

400.00%

28.22%

25.58%
21.16%

20.00%
15.00%
10.00%
5.00%
0.00%
Source: (Table 5)

In comparison, dividend pay-out ratio of LCL stands lower than DGLC

(Chart 12). It is clear from the comparison that LCL have higher earnings
per share and higher dividend per share, in absolute term, as compared to
those of DGKC (LCL, 2015).
Dividend Yield Ratio
The dividend yield of DGKC increased in 2014 (Chart 13) due to increase
in dividend per share by 16.67% and increase in market price per share by
5.10%. The dividend increased due to strong performance and transfer
benefits to shareholders but as rise in dividend could not attract much
surge in its stock price (DGKC, 2014). The rise in dividend yield indicates
lack of shareholders and investors confidence in the future growth
prospect (Tribune, 2014b).
The decline in dividend yield ratio indicates (Chart 13) surge in
shareholders and investors confidence in the company as indicated by
rise in its stock price by 62.31% which way ahead than increase in
dividend per share by 42.86% (DGKC, 2015). The investors confidence
enhanced due to strong performance despite the economic conditions
which push DGKC to announce even higher dividends than previous year
but not in line with stock price increase that resulted in lowering down the
yield ratio (Securities, 2015).

Chart 13

100.00%

4.50%
4.00%

Dividend Yield (%)

200.00%

300.00%

400.00%

3.98%
3.58%

3.50%

3.50%
3.00%
2.50%

1.73%

2.00%
1.50%
1.00%
0.50%
0.00%
Source: (Table 5)

It is clear from the comparison that shareholders and investors of LCL

(Chart 13) are much more confident with the future growth prospect of
their company as compare to those of DGKC (LCL, 2015).
Price/Earnings Ratio
The price/earnings ratio of DGKC decreased in 2014 (Chart 14) due to
increase in market price per share by 5.10% and increase in EPS by
10.06%. EPS increased due to strong profit margins (Table 2) while market
price not increase as desired which create difference that resulted in
lowering down the ratio. The decline in Price/Earnings ratio indicates
moderation in the expectation of the shareholders regarding future
performance of DGKC (DGKC, 2014).
The trend changed in FY2015 (Chart 14) due to strong net margins which
increased EPS by 29.53% while market also reacts tremendously towards
the stocks of DGKC which increased by 62.31% as compared to previous
year (DGKC, 2015). The rise in P/E ratio suggests surge in the expectation
of the shareholders regarding future performance of DGKC (BMA Capital,
2015).
LCL has higher P/E ratio than DGKC (Chart 14). It is clear from the
comparison shareholders and investors of LCL are more confident

regarding future performance of their company as compare to those of

DGKC (Reuters, 2016a).
Chart 14

Price/Earnings (times)
14.00

12.21

12.00
10.00
8.00

8.06
6.73

6.43

6.00
4.00
2.00

1.00

2.00

3.00

4.00

Source: (Table 5)

Conclusion
DGKC has a strong backing from Nishat Group along with maintaining its
local despatches market share but bow down to exports due to strong
competition from African markets on prices. Overall the political and
economic situation of the country depressed it improved somehow but not
too which suitable for businesses. Rise in duties on coal imports,
imposition of GIDC and withholding taxes affects the competitiveness of
the cement industry. The market operators like LCL and DGKC are finding
it hard to compete with regional rivals in international market which is
going to intensify further after the removal of sanctions on Iran. The local
market condition for construction, infrastructure development, and energy
projects under CPEC and PSD are likely to boost the sales of cement
companies of Pakistan. This will also attract foreign cement companies to
enter into the local cement market of Pakistan. Being part of a diversified
group and having strong brand image, skilled human resource,
established distribution network, and operational strength, DGKC can

compete in the local cement market of Pakistan as well as in international

cement market.
The net sales continuously grow during period under consideration due to
construction boom as well as new infrastructural projects while decline in
exports made difficult for DGKC to maintain the growth. The profitability
indicators were improved due to lower distribution cost along with
excellent management of cash flows which helps in reduction of finance
cost that impacted all the profitability indicators. DGKC has placed
efficient credit as well as inventory management policies which helps to
lower the inventory and receivable days. Overall, DGKC liquidity position
has improved over the years due to short term investments but too much
liquid resources being tied up. The investors confidence enhanced during
the period due to strong operational performance of the company as well
as higher dividends.
LCL has lower growth in sales and lower margins than DGKC but fairly
competitive in terms of returns but lack behind than DGKC in liquidity
indicators. Overall in absolute terms LCL way ahead than DGKC in all
indicators.

Recommendations
DGKC should focus on research & development and product
development activities in order to introduce more variety in its
product portfolio and compete in International Cement Market.
DGKC should target international cement market through separate
division in order to win back the lost faith in the potential of cement
industry of Pakistan.
DGKC should reduce its short term assets in order to ensure optimal
liquidity position and should take measures to pursue efficient mean
of utilising its capital employed.
DGKC should continue to invest in its energy generation projects
and capacity installation in order to meet the construction
requirements of local cement market in Pakistan.

 DGKC should continue to raise voice for stable and consistent

cement industry policy by government in order to ensure long term
sustainability of the Cement industry in Pakistan.
DGKC should consider installing green technology at its cement
plant that cause less damage to the natural environment in
surroundings.