final project of d g khan cement
DESCRIPTION
financial statement analysis Project of D G Khan CementTRANSCRIPT
PROJECT ONPROJECT ON
FINANCIAL STATEMENT ANALYSISFINANCIAL STATEMENT ANALYSIS
OFOF
D G KHAN CEMENT LTDD G KHAN CEMENT LTD
SUBMITED TO:SUBMITED TO: SIR HAMZA MUKHTAR SIR HAMZA MUKHTAR
SUBMITED BY:-SUBMITED BY:-
UMAR FAROOQ UMAR FAROOQ 2008-ag-1972008-ag-197
QAMAR SHAHZADQAMAR SHAHZAD 2008-ag-1842008-ag-184
AREA OF DISCUSSIONAREA OF DISCUSSION
We conduct our analysis on following issuesWe conduct our analysis on following issues
Economy AnalysisEconomy Analysis
Industry AnalysisIndustry Analysis
Firm AnalysisFirm Analysis
ECONOMY OF PAKISTANECONOMY OF PAKISTAN Pakistan economy is combination of industrial 26.8% , Pakistan economy is combination of industrial 26.8% ,
agricultural 19.6% and service sector 53.7% and industry agricultural 19.6% and service sector 53.7% and industry sector includes textile, cement, chemical, food processing, sector includes textile, cement, chemical, food processing, steel, transport, clothing and paper products . Exports are steel, transport, clothing and paper products . Exports are $17.78 billion and Imports are $30.99 billion. Economy of $17.78 billion and Imports are $30.99 billion. Economy of Pakistan is the 27Pakistan is the 27thth largest economy of the world in term of largest economy of the world in term of purchasing power and 48purchasing power and 48thth largest in absolute dollar largest in absolute dollar terms . The economy has suffered in the past from internal terms . The economy has suffered in the past from internal political disputes, a fast growing population , mixed level of political disputes, a fast growing population , mixed level of foreign investment and a costly ongoing confrontation with foreign investment and a costly ongoing confrontation with neighboring India. However IMF approved government neighboring India. However IMF approved government policies , bolstered by foreign investment and renewed policies , bolstered by foreign investment and renewed access to global markets , have generated solid access to global markets , have generated solid macroeconomic recovery the last decade . Substantial macroeconomic recovery the last decade . Substantial macroeconomic reforms since 2000 most notably at macroeconomic reforms since 2000 most notably at privatizing the banking sector have helped the economyprivatizing the banking sector have helped the economy
ECONOMIC GROWTHECONOMIC GROWTH In current year Pakistan economic growth rate is In current year Pakistan economic growth rate is
decreased as compared to the previous year by 1.7% . The decreased as compared to the previous year by 1.7% . The growth is 4.1% where as the last year growth was 5.8%growth is 4.1% where as the last year growth was 5.8%
Major factors , which cause in decrease in growth rate are Major factors , which cause in decrease in growth rate are
Internal factorsInternal factors
Political instabilityPolitical instability
Unstable law and order Unstable law and order
Power resources crisis Power resources crisis
War against terrorismWar against terrorism
External factorsExternal factors
International financial crisesInternational financial crises
0
1
2
3
4
5
6
7
8
9
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
GDP
GDP OF PAKISTANGDP OF PAKISTAN
7.5
9
5.8
6.8
5.8
2
0
1
2
3
4
5
6
7
8
9
10
2005-06 2006-07 2007-08 2008-09
PAKISTAN
INDIA
SRILANKA
BANGLADESH
COMPARISON OF GDP IN COMPARISON OF GDP IN SOUTH ASIASOUTH ASIA
5.8
9.2 9.2 9.2
10
.6.8
5.8
2
6
7.5
6.3
4.8
6.3
6.7
5.6
4.9
OTHER FACTORS OF OTHER FACTORS OF ECONOMIC GROWTHECONOMIC GROWTH
InflationInflation Remains the biggest threat to the economy , jumping to more Remains the biggest threat to the economy , jumping to more
than 9% in 2005 before easing to 7.9% in 2006 . In 2008 following the surge than 9% in 2005 before easing to 7.9% in 2006 . In 2008 following the surge in global petrol prices inflation in Pakistan has reached as high as 25% . The in global petrol prices inflation in Pakistan has reached as high as 25% . The central bank is pursuing the tighter monetary policy while trying to preserve central bank is pursuing the tighter monetary policy while trying to preserve growth.growth.
Recent situationRecent situationThe CPI inflation averaged 23.5% in July-February 2008-09 as against 8.9% in The CPI inflation averaged 23.5% in July-February 2008-09 as against 8.9% in
the comparable period of last year.the comparable period of last year.The food inflation is estimated at 28.9%in July-February 2008-09 as against The food inflation is estimated at 28.9%in July-February 2008-09 as against
13.0%in the comparable period of last year.13.0%in the comparable period of last year.The non-food inflation stood at 19.3%, against 5.9% in the corresponding The non-food inflation stood at 19.3%, against 5.9% in the corresponding
period of last year.period of last year.The Wholesale Price Index (WPI) during first eight months of 2008-09 has The Wholesale Price Index (WPI) during first eight months of 2008-09 has
increased by 24.7%, as against 11.7% in the comparable period of last year.increased by 24.7%, as against 11.7% in the comparable period of last year.
InflationInflation in Pakistan has shown rigidity to monetary policy measures in Pakistan has shown rigidity to monetary policy measures because on one side there is a concretionary monetary policy and on the because on one side there is a concretionary monetary policy and on the other an expansionary fiscal policy.other an expansionary fiscal policy.
OTHER FACTORS OF ECONOMIC OTHER FACTORS OF ECONOMIC GROWTH (CONTINUE)GROWTH (CONTINUE)
MONETARY POLICYMONETARY POLICY
Monetary policy stance of the SBP has Monetary policy stance of the SBP has undergone considerable changes over the last seven years, gradually undergone considerable changes over the last seven years, gradually switching from an easy monetary policy to the current aggressive tight switching from an easy monetary policy to the current aggressive tight monetary policy stance depending on the inflationary situation in the monetary policy stance depending on the inflationary situation in the country. During FY08, the SBP continued with a tight monetary policy country. During FY08, the SBP continued with a tight monetary policy stance, thrice raising the discount rate and increased the Cash Reserve stance, thrice raising the discount rate and increased the Cash Reserve Requirement (CRR) and Statutory Liquidity Requirement (SLR).Requirement (CRR) and Statutory Liquidity Requirement (SLR).
In the monetary policy decision of In the monetary policy decision of 29 SEP 200929 SEP 2009 the SBP policy rate was the SBP policy rate was decided decided 13%13%
And in the monetary policy decision of And in the monetary policy decision of 24 NOV 200924 NOV 2009 SBP policy rate was SBP policy rate was lowered by 50 bps to lowered by 50 bps to 12.5%12.5%
0
2
4
6
8
10
12
14
2005-06 2006-07 2007-08 2008-09
INTEREST RATE
INTEREST RATES IN PAKISTANINTEREST RATES IN PAKISTAN
10.2 10.6
8.5
12.5
OTHER FACTORS OF ECONOMIC OTHER FACTORS OF ECONOMIC GROWTH (CONTINUE)GROWTH (CONTINUE)
CAPITAL MARKETCAPITAL MARKETPakistan’s stock market hasPakistan’s stock market has emerged as one of the fastest growing emerged as one of the fastest growing markets in emerging economies in recent years. Local and foreign markets in emerging economies in recent years. Local and foreign investors’ confidence in the investment environment of Pakistan has investors’ confidence in the investment environment of Pakistan has boosted the index to peak highsboosted the index to peak highs
Pakistan’s benchmarked stock market index - the Karachi Stock Pakistan’s benchmarked stock market index - the Karachi Stock Exchange - KSE-100 index has increased from 1,521 points on Exchange - KSE-100 index has increased from 1,521 points on June 30, 2000 to 12,130.5 points on May 30, 2008.June 30, 2000 to 12,130.5 points on May 30, 2008.
But latest financial crunch also effects the market index.But latest financial crunch also effects the market index.Now in DEC 2009Now in DEC 2009 KSE 100 index is at 9072 points KSE 100 index is at 9072 pointsMajor factors of this decline are:Major factors of this decline are:Political uncertaintyPolitical uncertaintyUncertain law and order situationUncertain law and order situationWar against terrorWar against terror
PAKISTANS TRADINGPAKISTANS TRADING
EXPORTS:EXPORTS:In absolute terms, exports have increased from $ 15.3 billion to $ 17.78 In absolute terms, exports have increased from $ 15.3 billion to $ 17.78
billionbillion
Major exported goods are textile goods , rice , leather goods , sports Major exported goods are textile goods , rice , leather goods , sports goods , chemicals , carpets , cement etc.goods , chemicals , carpets , cement etc.
Major export partners are United States 22.4% UAE 8.3% UK 6% Major export partners are United States 22.4% UAE 8.3% UK 6% China 5.4% Germany 4.7%China 5.4% Germany 4.7%
Exports of other manufactures and Exports of other manufactures and ’other items’ ’other items’ posted a handsome posted a handsome growth of 33.2 percent 59.5 percent, respectivelygrowth of 33.2 percent 59.5 percent, respectively
PAKISTANS TRADINGPAKISTANS TRADING
IMPORTS:IMPORTS: In fiscal year 2008-09 on account of an unprecedented rise In fiscal year 2008-09 on account of an unprecedented rise
in import bills and some one-off elements in the shape of imports of wheat in import bills and some one-off elements in the shape of imports of wheat and fertilizer. As a result, Pakistan’s trade and current account deficits and fertilizer. As a result, Pakistan’s trade and current account deficits have widened substantially in this year contributing to serious have widened substantially in this year contributing to serious macroeconomic imbalances.macroeconomic imbalances.
In absolute dollar term imports are $31 billion of worth which cause a high In absolute dollar term imports are $31 billion of worth which cause a high trade deficittrade deficit
Major import goods are petroleum , machinery , plastics , transportation Major import goods are petroleum , machinery , plastics , transportation equipment , paper , iron , teaequipment , paper , iron , tea
Major import partners are China 14.7% Saudi Arabia 10.1% UAE 8.7% Major import partners are China 14.7% Saudi Arabia 10.1% UAE 8.7% Japan 6.5% United States 5.3% Germany 5% Kuwait 4.9%Japan 6.5% United States 5.3% Germany 5% Kuwait 4.9%
Imports of food group were up by 48.6 percent Imports of food group Imports of food group were up by 48.6 percent Imports of food group accounted for 11 percent of total imports but contributed 16.3 percent in accounted for 11 percent of total imports but contributed 16.3 percent in the overall growth of imports in the current fiscal yearthe overall growth of imports in the current fiscal year
Imports of machinery increase of 6.9 reaching to $4.2 billionImports of machinery increase of 6.9 reaching to $4.2 billion
IMPORTS & EXPORTSIMPORTS & EXPORTS
0
5
10
15
20
25
30
35
40
2005 2007
IMPORT(BILLION$)
0
2
4
6
8
10
12
14
16
18
20
2005 2007
EXPORT(BILLION$)
20.59
28.58
30.54
39.96
14.39
16.4516.97
19.22
ManufacturingManufacturing
Manufacturing is the second largest sector of the economy.Manufacturing is the second largest sector of the economy. This sector has recorded its weakest growth in a decade during This sector has recorded its weakest growth in a decade during fiscal year 2007-08. Overall manufacturing posted a growth of 5.4 fiscal year 2007-08. Overall manufacturing posted a growth of 5.4 percent during the first nine months (July-March) of the current fiscal percent during the first nine months (July-March) of the current fiscal year against the target of 10.9 percent and last year’s achievement year against the target of 10.9 percent and last year’s achievement of 8.2 percent.of 8.2 percent.
19 percent of GDP19 percent of GDP Large-scale-manufacturing (LSM), accounting for almost 70 Large-scale-manufacturing (LSM), accounting for almost 70
percent of overall manufacturing, registered a less-than-percent of overall manufacturing, registered a less-than-satisfactory growth of 4.8 percent in fiscal year 2007-08satisfactory growth of 4.8 percent in fiscal year 2007-08
The relatively slower pace of expansion this year perhaps The relatively slower pace of expansion this year perhaps exhibits signs of moderation on account of higher capacity exhibits signs of moderation on account of higher capacity utilization, difficulties in textile and other important sectors such utilization, difficulties in textile and other important sectors such as fertilizer, soap and detergent, vegetable ghee and cooking oil, as fertilizer, soap and detergent, vegetable ghee and cooking oil, automobile sector, paper and paper board, and billetsautomobile sector, paper and paper board, and billets
Investment In PakistanInvestment In PakistanAfter reaching a record level of 22.9 percent of GDP in 2006-07, total After reaching a record level of 22.9 percent of GDP in 2006-07, total investments declined to 21.6 percentinvestments declined to 21.6 percent
Fixed investment decreased to Fixed investment decreased to 20 percent of GDP from 21.320 percent of GDP from 21.3
private sector investment however, registered a decline of 1.4 private sector investment however, registered a decline of 1.4 percentage percentage points - declining from 15.6 percent to 14.2 percentpoints - declining from 15.6 percent to 14.2 percent
Private sector investment was broad based. The energy sector has played a Private sector investment was broad based. The energy sector has played a key role in attracting private sector investmentkey role in attracting private sector investment
Pakistan succeeded in attracting $3.6 billion worth of foreign investment in Pakistan succeeded in attracting $3.6 billion worth of foreign investment in the first ten months of the current fiscal year as against $5.9 billion the first ten months of the current fiscal year as against $5.9 billion
Almost 57 percent of FDI has come from three countriesAlmost 57 percent of FDI has come from three countries
U.A.E (15.4 %)U.A.E (15.4 %) UK (8.7%)UK (8.7%)
Norway (4.4%)Norway (4.4%) Switzerland Switzerland (4.1%)(4.1%)
Hong Kong (3.5%)Hong Kong (3.5%) Japan (2.9%)Japan (2.9%)
Foreign InvestmentForeign Investment
Communications SectorCommunications Sector 30.4%30.4%
Financial BusinessesFinancial Businesses 22.6%22.6%
Energy Including Oil And Gas And PowerEnergy Including Oil And Gas And Power 16.6%16.6%
TradeTrade 4.9%4.9%
The Three Groups, Namely Communication, The Three Groups, Namely Communication, Banking, And Oil And Gas ExplorationBanking, And Oil And Gas Exploration
accounted for over 2/3 of accounted for over 2/3 of FDI inflows in the countryFDI inflows in the country
INDUSTRY ANALYSIS
INDUSTRY ANALYSISINDUSTRY ANALYSIS IMPORTANCE OF INDUSTRY IN PAKISTANIMPORTANCE OF INDUSTRY IN PAKISTAN
Cement is one of major industries of Pakistan . Pakistan is rich in Cement is one of major industries of Pakistan . Pakistan is rich in cement raw material . The last few year have been a golden cement raw material . The last few year have been a golden period for cement manufacturers , when the government period for cement manufacturers , when the government increased spending on infrastructure development . During the increased spending on infrastructure development . During the financial year 08 cement sales registered a growth of 31% to financial year 08 cement sales registered a growth of 31% to 17.53 million tons as against 13.5 million tones soled last year . 17.53 million tons as against 13.5 million tones soled last year . Exports stood at 3.7 million tons as against 1.8 million tons in Exports stood at 3.7 million tons as against 1.8 million tons in the last year , showing an increase of 110% .the last year , showing an increase of 110% .
Pakistan cement industry has a huge potential for export of Pakistan cement industry has a huge potential for export of cement to neighbor countries like India , UAE , Afghanistan , cement to neighbor countries like India , UAE , Afghanistan , Iraq and Russia Iraq and Russia
Industry achieved an overall growth of 32% with domestic demand Industry achieved an overall growth of 32% with domestic demand of cement increased by 24.95% where as exports increased by of cement increased by 24.95% where as exports increased by 111.86% 111.86%
The overall growth achieved by cement factories for the year was The overall growth achieved by cement factories for the year was 111.29% consisting of domestic and export markets at 71.02% 111.29% consisting of domestic and export markets at 71.02% and 335.12% respectivelyand 335.12% respectively
CONTRIBUTION IN ECONOMIC GROWTHCONTRIBUTION IN ECONOMIC GROWTHDuring the last three years the large scale manufacturing sector is showing signs of During the last three years the large scale manufacturing sector is showing signs of
moderating along with a subsequent slowing down of the economy and has moderating along with a subsequent slowing down of the economy and has registered a growth of 4.8% during the current fiscal year.registered a growth of 4.8% during the current fiscal year.
The main contribution to this growth of 4.8% in July-march 2007-08 over last year are The main contribution to this growth of 4.8% in July-march 2007-08 over last year are pharmaceuticals (30.7%) , wood products (21.9%) , engineering products (19.5%) pharmaceuticals (30.7%) , wood products (21.9%) , engineering products (19.5%) food and beverages (11.1%) petroleum (6.03%) and chemicals (3.1%) cotton yarn food and beverages (11.1%) petroleum (6.03%) and chemicals (3.1%) cotton yarn
(3%) cotton cloth (4.8%) sugar (33.9%) (3%) cotton cloth (4.8%) sugar (33.9%) and cement (17.9%)and cement (17.9%)
ItemItem UnitsUnits July-march July-march 2006-072006-07
July-march July-march 2007-082007-08
% change% change
Cotton yarnCotton yarn 000 tons000 tons 2132.62132.6 2203.52203.5 3.323.32
Cotton clothCotton cloth Mln.sq.mtrMln.sq.mtr 727.9727.9 763.4763.4 4.884.88
SugarSugar 000 tons000 tons 3247.63247.6 4351.24351.2 33.933.9
CementCement 000 tons000 tons 1644816448 194014194014 17.9517.95
0
5
10
15
20
25
2003 2004 2005 2006 2007 2008
CEMENT SALES(MILLION TONS)
YEAR WISE INDUSTRYYEAR WISE INDUSTRY
9.91
11.41
13.66
16.36
18.22
24.22
PROPORTION OF INDUSTRYPROPORTION OF INDUSTRY
ASKARI
D G KHAN
LUCKY
MAPLELEAF
PIONEER
OTHER
ASKARIASKARID G KHAND G KHAN LUCKYLUCKY MAPLE MAPLE
LEAFLEAFPIONEERPIONEER OTHERSOTHERS
7.6%7.6% 9.8%9.8% 12.7%12.7% 7.1%7.1% 5.5%5.5% 57.3%57.3%
GOVERNMENT ATTITUDE GOVERNMENT ATTITUDE TOWARDS SECTORTOWARDS SECTOR
TAX STRUCTURETAX STRUCTURE Instead of providing relief in budget , Instead of providing relief in budget ,
sector was penalized with a 3% increase in sales tax to 18% . sector was penalized with a 3% increase in sales tax to 18% . Manufacturers have been able to pass on the increase to customers Manufacturers have been able to pass on the increase to customers but the situation is unlikely to continue but the situation is unlikely to continue
Since massive investment has been made in sector , any reduction Since massive investment has been made in sector , any reduction in price of cement can reduce profit margin of all the units in price of cement can reduce profit margin of all the units
EXCISE DUTYEXCISE DUTY In budget 2008-09 the federal excise duty on In budget 2008-09 the federal excise duty on
cement has been to RS=900 per tons from the existing base of cement has been to RS=900 per tons from the existing base of RS=750 per tonsRS=750 per tons
RATIOS OF DIFFERENT RATIOS OF DIFFERENT INDUSTRIESINDUSTRIES
LUCKYLUCKY FAUJIFAUJI PIONEERPIONEER D G KHAND G KHAN
GROSS GROSS PROFIT TO PROFIT TO SALESSALES
29.35%29.35% 31.52%31.52% 10.2%10.2% 31.65%31.65%
OPERATING OPERATING PROFIT TO PROFIT TO SALESSALES
24.49%24.49% 28.74%28.74% 8.3%8.3% 29.68%29.68%
PROFIT PROFIT BEFORE TX BEFORE TX TO SALESTO SALES
21.49521.495 22.76%22.76% 5.9%5.9% 27.34%27.34%
NET PROFIT NET PROFIT AFTER TAXAFTER TAX
20.34%20.34% 18.66%18.66% 3.0%3.0% 25.27%25.27%
0
5
10
15
20
25
30
LUCKY FAUJI PIONEER D G KHAN
PROFIT RATIO
PROFIT RATIOPROFIT RATIO
20.3418.66
3.0
25.27
PROBLEMS TO THE INDUSTRYPROBLEMS TO THE INDUSTRYMain component of cost is fuel . Pakistan cement industry has converted their Main component of cost is fuel . Pakistan cement industry has converted their
plants to coal to considering it to the cheapest fuel but its price in plants to coal to considering it to the cheapest fuel but its price in international markets has gone up by more than 300% in the last one year international markets has gone up by more than 300% in the last one year which directly relate increasing the cost of production which directly relate increasing the cost of production
The burden of increased input costs has to be borne by the consumers . It is The burden of increased input costs has to be borne by the consumers . It is only the government , which can provide relief to the consumers by cutting only the government , which can provide relief to the consumers by cutting down or abolishing the central excise dutydown or abolishing the central excise duty
Unanticipated increase in interest rates or less than expected demand growth Unanticipated increase in interest rates or less than expected demand growth create severe crises for the sector couple of year create severe crises for the sector couple of year
Instead of appreciating the marketing skills of cement entrepreneurs to explore Instead of appreciating the marketing skills of cement entrepreneurs to explore new markets for cement , industry is being pressurized constantly without new markets for cement , industry is being pressurized constantly without realizing that reduction in cement exports will result in losses to industryrealizing that reduction in cement exports will result in losses to industry
The freight charges are a massive 20% of the retail price . The plants located The freight charges are a massive 20% of the retail price . The plants located very close to each other and tapping the same market will have to expand very close to each other and tapping the same market will have to expand their markets which will increase their freight expenses . It also increase their markets which will increase their freight expenses . It also increase competition between these firmscompetition between these firms
Customer has no choice at all to switch between to brands of cement due to Customer has no choice at all to switch between to brands of cement due to cartel of cement manufacturers in Pakistancartel of cement manufacturers in Pakistan
D G KHAN AS COMPARED TO INDUSTRY
DGKC posted growth of 113% in export sales in the outgoing fiscal year also DGKC posted growth of 113% in export sales in the outgoing fiscal year also improving its market share in the export market to 14% from 10% earlierimproving its market share in the export market to 14% from 10% earlier
Coal prices , a major cost driver for cement industry have seen a sharp fall Coal prices , a major cost driver for cement industry have seen a sharp fall due to global economic slowdown , result in increase in efficiency of DGKCdue to global economic slowdown , result in increase in efficiency of DGKC
DGKC have been looking out for operational upgrades to reduce its energy DGKC have been looking out for operational upgrades to reduce its energy cost . In this regard two projects are initiated out of which cement grinding cost . In this regard two projects are initiated out of which cement grinding mill has already started commercial production . It is said to be the worlds mill has already started commercial production . It is said to be the worlds largest vertical cement grinding mill with a capacity of 5000 tons per day it largest vertical cement grinding mill with a capacity of 5000 tons per day it is expected to reduce energy consumption from 45% to 32-35%is expected to reduce energy consumption from 45% to 32-35%
Another plus point is the increase in the portfolio value . DGKC has equity Another plus point is the increase in the portfolio value . DGKC has equity investment in MCB Bank (9%) NISHAT Mills (13%) ADAMJEE insurance investment in MCB Bank (9%) NISHAT Mills (13%) ADAMJEE insurance (3%). All of these have seen a significant price increase since the start of (3%). All of these have seen a significant price increase since the start of year up 53% , 84% , 5% respectively. Current market value of DGKC year up 53% , 84% , 5% respectively. Current market value of DGKC equity portfolio comes to RS 38 per share . Hence equity portfolio alone equity portfolio comes to RS 38 per share . Hence equity portfolio alone provides tremendous value to the investorprovides tremendous value to the investor
Firm Analysis
COMPANY INFORMATIONCOMPANY INFORMATIONDGKC , a unit of NISHAT group , is the largest cement manufacturing unit in DGKC , a unit of NISHAT group , is the largest cement manufacturing unit in
Pakistan with a production capacity of 5500 tons clinker per day. It is listed Pakistan with a production capacity of 5500 tons clinker per day. It is listed on all stock exchange in Pakistan. DGKC was established under the on all stock exchange in Pakistan. DGKC was established under the management control of state cement corporation of Pakistan (SCCP) in management control of state cement corporation of Pakistan (SCCP) in 1978 and start working in April 1986 with 2000 tons per day. Plant & 1978 and start working in April 1986 with 2000 tons per day. Plant & machinery was supplied by UBE industries of Japan.machinery was supplied by UBE industries of Japan.
NISHAT group acquire DGKC in 1992 under the privatization initiative of the NISHAT group acquire DGKC in 1992 under the privatization initiative of the government. Group sets up a new cement production line of 6700 tons per government. Group sets up a new cement production line of 6700 tons per day clinker near KALARKAHAR, the single largest production line in the day clinker near KALARKAHAR, the single largest production line in the country. country.
For continuous operations of the plant uninterrupted power supply is very For continuous operations of the plant uninterrupted power supply is very crucial company has its own power generation plant along with WAPDA crucial company has its own power generation plant along with WAPDA supply. The installed generation capacity is 23.84 MW.supply. The installed generation capacity is 23.84 MW.
DGKC production processes are environment friendly and comply with DGKC production processes are environment friendly and comply with WORLD’S BANK environmental standards. It has been certified for WORLD’S BANK environmental standards. It has been certified for environment management system “ISO 14001” by quality assurance environment management system “ISO 14001” by quality assurance services Australia. The company also has certificate of ISO 9002 (Quality services Australia. The company also has certificate of ISO 9002 (Quality Management System) in 1988 , so the only cement factory of Pakistan Management System) in 1988 , so the only cement factory of Pakistan having ISO 14001 & ISO 9002 both. having ISO 14001 & ISO 9002 both.
VISIONVISIONTo transform the company into modern and dynamic To transform the company into modern and dynamic
cement manufacturing company with qualified cement manufacturing company with qualified professionals and fully equipped to play a meaningful professionals and fully equipped to play a meaningful role on sustainable basis in the economy of Pakistan.role on sustainable basis in the economy of Pakistan.
MISSION STATEMENTMISSION STATEMENTTo provide quality products to customers and explore To provide quality products to customers and explore
new markets to promote sales of the company through new markets to promote sales of the company through good governance and foster a sound and dynamic good governance and foster a sound and dynamic team, so as to achieve optimum prices of products of team, so as to achieve optimum prices of products of the company for sustainable and equitable growth and the company for sustainable and equitable growth and prosperity of the companyprosperity of the company
BOARD OF DIRECTORSBOARD OF DIRECTORSMRS NAZ MANSHAMRS NAZ MANSHA CHIARPERSON / DIRECTORCHIARPERSON / DIRECTOR
MIAN RAZA MANSHAMIAN RAZA MANSHA CHIEF EXECUTIVE / DIRECTORCHIEF EXECUTIVE / DIRECTOR
MR MANZRA MUSHTAQMR MANZRA MUSHTAQ DIRECTORDIRECTOR
KHALID QADEER QURESHIKHALID QADEER QURESHI DIRECTORDIRECTOR
MOHAMMAD AZAMMOHAMMAD AZAM DIRECTORDIRECTOR
ZAKA UD DINZAKA UD DIN DIRECTORDIRECTOR
INAYAT ULLAH NIAZIINAYAT ULLAH NIAZI CHIEF FINANCIAL OFFICER / DIRECTORCHIEF FINANCIAL OFFICER / DIRECTOR
FIRM ANALYSISFIRM ANALYSISOverview of income statementOverview of income statement
Income statementIncome statement 20092009 20082008 20072007 20062006
SalesSales 1803820918038209 1244599612445996 6419625 79556657955665
Cost of salesCost of sales -12358479-12358479 -10530723-10530723 -4387640-4387640 -3992822-3992822
Gross profitGross profit 56797305679730 19152731915273 20319852031985 39628433962843
Administrative expensesAdministrative expenses -141852-141852 -111658-111658 -104169-104169 -121953-121953
Selling expensesSelling expenses -1871517-1871517 -561465-561465 -65122-65122 -34352-34352
Other operating expensesOther operating expenses -795854-795854 -581913-581913 -139721-139721 -191850-191850
Other operating incomeOther operating income 770137770137 847344847344 479420479420 294114294114
Profit from operationsProfit from operations 33832583383258 15075811507581 22023932202393 39088023908802
Finance costFinance cost -2606358-2606358 -1749837-1749837 -467759-467759 -450696-450696
Share of loss of associates Share of loss of associates -- -8674-8674 -14163-14163 -9573-9573
Profit/loss before taxProfit/loss before tax 776900776900 -250930-250930 17204711720471 34485533448553
TaxationTaxation -251319-251319 -197900-197900 -98000-98000 -1030078-1030078
Profit/loss for the yearProfit/loss for the year 525581525581 -53230-53230 16224711622471 24184552418455
FIRM ANALYSISFIRM ANALYSISOverview of balance sheetOverview of balance sheet
Balance sheetBalance sheet 20092009 20082008 20072007 20062006
Capital and reserveCapital and reserve 2091844220918442 3052844030528440 3392318533923185 1926820019268200
Non current Non current liabilitiesliabilities
59698005969800 1025035210250352 1043091710430917 90207409020740
Current liabilitiesCurrent liabilities 1583479915834799 1289930612899306 73902297390229 60154366015436
AssetsAssets
Non current assetsNon current assets 2943544929435449 3383592733835927 3252937732529377 2439448124394481
Current assetsCurrent assets 1328759213287592 1984217119842171 1921495419214954 99098959909895
FIRM ANALYSISFIRM ANALYSISLiquidity positionLiquidity position 20092009 20082008 20072007 20062006
Current ratio Current ratio 0.830.83 1.541.54 2.602.60 1.651.65
Acid test ratioAcid test ratio 0.780.78 1.221.22 2.332.33 1.441.44
Cash ratioCash ratio 0.500.50 1.181.18 2.312.31 1.431.43
Liquidity positionLiquidity position Liquidity position of company deteriorated Liquidity position of company deteriorated
during the financial year 2009 due to decrease in current during the financial year 2009 due to decrease in current assets and increase in current liabilities. Current liabilities of assets and increase in current liabilities. Current liabilities of company increase due to increase in trade payable, accrued company increase due to increase in trade payable, accrued markup and short term borrowing. Current assets decline due markup and short term borrowing. Current assets decline due to decline in investments, cash and bank balance. Thus to decline in investments, cash and bank balance. Thus increase in current liabilities and decrease in current assets increase in current liabilities and decrease in current assets result in a less favorable liquidity position as compared to result in a less favorable liquidity position as compared to 2008. 2008.
FIRM ANALYSISFIRM ANALYSISActivity ratiosActivity ratios 20092009 20082008 20072007 20062006
Account receivable Account receivable turnoverturnover
35.09 times35.09 times 41.02 times41.02 times 58.78 times58.78 times 105.79times105.79times
Account receivable Account receivable turnover in daysturnover in days
10.40 days10.40 days 8.89 days8.89 days 6.20 days6.20 days 3.45 days3.45 days
inventory turnoverinventory turnover 13.73 times13.73 times 13.19 times13.19 times 16.83 times16.83 times 24.40 times24.40 times
inventory turnover in inventory turnover in daysdays
26.58 days26.58 days 27.66 days27.66 days 21.69 days21.69 days 14.96 days14.96 days
Operating cycleOperating cycle 36.98 days36.98 days 36.55 days36.55 days 27.89 days27.89 days 18.41 days18.41 days
FIRM ANALYSISFIRM ANALYSIS
0
5
10
15
20
25
30
35
40
2006 2007 2008 2009
AR turnover in days
IN turnover in days
Operating cycle
FIRM ANALYSISFIRM ANALYSIS
Account receivable turnover of company is decreasing which Account receivable turnover of company is decreasing which results in increase in account receivable in days which results in increase in account receivable in days which indicates that company is going to be less efficient in collecting indicates that company is going to be less efficient in collecting its receivable , one factor can be due to increase in sales its receivable , one factor can be due to increase in sales
Whereas company has shown efficiency in inventory Whereas company has shown efficiency in inventory management because inventory turnover is increased and management because inventory turnover is increased and thus inventory turnover in days has decreased thus inventory turnover in days has decreased
Overall operating cycle of company had increased because of Overall operating cycle of company had increased because of increase in account receivable turnover in daysincrease in account receivable turnover in days
FIRM ANALYSISFIRM ANALYSISDebt Debt ratios(%)ratios(%)
20092009 20082008 20072007 20062006
Debt to Debt to equityequity
89%89% 76%76% 53%53% 78%78%
Debt ratioDebt ratio 47%47% 43%43% 34%34% 44%44%
During financial year 08 the debt ratios of company rose During financial year 08 the debt ratios of company rose because the total debt increased in 08 mainly due to 63% because the total debt increased in 08 mainly due to 63% increase in the current liabilities which forms 55% of total increase in the current liabilities which forms 55% of total debt. During year 2009 the debt ratio again increase debt. During year 2009 the debt ratio again increase because of increase in current liabilities and a major because of increase in current liabilities and a major decrease in capital and reserve from $30528440 to decrease in capital and reserve from $30528440 to $20918442.$20918442.
FIRM ANALYSISFIRM ANALYSIS
Profitability Profitability ratios(%)ratios(%)
20092009 20082008 20072007 20062006
G P MarginG P Margin 31.5%31.5% 15.3%15.3% 32%32% 49%49%
Operating Operating profit marginprofit margin
18.75%18.75% 12%12% 34%34% 49%49%
N P MarginN P Margin 2.9%2.9% (0.43)%(0.43)% 25%25% 31%31%
FIRM ANALYSISFIRM ANALYSISAfter experiencing in declining profitability during 2008, the After experiencing in declining profitability during 2008, the
cement sector came back strongly to post a growth of 167% cement sector came back strongly to post a growth of 167% in earning during first quarter (July-September) OF YEAR in earning during first quarter (July-September) OF YEAR 2009, cement sector posted profit after tax of $1.3 billion in 2009, cement sector posted profit after tax of $1.3 billion in first quarter as compared to $500 million in the last year first quarter as compared to $500 million in the last year quarter. This growth was mainly due to depreciation of rupee quarter. This growth was mainly due to depreciation of rupee which result in increase of rupee based export sales.which result in increase of rupee based export sales.
However operating expenses and finance expenses of DGKC However operating expenses and finance expenses of DGKC caused the profitability to remain low in 2009. the oil cost, caused the profitability to remain low in 2009. the oil cost, electricity cost and raw material cost and material packing electricity cost and raw material cost and material packing cost increased in 2009. The selling expenses increase more cost increased in 2009. The selling expenses increase more than 300% in 2009 administrative expenses also increased than 300% in 2009 administrative expenses also increased by 31%. All these factors caused in decrease in profitability in by 31%. All these factors caused in decrease in profitability in 2009.2009.
FIRM ANALYSISFIRM ANALYSIS
Asset utilizationAsset utilization 20092009 20082008 20072007 20062006
Sales to fixed Sales to fixed assetsassets
7474 5454 4343 108108
Return on assetsReturn on assets 22 1.851.85 3.83.8 2323
Sales to total assetSales to total asset 42.2542.25 23.2223.22 124.79124.79 23.1923.19
FIRM ANALYSISFIRM ANALYSISIn 2008 asset management of DGKC improved as the inventory In 2008 asset management of DGKC improved as the inventory
turnover rate increased because the company earned sales turnover rate increased because the company earned sales revenue more in proportion to increased inventory revenue more in proportion to increased inventory
In 2009 total asset turnover of company improved because the In 2009 total asset turnover of company improved because the management of company was effective in generating higher management of company was effective in generating higher sales revenue. The company performance in the area has sales revenue. The company performance in the area has improved as full scale production from the newly inaugurated improved as full scale production from the newly inaugurated KHIARPUR plant has augmented to sales KHIARPUR plant has augmented to sales
Common Size AnalysisCommon Size Analysis
Balance SheetEQUITY AND LIABILITIES
Capital and Reserves Capital and Reserves 2009%2009% 2008%2008% 2007%2007%
Authorized capital 23.423.4 19.219.2 19.319.3
Issued, subscribed and paid up capital 7.17.1 4.84.8 4.84.8
Reserves 40.740.7 53.0753.07 57.257.2
Accumulated profit / (loss) 1.111.11 (0.09)(0.09) 3.43.4
TotalTotal 48.948.9 57.757.7 65.465.4
Balance Sheet
NON-CURRENT LIABILITIES
2009%2009% 2008%2008% 2007%2007%
Long term finances 10.210.2 16.116.1 16.716.7
Liabilities against assets subject to finance lease __ __ .002.002
Long term deposits 0.170.17 0.140.14 0.070.07
Retirement and other benefits 0.180.18 0.100.10 0.070.07
Deferred taxation 3.33.3 2.52.5 3.13.1
Balance Sheet
CURRENT LIABILITIES
2009%2009% 2008%2008% 2007%2007%
Trade and other payables 3.353.35 2.632.63 1.981.98
Accrued markup 1.241.24 0.700.70 0.660.66
Short term borrowing - secured 21.221.2 14.6114.61 7.627.62
Current portion of non - current liabilities 11.111.1 5.165.16 3.943.94
Provision for taxation 0.080.08 0.060.06 0.060.06
TotalTotal 37.2537.25 23.3823.38 14.5814.58
Balance SheetAssets
NON-CURRENT ASSETS
2009%2009% 2008%2008% 2007%2007%
Property, plant and equipment 56.956.9 44.1944.19 42.7442.74
Assets subject to finance lease __ 0.0090.009 0.250.25
Capital work in progress 4.094.09 4.784.78 3.683.68
Investments 7.427.42 13.0713.07 15.2915.29
Long term loans, advances and deposits 0.390.39 1.001.00 0.380.38
Balance Sheet
CURRENT ASSETS2009%2009% 2008%2008% 2007%2007%
Stores, spares and loose tools 6.876.87 4.424.42 2.892.89
Stock-in-trade 2.102.10 0.850.85 0.570.57
Trade debts 1.201.20 0.700.70 0.570.57
Investments 18.2218.22 29.0029.00 32.7232.72
Advances, deposits, and other receivables 2.122.12 1.501.50 0.570.57
Cash and bank balances 0.570.57 0.430.43 0.220.22
PROFIT AND LOSS ACCOUNT 2009% 2008% 2007%
SalesSales
Less:CGSLess:CGS
100100
68.5068.50
100100
84.684.6
100100
68.3468.34
Gross ProfitGross Profit
Less:Less:Administrative expensesAdministrative expenses
Selling and distribution expenses Selling and distribution expenses
Other operating expenses Other operating expenses
Impairment on investment
Add: Other operating Income
31.531.5
(0.78)(0.78)
(10.37)(10.37)
(4.42)(4.42)
(1.42)(1.42)
4.274.27
15.415.4
(0.89)(0.89)
(4.52)(4.52)
(4.67)(4.67)
--
6.806.80
31.6531.65
(1.62)(1.62)
(1.01)(1.01)
(2.17)(2.17)
--
7.477.47
Profit from OperationsProfit from Operations 18.7818.78 12.112.1 34.3234.32
PROFIT AND LOSS ACCOUNT 2009% 2008% 2007%
Profit from operationsFinance cost
Share of loss of associated company
(14.5)(14.5)
--
(14.05)(14.05)
(0.069)(0.069)
(7.28)(7.28)
(0.22)(0.22)
Profit before TaxProfit before Tax
Less: TaxLess: Tax
4.344.34
(1.39)(1.39)
(2.019)(2.019)
1.581.58
26.8226.82
(1.52)(1.52)
Net ProfitNet Profit 2.922.92 (0.439)(0.439) 25.225.2
Index AnalysisIndex Analysis
Balance SheetEQUITY AND LIABILITIES
Capital and Reserves Capital and Reserves 2009%2009% 2008%2008% 2007%2007%
Authorized capital 100100 100100 100100
Issued, subscribed and paid up capital 119.9119.9 100100 100100
Reserves 58.7258.72 93.1393.13 100100
Accumulated profit / (loss) 27.0027.00 (2.89)(2.89) 100100
TotalTotal 61.6661.66 88.6788.67 100100
Balance Sheet
NON-CURRENT LIABILITIES
2009%2009% 2008%2008% 2007%2007%
Long term finances 50.3750.37 96.8296.82 100100
Liabilities against assets subject to finance lease 100100
Long term deposits 92.8292.82 92.9892.98 100100
Retirement and other benefits 197.23197.23 135.51135.51 100100
Deferred taxation 88.7688.76 81.2181.21 100100
Balance Sheet
CURRENT LIABILITIES
2009%2009% 2008%2008% 2007%2007%
Trade and other payables 139.73139.73 133.39133.39 100100
Accrued markup 155.21155.21 106.43106.43 100100
Short term borrowing – secured 299.99299.99 192.67192.67 100100
Current portion of non - current liabilities 233.26233.26 131.59131.59 100100
Provision for taxation 100100 100100 100100
Balance SheetAssets
NON-CURRENT ASSETS
2009%2009% 2008%2008% 2007%2007%
Property, plant and equipment 110.07110.07 103.88103.88 100100
Assets subject to finance lease __ 3.853.85 100100
Capital work in progress 91.7791.77 130.47130.47 100100
Investments 38.8038.80 83.1383.13 100100
Long term loans, advances and deposits 84.7784.77 265.62265.62 100100
Balance Sheet
CURRENT ASSETS2009%2009% 2008%2008% 2007%2007%
Stores, spares and loose tools 196.21196.21 153.66153.66 100100
Stock-in-trade 304.88304.88 154.45154.45 100100
Trade debts 356.31356.31 253.85253.85 100100
Investments 45.9745.97 89.0689.06 100100
Advances, deposits, and other receivables 303.39303.39 341.17341.17 100100
Cash and bank balances 209.89209.89 194.85194.85 100100
PROFIT AND LOSS ACCOUNT 2009% 2008% 2007%
SalesSales 280.98280.98 193.87193.87 100100
Gross ProfitGross Profit
Less:Less:Administrative expensesAdministrative expenses
Selling and distribution expenses Selling and distribution expenses
Other operating expenses Other operating expenses
Add: Other operating Income
279.5279.5
136.17136.17
2873.862873.86
569.60569.60
160.63160.63
94.2594.25
107.18107.18
862.17862.17
416.48416.48
176.74176.74
100100
100100
100100
100100
100100
Profit from OperationsProfit from Operations 153.61153.61 68.4568.45 100100
PROFIT AND LOSS ACCOUNT 2009% 2008% 2007%
Profit from operationsFinance cost
Share of loss of associated company
557.20557.20 374.08374.08
61.2461.24
100100
100100
Profit before TaxProfit before Tax
Less: TaxLess: Tax
45.1545.15
256.44256.44
(14.58)(14.58) 100100
100100
Net ProfitNet Profit 32.3932.39 100100
FIRM ANALYSISFIRM ANALYSISSTRENGTH:STRENGTH:Availability of raw materialAvailability of raw material
Imported machinery & plantImported machinery & plant
Increasing volume of exportIncreasing volume of export
Availability of foreign investment & loanAvailability of foreign investment & loan
Maximum capacity utilizationMaximum capacity utilization
Growing demand of housing projectsGrowing demand of housing projects
Increasing government expenses on developmentIncreasing government expenses on development
Laboratory testing facilities meeting international standardsLaboratory testing facilities meeting international standards
Dependence on coal despite of furnace oilDependence on coal despite of furnace oil
Cheaper laborCheaper labor
High quality of cementHigh quality of cement
COMMENTSCOMMENTS
As a finance manager we consider all possible aspects of the As a finance manager we consider all possible aspects of the economy, industry and of firm. There is a positive potential in economy, industry and of firm. There is a positive potential in the market and industry regarding investment point of view.the market and industry regarding investment point of view.
The financial health of the company as compared with its The financial health of the company as compared with its competitor and industry is good and the firm is leading in competitor and industry is good and the firm is leading in sales, profit and investment sectors. So as investor and sales, profit and investment sectors. So as investor and manager point of view we invest or finance the firm because of manager point of view we invest or finance the firm because of these factors:these factors:
1.1. Increasing sales trendIncreasing sales trend2.2. Adequate liquidityAdequate liquidity3.3. Comfortable business riskComfortable business risk4.4. Potential in marketPotential in market5.5. High profit and performanceHigh profit and performance6.6. Good capital structureGood capital structure