DGKC reveals future capital expenditure requirement

KARACHI – In a notice to the Karachi Stock Exchange, the management of DG Khan Cement Company Limited (DGKC) highlighted its future capital expenditure (capex) requirement of Rs 3.75 billion for waste heat recovery (WHR) and refused derived fuel (RDF) plants.
DGKC is planning to install WHR plant of 8.6 MW (that can be upgraded to 10 MW) in its Khairpur plant with an estimated cost of Rs 2.5 billion. The plant is expected to come online in the first quarter of Fiscal 2013. The company is expected to save between Rs 300 million and 350 million through the WHR project, which translate into annualised After Tax Earning per Share (EPS) impact of Rs 0.45-0.52 (based on after right number of shares).
In the case of the RDF plant at Khairpur, the company might save up to 50 and 70 tonnes of imported coal daily. At a coal price of $120 per tonne, based on 300 days, the company is likely to save Rs 0.23-0.32 per share in annualised terms. After implementation of above mentioned projects the company is likely to achieve net savings of Rs 0.17-0.33 per share.
On the other hand the finance cost of (DGKC) crossed Rs 1.0 billion during first half of Financial Year 2011, posting an annual increase of six percent and the higher short term borrowing acting as the key catalyst of the rising interest cost. Similarly, the company charged an effective tax rate of 38 percent during the second quarter of FY11 as compared to a modest 13 percent tax rate charged during the first quarter of FY11.
DGKC earned Profit after Tax (PAT) of Rs 170 million (EPS of Rs 0.47) in 2QFY11 taking 1HFY11 PAT to Rs 192 million (EPS of Rs 0.53). This was lower than expected as the company charged 38 percent tax during the quarter compared to 13 percent in the 1QFY11. Profit during 1HFY11 was 59 percent lower compared to the corresponding period last year. This drop in profitability was on account of a 23 percent annual increase in the fuel cost coupled with an 11 percent annual decline in volumetric sales during the period under review.
Although, DGKC suffered an 11 percent annual contraction in volumetric sales during 1HFY11, however a 16 percent increase in annual terms in the average retention price is expected to yield an improvement of three percent in net revenues from the same time last year, while cost of sales has swelled by four percent, outstripping the top line growth of three percent, annually. This has resulted in a one percent annual decline in gross profit.
Other incomes of the company showed a 16 percent in annual growth, mainly on account of healthy dividend income received from MCB (Rs 3.0 per share), NML (Rs 2.5 per share) and NCL (Rs 1.5 per share). The company also announced a 20 percent right at a price of Rs 20 per share, including a share premium of Rs 10 per share. DGKC is expected to raise Rs 1.46 billion through the right issue and the remaining Rs 2.29 billion is to be generated through debt.
Syed Abid Ali at Arif Habib Limited (AHL) said that the company is expected to raise debt of Rs 2.29 billion, which is likely to have an annualised impact of Rs 0.51 on the EPS. The company’s debt to equity ratio is likely to be rise to 43 percent from its current level of 41 percent.