DGKC held its corporate briefing session recently to review its operational and financial performance for FY25. The company reported earnings per share (EPS) of PKR 19.80 for the year, a significant increase from PKR 1.24 in FY24. This sharp improvement in profitability was driven by a 9.8 percentage point expansion in gross margins and a 52% year-over-year (YoY) decline in finance costs, resulting from a roughly 9 percentage point reduction in interest rates and lower reliance on debt, which decreased by 36% YoY, according to a report by IMS Research.
Key Takeaways from the Briefing:
Update on Demand:
– Domestic sales reached 3.5 million metric tons (MT), reflecting a decrease of approximately 4% YoY. However, exports saw a substantial increase of 52% YoY to 1.9 million tons, which helped improve capacity utilization to 79%, compared to 55% for the industry.
– Management expressed optimism regarding domestic volumetric growth, anticipating a double-digit increase in FY26.
– On the export front, management highlighted key markets, including America, Africa, the Middle East, and South Asian countries such as Bangladesh and Sri Lanka.
– The export sales mix will shift more towards cement rather than clinker, which is expected to positively impact margins, as management believes there is significant potential for cement exports to Middle Eastern markets.
– Domestic retention prices are PKR 15,800 per ton in the North and PKR 15,400 per ton in the South, while export prices for cement and clinker are PKR 11,000 per ton and PKR 8,000 per ton, respectively.
Fuel and Power:
– The current fuel mix consists of 90% imported coal and 10% local coal, with fuel costs projected to remain within the range of PKR 39,000 to PKR 40,000 per ton.
– International coal prices are expected to range between US$ 90 and US$ 100 per ton.
– The power mix includes 70% from captive power, with the remaining 30% sourced from the grid. Power costs in FY25 were between PKR 25 and PKR 30 per kilowatt-hour (kWh).
Other Items:
– Management announced plans for expansion at its DG Khan facility once demand conditions improve.
– The company recognized a PKR 817 million electricity duty reversal in the last quarter of FY25, which helped support gross margins.
– The drop in margins during the first quarter of FY26 was attributed to provisions for increased royalty charges.
– The majority of the company’s long-term debt consists of concessional financing, such as solar loans and the Temporary Economic Refinance Facility (TERF), while its short-term debt is primarily export refinance, which helps keep financing costs low.
Outlook:
DGKC remains attractively priced, currently trading at only US$ 30 per ton—the cheapest in the IMS universe. Margins are expected to improve with an increased contribution from local sales (up 15% YoY) and a greater focus on cement in the export mix, which should support gross margin expansion. We maintain our Buy stance on the stock with a target price of PKR 275 per share.
