KARACHI: Net profit of DG Khan Cement, the second largest cement-maker, fell 60 per cent to Rs192 million in the first half of fiscal 2010-11 compared with Rs470 million posted in the same period last year.
The decline is primarily due to lower gross margins amid higher input cost and lower selling prices in the local market, said Topline Securities analyst Furqan Punjani.
Sales volume is also expected to have dropped 16 per cent to two million tons due to subdued demand amid severe floods, added Punjani.
The board of directors in its meeting on Thursday recommended 20 per cent ordinary right shares with a proportion of one right share for every five ordinary shares.
Net sales rose marginally by 2.7 per cent to Rs8.2 billion compared with Rs8 billion as sales volume declined. Gross margins remained flat on account of higher coal prices, which rose 37 per cent on a yearly basis.
Domestic cement sales are likely to see an increase in March onwards with rural income increasing following the harvest season, according to analysts. The company’s portfolio – composed primarily of group companies including MCB Bank and Nishat Mills Limited – is likely to keep profitability afloat. Dividend income is expected to clock in at Rs293 million.
Other income, which includes income from portfolio companies, rose 16 per cent to Rs546 million compared with Rs471 million in the preceding year.
Power plant on the cards
DG Khan Cement has decided to set up its second 8.6-megawatt waste heat recovery power plant, this time at its Khairpur site at a cost of Rs2.5 billion. The first plant started trial operation in May last year.
The right shares issued by the company are expected to help raise capital for the new plant, say analysts.
Electricity produced from the plant will help replace the expensive electricity purchased from the Water and Power Development Authority, the company said in a statement on Thursday. The project, expected to be completed in fiscal 2013, will result in an annual savings of Rs300 to Rs350 million.
The company is also considering procuring foreign loan worth Rs1.5 billion ($16.5 million) while equity portion will be bought through issuance of right shares, said Punjani.
Alternative fuel project
The company has also decided to use agriculture and other wastes as fuel instead of expensive coal and petroleum products. A first phase has been completed at Khairpur cement plant in which the company is using different industrial wastes like rice husk, cotton sticks, wheat straw and molasses. This has cut down daily use of imported coal by 50 to 70 tons.
The second phase is expected to be completed by fiscal 2012 at a cost of Rs1.25 billion. These projects are expected to bring substantial savings in fuel costs, the company said.
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