D.G. Khan Cement Company Limited (PSX: DGKC) announced its FY24 financial results, reporting earnings of PKR542 million (EPS: PKR1.24). This marks a recovery from the loss of PKR3.6 billion (LPS: PKR8.30) in FY23. However, the company’s performance in the fourth quarter (4QFY24) was notably weaker, with a loss of PKR1.7 billion (LPS: PKR3.88), largely driven by lower-than-expected gross margins and increased tax liabilities.
GROSS MARGINS UNDER PRESSURE
The company’s topline for 4QFY24 remained relatively flat year-on-year (YoY) at PKR17.0 billion, despite a 4% decline in sales volume. Higher cement prices helped offset the lower offtakes. However, gross margins contracted significantly to 7.9%, compared to 25.5% in the previous quarter. The decline in margins was attributed to a higher proportion of exports in the sales mix, which tend to have thinner margins. This led to an overall drop in FY24 gross margins to 15.9%, down from 14.7% in FY23.
OPERATING EXPENSES & TAX IMPACT
Operating expenses rose by 24% YoY to PKR1.3 billion in 4QFY24, primarily driven by a 32% increase in export volumes. The company also faced a hefty tax charge of PKR877 million during the quarter, resulting in an effective tax rate (ETR) of 81%. This was due to a deferred tax charge related to changes in the export taxation regime. For the full year, DGKC’s ETR stood at 215%, owing to the imposition of a super tax in FY24.
OUTLOOK AND INVESTMENT OPPORTUNITY
Despite these challenges, AKD Securities maintains a “Buy” rating on DGKC, with a target price of PKR109 per share by June 2025. This represents a potential upside of 37%, driven by the expectation of margin recovery and the resolution of tax-related issues.
KEY FINANCIALS:
• *Sales (4QFY24)*: PKR16.99bn (+0% YoY)
• *Gross Margins (4QFY24)*: 7.9% (down from 10.7% YoY)
• *PAT (FY24)*: PKR542mn vs. PKR(3.6)bn in FY23
DGKC’s financial performance in FY24 demonstrates resilience despite macroeconomic headwinds. However, the focus will be on margin recovery and tax optimization in the coming fiscal periods.
