Cement prices in Pakistan continued to remain firm throughout the first half due to price consensus amongst local cement manufacturers.
With more focus towards local dispatches, DG Khan Cement Company (DGKC)’s retention prices have improved by 19 per cent in first half, experts said.
Furthermore, with local cement prices expected would remain firm in the second half, it is expected DGKC’s retention prices to improve by massive 46 per cent to PKR252 (US$2.96) per bag compared to same period last year.
In addition to this, slow down in cost pressures due to forward contract of coal at lower prices of US$115-120/t would significantly improve company’s gross margins going forward. Analysts expect company’s gross margins to remain at 24 per cent in the second half as compared to 12 per cent witnessed in same period last year.
Amid investors’ concerns regarding continuous losses from operations that would eat up dividend income, depressed earnings on account of rising coal prices and lower dispatches due to floods has caused the stock to underperform by 19 per cent in 2011 in the year to date. This was further magnified after the recent right issue announcement that induced the scrip to plunge by 13 per cent in last 10 trading sessions.
Experts believe these concerns have been overplayed in the markets and it has overshadowed the expected improvement in cement operations the second half. They believe full impact of improved local cement prices along with slow down in cost pressures would keep the company’s operation in profit in the second half.