The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA maintains Entity Ratings of D.G. Khan Cement Company Limited

Rating Type Entity
(04-Mar-22 )
(04-Mar-21 )
Action Maintain Maintain
Long Term AA- AA-
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

DG Khan Cement’s ratings reflect the company’s strong position in the cement industry emanating from its one of the largest market share of ~10.2% in terms of installed production capacity. The Cement sector’s dispatches have recorded splendid growth and surged by 21% in FY21 as demand in the domestic market accelerated. Furthermore, the quarterly results for 1QFY22 showed that local dispatches registered modest growth of 0.5 million tons (4%) to 11 million tons QOQ. The industry’s future demand outlook is positive, in view of the infrastructure projects in the pipeline. Export is another avenue. Industry-wide exports have gone up as a new export window is created. The Company through its HUB plant also reported a 7.66% increase in export dispatches to countries including Sri Lanka, Afghanistan, Bangladesh and China. The Company’s revenues witnessed an increase (1QFY22: PKR 11.15bln, FY21: PKR 45bln, FY20: PKR 38bln) attributed to an uptick in sales volumes, positive price indicators and, reinvigorating economy. The decrease in finance cost and the dividend income from its investment book – mainly MCB Bank Limited further added positively to the company’s bottom-line during the year. However, with rising interest rates the finance cost is expected to increase leading to the reversal of the impact of lower finance cost in FY21. Margins in 1QFY22 also improved and Company managed to recoup previous losses and reported profits of PKR 908mln in 1QFY22 (FY21: PKR 3.721bln, FY20: loss of PKR 2.159bln). With recently installed WHR plant at HUB site and fully operational CFPP plant, cost efficiency in energy cost will be expected in upcoming quarters of FY22. The Company's leveraging is currently at an adequate level, especially with the repayments being made. The company is exploring different options for the capacity expansions however no such plans have been finalized yet.
The rating takes into account the association company with Nishat Group and remain dependent on upholding company's market position along with sustenance of business volumes, margins and achieving optimal utilization of production capacities. Going forward, sustainability in profits for timely repayment of debt remains vital.

About the Entity
DG Khan Cement, operates as one of the largest cement manufacturer of the country with a total cement capacity of 7.1mln tons p.a. DG Khan Cement, listed on PSX, is owned by Nishat Group (~49%), mainly through associated companies (32%), followed by sponsor family members (~17%). The overall control of the company vests in the seven-member board including the CEO. Mrs. Naz Mansha and Mr. Raza Mansha, the Chairperson and the CEO, both represent sponsoring family on board. Two board members (including CEO) hold executive positions while three are non-executives and two independent directors. The CEO, Mr. Raza Mansha, is associated with the company in the capacity of CEO since 2003.

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