D. G. Khan Cement Company Limited ("DGKC" or "the Company") is a public company limited by shares, incorporated in Pakistan in 1978 under the repealed Companies Act, 1913 (now, the Companies Act, 2017, hereinafter may be referred to as the 'Act'). Its ordinary shares are listed on the Pakistan Stock Exchange Limited. 

Subsequent to its establishment under the control of the State Cement Corporation of Pakistan Limited in 1978, the company commenced commercial production in 1986 with a clinker capacity of 2,000 TPD at the DG Khan site. In 1992, it was acquired by Nishat Group under privatization initiated by the government. Simultaneously in 1993, the clinker production capacity of the existing production line was increased to 2,200 TPD. Furthermore, in pursuit of cost optimization measures, the management also completed the installation of a 23.84 MW furnace oil-based captive power plant in 1996. To cater to the rising demand for cement in the country, the company undertook major expansion plans in the 2000s. Starting in 1998, the company added another production line with a clinker capacity of 3,300 TPD at the DG Khan site, followed by increasing the overall capacity of existing lines to 6,700 TPD in 2005. In 2007, the company undertook a greenfield expansion project at Khairpur Chakwal, enhancing the overall capacity to 13,400 TPD. During the years, the company also undertook various projects of installation of power plants, including WHR, coal-fired, and solar, to reduce dependence on the national grid. The latest capacity enhancement was completed in 2018 when the company commenced operations from its greenfield project in Hub, after which the cumulative capacity has enhanced to 22,400 TPD.

The company is primarily engaged in the production and sale of clinker and cement. DGKC has a strong presence all over Pakistan. With its plants stretched from North to Center to South, DGKC covers markets in far-reaching areas of Pakistan through an extensive dealership network of 2,300 dealers. The company also enjoys notable presence in foreign markets, including Bangladesh, Afghanistan, the USA, China, Sri Lanka, and other parts of Central Africa. Key products of the company supplied in the market include ordinary Portland cement, sulfate-resistant cement, low-alkali cement, and clinker. The cement provided by the company is further divided into different brands depending on the specifications of the product while maintaining the highest quality as per international standards. The cumulative installed capacity of the company stands at 22,400 TPD (6.72 million MTPA), with its plants located at three different sites, including Dera Ghazi Khan (2.01 million MTPA), Khairpur (2.01 million MTPA), and Hub (2.70 million MTPA). Furthermore, the company has a cumulative electricity generation capacity of 181.76 MW, which is divided into different sources, including thermal, coal, WHR, and solar, spread across the three plant sites.

As of June 30, 2024, 48.29% of the ownership in the company is held by Nishat Group, including Nishat Mills Limited (31.40%) and other associated companies (0.10%) and family members (16.79%). The remaining ownership stake is divided amongst financial institutions, modarabas and mutual funds, the general public, NIT and ICP, insurance companies, joint stock companies, pension funds, foreign companies, and charitable trusts and foundations.

The majority stake in the company has remained with Nishat Group over the years. Furthermore, the sponsors commitment towards providing quality products while exploring new avenues to expand the company's market share, which would provide sustainable and equitable growth to the shareholders, is a testimony to future stability in the ownership structure.

The company's operating history of above three decades is a testimony to the sponsors expertise and experience in the cement manufacturing industry in the country. Through successful capacity enhancements along with establishing a brand name, the sponsors have achieved a notable presence for the company in the local cement industry. Furthermore, Nishat Group is amongst the leading business conglomerates in the country, having a presence in diverse sectors of the economy, including financial services, hospitality & hotels, paper packaging, aviation, agriculture & farming, livestock & dairy, insurance, textiles, energy, automobiles, and real estate. Mian Mohammad Mansha has led the group to become a multi-dimensional corporation.

The financial strength of the Nishat Group is evident from its stable stream of income from its strategic investment portfolio across various sectors. Nishat Mills Limited, is the flagship company of Nishat Group and is one of the most modern and largest vertically integrated textile companies in Pakistan. As of June 30, 2024, Nishat Mills Limited has a total shareholder equity of PKR ~157,848 million, proving the sponsors strong financial strength. Furthermore, the market capitalization of DGKC as of June 30, 2024, stood at PKR ~39.5 bln, further complementing the Group's strong financial muscle.

The company is governed by a Board of Directors comprising 3 non-executive, 2 executive, and 2 independent members. DGKC complies with all the requirements set out in the Companies Act, 2017, and the Listed Companies (Code of Corporate Governance) Regulations, 2019, with respect to the composition, procedures, and meetings of the Board of Directors and its committees.

All seven board members depict a true blend of diversity in the form of skills, exposure, expertise, knowledge, age, and experience. The Chairperson, Mrs. Naz Mansha, has over 37 years of experience as a director on the boards of different companies.  She has been associated with DGKC since 1994, and she is also a chief executive of Nishat Linen (Private) Limited. Mr. Khalid Niaz Khawaja holds the position of non-executive director on the board. He has more than 50 years of experience working in different capacities in the banking industry and as a CEO in one of the leading leasing companies. He had been on the board as a director of the leading institutions, including Lahore Stock Exchange Limited.  Mr. Shahzad Ahmad Malik has been associated with Nishat Group since 1998. Before joining the Group, he served as a deputy director in the Pakistan Audit and Accounts Service, Government of Pakistan. He is also a director on the board of Nishat Power Limited. Mr. Shehryar Ahmad Buksh serves as an independent director on the board. He has over 26 years of experience in the retail industry, mall development, product development, and network expansion across Pakistan. Mr. Usama Mahmud is appointed as an independent director on the board. His areas of expertise include management consulting, technical assistance, policy development, and project implementation. He has also worked with international organizations such as DFID, the UN and the World Bank.

DGKC's governance system, led by the board and its committees, operates on the principles of transparency, accountability, and good governance by safeguarding the interests of the stakeholders. The Board has constituted an adequate number of committees, like the Audit Committee and Human Resource and Remuneration Committee, to assist in relevant matters. Furthermore, the board exercises responsibilities conferred to it, including but not limited to monitoring and reviewing governance practices, influencing and monitoring the strategic direction of the organization, reviewing and monitoring the internal controls framework, investing in new ventures, evaluating an effective risk management framework, approving and periodically reviewing the annual business plan and financial statements, etc.  The Chairman is responsible for leading the Board and focusing it on strategic matters, overseeing the Company’s business, and setting high governance standards. During FY24, the board of directors conducted four meetings during which the presence of the members remained satisfactory.

Being a publicly listed entity, DGKC conducts its operations, including corporate formation, governance, and reporting, ensuring transparency and accountability. Furthermore, the company adheres to the relevant regulations to safeguard market integrity and investor interests. It commits to high corporate governance standards through the Code of Corporate Governance. All relevant financial and non-financial disclosures are done timely in a transparent manner, which are further ensured by the Board Audit Committee. A.F. Fergusons & Co. is the external auditor of the company.

The company has a multi-tiered organizational structure divided into four key functions, including finance, marketing, technical & operations, and information technology. Each function is further divided into sub-divisions headed by divisional heads who report directly to the functional heads, who in turn report directly to the CEO. The CEO is responsible for the overall operations of the company and reports directly to the Board of Directors.

The senior management comprises individuals having industry experience alongside relevant expertise in their respective areas. The CEO, Mr. Mian Raza Mansha, has rich experience of about 29 years in business management, corporate strategies, commercial insights, and project management. He has been associated with the company for above 20 years and thus possesses vast experience and knowledge of the local cement industry. Simultaneously, he is also appointed as a director on the board of other associated companies of the Nishat Group. Mr. Farid Noor Ali Fazal is currently serving as the Director of Marketing of DGKC.  He has a vast experience of about 57 years in marketing, selling, trading, logistics, and administration. Additionally, he has been associated with the cement and steel sector in the Middle East for more than a decade, where he served in various capacities, mostly as General Manager (Sales & Marketing). He is also serving as an executive director on the board of DGKC. The CFO of the company, Mr. Inayat Ullah Niazi, has experience that spans about 40 years, throughout which he has worked with DGKC. He supervised the financial matters related to the expansion of the DG Plant. He also oversaw critical financing arrangements for the installation of new plants at Khairpur and Hub. His expertise is in accounts, tax, audit, finance, treasury, budget, and planning.

The CEO is responsible for the day-to-day leadership and management of the business, in line with the strategic framework, risk appetite, and annual and long-term objectives approved by the Board. The management is also responsible for the identification and administration of key risks and opportunities, the establishment and maintenance of internal controls, and the preparation/presentation of financial statements in conformity with the applicable financial reporting framework consisting of approved accounting and financial reporting standards.

The company’s Oracle ERP is the core back-office application for the company. It consists of several modules, including the GL Module, Fixed Asset Module, Sales & Distribution Module, Purchase and Payable Module, Store and Inventory Module, Production Planning, Plant Maintenance Module, HR and Payroll Module, etc. All these modules are integrated with each other, which ensures data integrity and process controls. All the organization data and information reside inside the ERP. Information is either accessed directly from the ERP through system-generated reports or information is prepared from the data accessed or retrieved from the ERP, thus being the single source of information. State-of-the-art ERP systems and sales ordering systems are in place to gather real-time market information and plant performance.

The company has devised and implemented an effective internal control framework that also includes an independent internal audit function. The Internal Audit function is responsible for providing assurance on the effectiveness and adequacy of the internal control and risk management framework in managing risks within acceptable levels throughout the company. Furthermore, the management has formulated an enterprise risk management framework to identify the company's key risks and provide the board with a robust assessment of the company’s principal risks.

The overall performance of the local cement industry has remained under stress throughout FY24, majorly due to the economic challenges faced by the country in the form of high inflation, peaking interest rates, and lower developmental activity. Furthermore, political instability resulted in lower PSDP spending, leading to further challenges faced by the construction sector, which was already adversely affected due to the rise in overall costs of inputs. Despite these challenges, the cement industry in Pakistan witnessed marginal growth of ~1.6%, reaching 45.3 million MT during the year ending June 30, 2024, compared to 44.6 million MT last year. Although the local sale volumes declined by 5% (FY24: 38.2 mln MT, FY23: 40.0 mln MT), the overall surge was driven by a significant rise in export dispatches of 56%, reaching 7.1 mln MT, up from 4.6 mln MT last year. A similar trend was witnessed during 1QFY25, with the local dispatches recording a decline of ~20% (1QFY25: 8.1 mln MT, 1QFY24: 10.1 mln MT), while export dispatches grew by ~22% (1QFY25: 2.1 mln MT, 1QFY24: 1.8 mln MT). Despite the decline in sales volumes, the local cement manufacturers are witnessing a rising trend in their recorded revenues due to the higher prices reflecting the increase in the cost of production that is being passed on to the consumers. As a result, cement manufacturers have successfully maintained their margins. The industry also witnessed a rise in installed capacity, which now stands at approx. 82.424 million MT per annum. However, based on the suppressed demand, the capacity utilization remained between 50-55% during FY24. Going forward, FY25 brings some relief for the industry in the form of consistent reduction in policy rates, declining inflation, a stable exchange rate, and gradual increase in SBP reserves along with political stability. However, the development activity in the form of construction projects to stimulate the economy is still on hold.

The company is amongst the leading cement manufacturers in the country in terms of installed capacity and operational history. Based on the total volumetric sales of 4.842 million MT during FY24, the company occupies ~10.6% market share of the local cement manufacturing industry. DGKC has a strong presence all over Pakistan. With its plants stretched from North to Center to South, DGKC covers markets in far-reaching areas of Pakistan through an extensive dealership network of 2,300 dealers.

During FY24, the company reported total volumetric sales of ~4.842 million MT (FY23: ~5.043 million MT) of cement and clinker, including local and export sales, resulting in net revenues of PKR 66,039 million (FY23: 64,984 million). Sales in value terms grew this fiscal year, driven by better cement prices and increased clinker sales. A similar trend was witnessed during 1QFY25, with total volumetric sales standing at 1.113 mln MT as compared to 1.144 mln MT during the same period the previous year. As a result, the company reported net sales of PKR 15,301 million during the latest quarter (1QFY24: PKR 16,517 million), showing a 7% overall decline as a result of an industry-wide fall in dispatches, though stable prices helped offset some of the volumetric loss.

The company's gross profit margins have shown improvement over the past years as a result of stable pricing, which has compensated for the increase in the production costs. Furthermore, cost optimization measures, including the utilization of alternate fuels, were rigorously implemented to enhance margins. During FY24, the company's gross profit margins were reported at 15.9%, up from 14.7% during FY23. The positive trend in the reported margins continued to the latest quarter, resulting in the recent quarter's reported margin at 19.6%. The overall decline in policy rate has provided some relief in the reported net profit margins of the company, which were reported at 0.8% during FY24.

The cement industry is currently experiencing a notable decline in local dispatches, primarily due to a significant drop in domestic demand driven by economic challenges and rising construction costs. It is becoming extremely essential to enhance competitiveness and stimulate domestic demand to mitigate potential industry capacity utilization crises. The management is committed to reducing the company's debt level while focusing on boosting clinker exports to cover fixed costs. The company will continue to focus on cost optimization measures to maintain its margins going forward until the local demand picks up. Furthermore, the company has also registered an LLC in the USA to elevate export opportunities in the USA market, which may contribute to profitability.

The company finances its operations through a mix of internally generated cash and working capital management to minimize risk by relying on different sources. During FY24, there was a rise in inventory days owing to lower sale volumes leading to a rise in gross working capital days to 51 days as of June 30, 2024, from 49 days from last year. The company has sourced sufficient working capital facilities to bridge any financing gap. As of the end of September 2024, the company had outstanding short-term borrowings of PKR 11,295 million.

During the period, there has been a continuous decline in policy rates from the highest level, along with the repayment of long-term loans, benefitting the company in the form of lower finance costs. Additionally, the FCFO during FY24 stood at 12,356 mln, rising from the previous year, showing strong operational performance of the company. Interest coverage (EBITDA/finance cost) of the company for the period ended June 30, 2024, stood at 1.4x, which is further improved to 1.9x in 1QFY25.

The company has been deleveraging its balance sheet after it had acquired loans for its last expansion project. Furthermore, the overall decline in policy rate throughout the year will also provide further relief to the company. The company's total borrowings as of the end of September 2024 stood at PKR 30,867 million, resulting in a leveraging ratio of 28.5%, down from 31.3% at the end of June 2024.