Financial Analysis of DG Khan Cement Factory, Ratio Analysis

Financial Analysis of DG Khan Cement Company Ltd.
Preface
As the world is growing rapidly, the businesses are also moving to
become the huge one. And by that result, more and more people want to
become a master in these businesses. The main purpose in the finance
field is to know how the financial analysis is done. We all know that
finance is the blood of any business and without it no business can run.
Financial analysis of a company is very difficult and the most important
task and by doing this I am able to know the whole financial position and
financial structure of the company.
Simply by looking at how much cash a company has does not provide
enough information. The financial statements need to be analyzed to
measure a company’s performance and to compare it with other firm’s in
the same industry. The resulting information is intended to be useful to
owners, potential investors, creditors, analysts, and others as the
analysis evaluates the past performance, future potential and financial
position of the firm.
This report is an analysis of financial statements of D.G. Khan Cement
Company Ltd. This report has been prepared with an objective to develop
analytical skills required to interpret the information (explicit as well as
implicit) provided by the financial statements and to measure the
company’s performance during the past few years. The financial
statements are analyzed using traditional evaluation techniques such as
horizontal analysis, vertical analysis and trend analysis. Ratios are an
important tool in analyzing the financial statements & the company’s
profitability, solvency & liquidity. Sincere attempts have been made to
make this report error free but if any errors and omissions are found then
I apologize for that.
Rabia Chaudhary
Page 1
Acknowledgement
In the name of “Allah”, the most beneficent and merciful who gave us
strength and knowledge to complete this report. This report is a part of
our course “Financial Statement Analysis”. This has proved to be a great
experience. I would like to express our gratitude to our Finance teacher
Mr. Waseem Rabani who gave us this opportunity to fulfill this report. We
would also like to thank our colleagues who participated in a focus group
session. They gave us many helpful comments which helped us a lot in
preparing our report.
Page 2
Table of Contents
.................................................................................................................................... ....2
Table of Contents..................................................................................................... .............3
Introduction............................................................................................................ ...............5
Mission Statement.................................................................................................... .........5
Vision Statement........................................................................................ .......................5
D.G. Khan Cement Company Limited................................................... ............................5
NISHAT GROUP.................................................................................................... ........5
D.G. Khan Cement Company................................................................ ........................6
Acquisition of DGKCC by Nishat Group............................................................ .............6
Capacity Addition........................................................................................... ................6
Expansion -Khairpur Project.................................................................. ........................6
Power Generation............................................................................................... ...........7
Environmental Management......................................................................... .................7
BOARD OF DIRECTORS........................................................................... ...................7
Why cement sector for our project.............................................................................. .......7
INDUSTRY REVIEW......................................................................................................... ..10
Overview of income statement......................................................................... ...................11
Overview of Balance sheet.............................................................................................. ....11
Liquidity Position with Graphical Presentation................................................................... ..12
Liquidity Position.................................................................................. ...........................12
Activity Ratios........................................................................................................... .......13
Operating Cycle............................................................................................................. ..14
Debt Ratios....................................................................................... ..............................14
Profitability Ratios......................................................................................................... ...15
Profitability - Financial Year 2002 to Financial Year 2008 ...................................... ......16
Assets Utilization.............................................................................................. ...............17
Return on Investment.................................................................................... ..................19
Return on total equity............................................................................................ .......19
Investment Ratios......................................................................................................... ...19
Univariate Model................................................................................................... ..............23
Multivariate Model....................................................................................................... ........24
DuPont Analysis .......................................................................................................... .......26
SWOT ANALYSIS............................................................................................ ...................27
Strengths............................................................................................................... ..........27
Weaknesses............................................................................................................ ........30
Threats............................................................................................................. ...............32
Opportunities....................................................................................................... ............33
Recommendations................................................................................................ ..............37
International Trend.............................................................................. ............................38
FUTURE OUTLOOK............................................................................... ........................39
Annexure................................................................................................. ...........................41
Summarized Income Statement.............................................................. ........................41
Summarized Balance Sheet............................................................................ ................45
Horizontal Analysis of Income Statements...................................................................... .46
Vertical Analysis of Income Statements................................................................ ...........46
Horizontal Analysis of Balance Sheet.............................................................. ................47
Page 3
Vertical analysis of balance sheet................................................................................... .48

Liquidity Ratios.................................................................................................. ..............51
Long Term Debt Paying Ability.................................................................................. .......53
Profitability Ratios......................................................................................................... ...54
Assets Utilization............................................................................... ........................54
Page 4
Introduction
Mission Statement
To provide quality products to customers and explore new markets to promote/expand sales
of the Company through good governance and foster a sound and dynamic team, so as to
achieve optimum prices of products of the Company for sustainable and equitable growth
and prosperity of the Company.
Vision Statement
To transform the Company into modern and dynamic cement manufacturing company with
qualified professionals and fully equipped to play a meaningful role on sustainable basis in
the economy of Pakistan.
D.G. Khan Cement Company Limited

NISHAT GROUP
Nishat Group is one of the leading and most diversified business groups in South East Asia.
With assets over PRs.300 billion, it ranks amongst the top five business houses of
Pakistan. The group has strong presence in three most important business sectors of the
region namely Textiles, Cement and Financial Services. In addition, the Group has also
interest in Insurance, Power Generation, Paper products and Aviation. It also has the
distinction of being one of the largest players in each sector. The Group is considered at par
with multinationals operating locally in terms of its quality of products & services and
management skills.
Mian Mohammad Mansha, the chairman of Nishat Group continues the spirit of
entrepreneurship and has led the Group successfully to make it the premier business group
of the region. The group has become a multidimensional corporation and has played an
important role in the industrial development of the country. In recognition of his unparallel
Page 5
contribution, the Government of Pakistan has also conferred him with “Sitara-e-Imtiaz”, one
of the most prestigious civil awards of the country.
D.G. Khan Cement Company

D.G. Khan Cement Company Limited (DGKCC), a unit of Nishat group, is the largest
cement-manufacturing unit in Pakistan with a production capacity of 5,500 tons clinker per
day. It has a countrywide distribution network and its products are preferred on projects of
national repute both locally and internationally due to the unparallel and consistent quality. It
is list on all the Stock Exchanges of Pakistan.
DGKCC was established under the management control of State Cement Corporation of
Pakistan Limited (SCCP) in 1978. DGKCC started its commercial production in April 1986
with 2000 tons per day (TPD) clinker based on dry process technology. Plant & Machinery
was supplied by UBE Industries of Japan.
Acquisition of DGKCC by Nishat Group

Nishat Group acquired DGKCC in 1992 under the privatization initiative of the government.
Starting from the privatization, the focus of the management has been on increasing
capacity as well as utilization level of the plant. The company undertook the optimization by
raising the capacity immediately after the privatization by 200tpd to 2200tpd in 1993.
Capacity Addition
To meet the increasing demand and to capitalize on its geographic location, the
management further expanded the capacity by adding another production line with a
capacity of 3,300 tons per day in year 1998. Design of the new plant is based on latest dry
process technology, energy efficient and environmental protection from particulate pollution
according to the international standards. The plant and machinery was supplied by M/s F.L.
Smidth of Denmark. As a result, DGKCC emerged as the largest cement production plant in
Pakistan with annual production capacity of 1,650,000 M tons of clinker (1,732,000 M.Tons
Cement) constituting about 10% share of the total cement production capacity of the
country. The optimization plan is still underway to increase the total capacity of the two units
to 6700 TPD by mid of 2005 from 5500 TPD at present.
Expansion -Khairpur Project

Furthermore, the Group is also setting up a new cement production line of 6,700 TPD
clinker near Kalar Kahar, Distt. Chakwal, the single largest production line in the country.
First of its kind in cement industry of Pakistan, the new plant will have two strings of pre-
heater towers, the advantage of twin strings lies in the operational flexibility whereby
production may be adjusted according to market conditions. The project will be equipped
with two vertical cement grinding mills. The cement grinding mills are first vertical Mills in
Pakistan. The new plant would not only increase the capacity but would also provide
proximity to the untapped market of Northern Punjab and NWFP besides making it more
convenient to export to Afghanistan from northern borders.
Page 6
Power Generation
For continuous and smooth operations of the plant uninterrupted power supply is very
crucial. The company has its own power generation plant along with WAPDA supply. The
installed generation capacity is 23.84 MW.
Environmental Management
DG Khan Cement Co. Ltd., production processes are environment friendly and comply with
the World Bank’s environmental standards. It has been certified for “Environment
Management System” ISO 14001 by Quality Assurance Services, Australia. The company
was also certified for ISO-9002 (Quality Management System) in 1998. By achieving this
landmark, DG Khan Cement became the first and only cement factory in Pakistan certified
for both ISO 9002 & ISO 14001...
BOARD OF DIRECTORS
• Mrs. Naz Mansha Chairperson/Director
• Mian Raza Mansha Chief Executive/Director
• Saqib Elahi Director
• Khalid Qadeer Qureshi Director
• Mohammad Azam Director
• Zaka ud din Director
• Inayat Ullah Niazi Director & Chief Financial Officer
Why cement sector for our project

At the time of independence in 1947, only one or two units were producing grey cement in
the country. During the decade of 1948-58, the number of cement units increased to six.
During the Ayub era the economy started to grow and the construction activities underwent
a boom. To meet the growing demand of cement new units were set up. During the decade
of 1958-68, the number of cement units increased from 6 to 9. During the following period
of Zulfiqar Ali Bhutto all the industrial units, including cement industry, were nationalized,
therefore, no new unit was set up during 1971-77. During the period of General Zia-ul-Haq,
1977-88, denationalization of industrial units boosted the investments. Housing and
construction industries picked up and the demand for cement increased. Thus, the number
of cement units increased from 9 to 23 and finally 24.
The cement industry in Pakistan has become a long way since independence when country
had less than half a million tones per annum production capacity. By now it has exceeded
10 million tones per annum as a result of establishment of new manufacturing facilities and
expansion by existing units. Privatization and effective price decontrol in 1991-92 heralded
a new era in which the industry has reached a level where surplus production after meeting
local demand is expected in 1997.
Page 7
The cement industry is needed a highly important segment of industrial sector that plays a
pivotal role in the socio-economic development. Through the cement industry in Pakistan
has witnessed its lows and high in recent past, it has recovered during the last couple of
years and is buoyant once again.
There are total number of units are 23, from which 4 units are in the public sector while the
remaining 19 units are owned by the private sector. Two of the four units in the public sector
had to close down their operations due to stiff competition and heavy cost of production.
The cement plants are located in every province of Pakistan.
The province-wise distribution of cement plant is as under.
Providence Units Capacity (Million Tons)

Punjab 8 7.488
Sindh 8 3.851
NWFP 6 4.945
Baluchistan 1 0.758
Total 23 17.040
Three additional cement plants with installed capacity of over 2.1 million tons are in the final
stage of completion despite the available excess capacity in this sector. The following table
shows installation of new cement factories and expansion of the existing facilities during the
current decade.
Page 8
The industry is divided into two broad regions, the northern region and the southern region.
The northern region has over 87 percent share in total cement dispatches while the units
based in the southern region contributes 13 percent to the annual cement sales.
Name of company New/ Expansion Year of New Capacity

Commission Created(Tons)
Northern Region
Askari Cement Expansion 1964 945,000
Askari cement New 1996 630,000
Bestway cement New 1988 1,039,500
D.G Khan cement Expansion 1988 1,039,500
Fauji cement New 1997 945,000
Lucky cement New 1996 1,260,000
Maple Leaf cement Expansion 1998 1,039,500
Pioneer cement New 1994 630,000
Sub-Total 7,528,500
Southern Region
Essa cement Expansion 1988 315,000
Total 7,843,500
Page 9
INDUSTRY REVIEW
The cement industry of Pakistan again set a new record and sold 30.112M tons during FY
2008 against 24.222M tons last year, with a growth of over 24%. During the period under
report the capacity utilization of the industry was 81% against 79% last year. The slight
increase in capacity utilization is due to the fact that during the year industry added another
6.5M tons of new capacity.
Pakistani Cement industry fully tapped the export prospects of cement and managed to
export hefty 6.610M tons against 2.797M tons last year. The cement manufacturers fully
poised to explore new export markets. Contrary to past, now the cement is being exported
not only to regional neighboring countries, rather Pakistani cement is finding its place in
South East Asian countries, Russia and in African countries as well.
Clouds of recession are hovering over the economy of Pakistan and having achieved
consecutive growth of over 6% in real GDP during last four years, economic growth slowed
down to 5.8% in FY 2008 against 6.8% recorded last year. Demand of cement is directly
related with prevailing economic conditions. During FY 2008 cement sales in the country
remained bleak due to uncertainty in political and economic front coupled with fading law
and order situation. Total sales in the country were 22.395M tons against 21.034M tons last
year, witnessing an increase of only over 6%. Dilemma of price war among the cement
manufacturers to find out the market share has badly affected the financial health of the
cement sector. In addition, all time high oil and coal prices coupled with expanding
inflationary trend in the country hit badly the cost of production. Going forward, monetary
tightening stance of the State Bank of Pakistan to curb inflation in the country posed
additional burden in the form of increased lending rates.
Page 10
Overview of income statement
Overview of Income statement 2008 2007 2006 2005 2004

Sales 12,445,996 6,419,625 7,955,665 5,279,560 3,882,756
-4,387,64 -3,992,82 -3,330,76 -2,497,26
Cost of sales -10,530,723
0 2 9 2
Gross profit 1,915,273 2,031,985 3,962,843 1,948,791 1,385,494
Administrative expenses -111,658 -104,169 -121,953 -76,480 -68,645
Selling and distribution expenses -561,465 -65,122 -34,352 -60,905 -38,560
Other operating expenses -581,913 (139,721 -191,850 -93,786 -61,735
Other operating income 847,344 479,420 294,114 707,692 128,462
Profit from operations 1,507,581 2,202,393 3,908,802 2,425,312 1,345,016
Finance cost -1,749,837 -467,759 -450,696 -304,041 -224,601
Share of loss of associated companies -8,674 -14,163 -9,573
Profit\ Loss before tax -250,930 1,720,471 3,448,533 2,121,271 1,120,415
-1,030,07
Taxation 197,700 -98,000 -439,193 -325,922
8
Profit\ Loss for the year -53,230 1,622,471 2,418,455 1,682,078 794,493
Basic earnings per share Rupees -0.21 6.43 10.37 9.12 4.31
Diluted earnings per share 6.43 9.14 7.82 3.78
Overview of Balance sheet
Overview of Balance sheet 2008 2007 2006 2005 2004

Capital and Reserve
30528440 33923185 19268200 9317998 6317055
Non-current Liabilities 10250352 10430917 9020740 5642649 3020575

Current Liabilities 12899306 7390229 6015436 3055858 2376989
Assets
Non-current Assets 33835927 32529377 24394481 13819736 8833476
Current Assets 19842171 19214954 9909895 4196769 2881143
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Liquidity Position with Graphical

Presentation
Liquidity Position
Liquidity Position 2008 2007 2006 2005 2004
Current Ratio 1.54 2.60 1.65 1.37 1.21
Acid Test Ratio 1.22 2.33 1.44 0.96 0.64
Cash Ratio 1.18 2.31 1.43 0.94 0.62
2.5
2 current ratio
1.5 acid test ratio
1 cash ratio
0.5
0
2008 2007 2006 2005 2004
The liquidity position of DGKC deteriorated during the first nine months of FY'09. This was
due to a 40% decrease in current assets and a 14% increase in current liabilities if the
company. The current liabilities of the company increased due to 14% rise in trade
payables, 61% increase in accrued markup and around 7% increase in short term
borrowing by the company.
On the other hand, current assets of the company declined due to decrease in investments
from Rs 15 billion at the end of FY08 to Rs 7 billion at the end of March FY09. Also the cash
and bank balance of the company decreased by 22%. Thus, decrease in current assets and
a corresponding increase in current liabilities resulted in a less favorable liquidity position as
compared to that in FY08.
DGKC's liquidity stance had been strengthening since FY04 and in FY07 its liquidity
position was the most favorable. The increase in current assets had brought about this
change. There was a 98% increase in short term investments. Furthermore, the cash and
bank balances had also risen considerably.
In FY08 the current assets of the company declined slightly but a 63% rise in current
liabilities caused a decrease in the liquidity of the company. Investments constitute nearly
79% of the company's total current assets and they declined by 11% in FY08. The
investments decreased further from Rs 15 billion at year-end FY08 to Rs 10.9 billion by end
of 1Q09.
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Activity Ratios
Activity Ratios 2008 2007 2006 2005 2004

Days Sales in
13.57 days 8.20 days 3.40 days 5.27 days 4.95 days
Receivables
Account
58.78 73.78
Receivables 41.02 times 105.79 times 81.94 times
times times
Turnover
Account
Receivables 8.89 days 6.20 days 3.45 days 4.45 days 4.94 days
Turnover in Days
120
100
days sales in
80 receivables
A/R turnover
60
40 A/R turnover in days
20
0
2008 2007 2006 2005 2004
Activity
2008 2007 2006 2005 2004
Ratio
Inventory
Turnover in 27.66 days 21.69 days 14.96 days 21.89 days 43.63 days
days
Inventory
13.19 times 16.83 times 24.40 times 16.67 times 8.36 times
Turnover
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Days Sales
45.08 days 24.55 days 20.68 days 11.07 days 43.63 days
in Inventory
Operating Cycle
Activity
2008 2007 2006 2005 2004
Ratio
Operating
36.55days 27.89 days 18.41 days 26.34 days 48.58 days
Cycle
60
50
40
30 operating cycle
20
10
0
2008 2007 2006 2005 2004
Debt Ratios
Debt Ratios 2008 2007 2006 2005 2004

Debt to Tangible
77 52 78 93 85
net worth
Debt To Equity
76 53 78 93 85
Ratio
Debt Ratio 43 34 44 48 46
Page 14
250
200
150 debt to tangible networth

debt/equity ratio
100
debt ratio
50
0
2008 2007 2006 2005 2004
The debt management ratios of DGKC showed a positive trend during FY07. The debt to
asset and equity ratios as well as the long-term debt ratio all receded during the period and
this reflected a reduction in the company's dependence on debt financing. However, during
FY08 the debt ratios of the company rose because the total debt increased in FY08 mainly
due to a 63% increase in the current liabilities which form 55% of the total debt.
Long term debt however decreased. The long term debt to equity increased because of a
decline in the equity base due to fall in reserves. The TIE ratio continued to fall in FY08
against a positive trend that prevailed before FY07. The reason is substantial rise in finance
charges due to high interest rates in the economy.
Also the operating income in FY08 decreased, thus reducing the extent to which operating
income can decline before the firm is rendered unable to meet its interest costs. Due to the
losses that DGKC experienced in FY08 and the decrease in profitability during July-March
FY09, its Earning per Share (EPS) and Price to Earning (P/E) Ratio have been negative.
During July-May 2009 the share price averaged around Rs 31.1.
This shows that the dismal profits of the company have started reflecting in the low investor
confidence and falling share price. The average share price of DGKC had hovered around
Rs 100/share except during the fourth quarter of FY08 when share price fell well below the
average. The management did not recommend any dividend for FY08 due to the dismal
profitability situation in the period.
Profitability Ratios
Profitability Ratios 2008 2007 2006 2005 2004

Gross Profit Margin 15 32 49 37 36
Operating Profit Margin 12 34 49 46 35
Net Profit Margin 7.84 25 31 31 20
Page 15
140
120
gross profit margin
100
80 operating income
60 magin
40 net profit margin
20
0
2008 2007 2006 2005 2004
After experiencing declining profitability during FY08, the cement sector came back strongly
to post a growth of 167% in earnings during first quarter (July-September) of fiscal year
2009. The cement sector posted profit after taxation of Rs 1.3 billion in first quarter of FY09
as compared to Rs 500 million in the corresponding period of a year earlier.
This growth was mainly due to higher local retention prices and depreciation of the rupee
against the dollar that resulted in an increase of rupee-based export sales. The net sales of
the cement sector in the period July-March FY09 was 58% higher than the net sales
generated during the corresponding period of FY08. It is believed that the profits of cement
companies increased due to an arrangement among them to keep prices high in the local
market.
However, higher sales revenue could not be translated into an increase in profits during the
period. Increased costs of sales, operating expenses and finance expenses caused the
profitability of DGKC to remain low during July-March FY09. The cost of sales of the
company increased by 30% during the period and resulted in a gross profit of Rs 3,733
million.
The furnace oil/coal costs for the period July-March FY09 was Rs 5,258.6 million as
compared to Rs 3,095.7 million during the corresponding period of FY08. The electricity
and gas costs were lower, however, the cost of raw material and packing material
consumed increased by 12%. The administration expenses increased by 31% while the
selling & distribution expenses increased drastically by 456% (from Rs 246 million in July-
March FY08 to Rs 1,370 million in July-March FY09).
Selling expenses may have increased due to higher transportation costs involved with
exports and higher fuel costs. Also, the finance costs increased substantially by 77% as
interest rates rose owing to tight monetary policy and liquidity crunch in the market.
These rising costs greatly hampered the profitability of the company and resulted in a profit
after taxation of Rs 321 million in the period July-March FY09, which is 34% lower than the
profit (Rs 487 million) during July-March FY08. Therefore, the earning per share (EPS) of
the company declined from Rs 1.92 in July-March FY08 to Rs 1.27.
Profitability - Financial Year 2002 to Financial Year 2008
The profitability ratios of the company have shown a declining trend since after FY05. The
gross profit margin increased in FY06 only to fall in FY07 and FY08. The profit margin of
Page 16
the company has decreased continuously along with return on assets (ROA) and return on
equity (ROE).
The profit after taxation had declined by 33% in FY07 due to lower net retention prices
caused by a supply overhang in the overall industry. Also the problem of rising input costs
had begun in FY07. This rise in cost of production and raw material have continued into
FY08 and further aggravated, causing the declining trend of the profitability of DGKC.
Despite a strong growth in cement dispatches, the cement sector experienced declining
profitability during FY08. The profitability of the sector fell by 73.6% to Rs 562 million till
March 2008 from Rs 2,133 million in the corresponding period of FY07. Although the sales
volume of the cement companies increased, the net sales revenue did not increase to an
equal extent due to decrease in net retention prices in the sector.
Over the years all cement manufacturers undertook huge capacity expansion plans. This
created a situation of excess supply in the market. Companies resorted to price wars
leading to a fall in prices and reduced the profit margins for the companies. The average
cement price during the period July-March FY08 was Rs 128.3 per bag as compared to Rs
133.6 per bag in the same period in FY07.
Similar was the case with DGKCC. Increased production facilitated higher sales volume
which in turn translated into almost doubling of sales revenue in FY08. The company had
earned the highest sales revenue of Rs 12.445 billion in FY08. However, despite this, the
gross profit of DGKC in FY08 (amounting to Rs 1.9 billion) was around 6% lower than the
gross profit posted in FY07 (Rs 2.0 billion).
The reason for lower gross profit was a 140% increase in the cost of sales during the fiscal
year. Major input costs increased and dampened the profitability of DGKC and resulted in a
loss after taxation of Rs 53.230 million in FY08 against a profit after taxation of Rs 1.622
billion in FY07. The cement manufacturers in the industry were faced with rising fuel and
power costs during FY08.
The cost of production for the cement companies went up due to rise in the prices of
imported coal. The cement companies in Pakistan have shifted from oil to coal or gas
during the past few years. Coal is now used as a basic fuel by all cement manufacturers.
Pakistan has huge reserves of coal, but cement companies are compelled to import it, as
local coal has high sulphur content.
Crude oil prices shot up during FY08 and had its impact on prices of coal and natural gas.
The rise in the costs of international coal prices has been one of the biggest reasons behind
the dampening of gross margins of cement companies during FY08. There was a nearly
50% rise in the coal prices in FY08
Along with the hike in the international coal prices, the depreciation of the rupee against the
dollar also added to the cost of importing coal. Finance charges rose due to higher interest
rates, long term finances, short term borrowing and inclusion of workers' profit participation
fund in FY08.
Assets Utilization
Asset Utilization 2008 2007 2006 2005 2004
Sales to Fixed Assets 54 43 108 80 62
Return on Operating
24 33 10 13 11
Assets
Operating Asset
20 9.6 20 28 33
turnover
Return on Assets 18.5 3.8 23 11 6.60
Page 17
250
sales to fixed assets
200
return on operating
150 assets
operating assets
100 turnover
return on assets
50
0 total asset turnover

2008 2007 2006 2005 2004
The performance of DGKC in terms of asset management was weak during FY07. During
the year, the inventory turnover (days) of the company more than doubled compared to
FY06 when the management of inventory seemed most efficient (evident from the lowest
inventory turnover in days). This could be traced back to lower sales revenue for the period,
coupled with a higher stock of inventory.
At the same time, the average time taken by the company to recover cash from sales also
increased. The increase in inventory turnover in days and Days sales outstanding (DSO)
prolonged the operating cycle of the company in FY07.
However, in FY08 the asset management of DGKC improved as the inventory turnover rate
increased because the company earned sales revenue more in proportion to the increase
in inventory. Thus the days to convert inventory into sales became less (from approx. 100
days in FY07 to 79 days in FY08).
Although the days to convert sales into cash (DSO) increased slightly, the substantial
decrease in ITO (days) led to the shortening of the operating cycle in FY08. The days sales
outstanding was higher because the trade debt increased substantially (by 153%) during
FY08 as against sales.
Besides this the sales to equity and total asset turnover of the company which had a
declining trend till FY07 increased in FY08. The sales to equity ratio had been decreasing
because of an increase in the paid up capital. But the trend was reversed in FY08 because
the paid up capital remained same while the reserves fell, causing a decrease in the equity
base of the company.
Also higher growth in sales increased the sales/equity ratio. Total asset turnover also
improved because the management of the company's assets was effective in generating
higher sales revenue. The company's performance in the area has improved as full-scale
production from the newly inaugurated Khairpur plant has augmented the sales.
Page 18
Return on Investment
Return on total equity
Return
2008 2007 2006 2005 2004
Ratios
Return on
2.92 5.34 12.58 15.47 10.07
Investment
Return on
0.30 0.37 17 22 13
Total Equity
25
20
15
Return on investment
10 Return on total equity
0
2008 2007 2006 2005 2004
One of the most important profitability metrics is return on equity [or ROE for short]. Return
on equity reveals how much profit a company earned in comparison to the total amount of
shareholder equity found on the balance sheet. If you think back to lesson three, you will
remember that shareholder equity is equal to total assets minus total liabilities. It's what the
shareholders "own". Shareholder equity is a creation of accounting that represents the
assets created by the retained earnings of the business and the paid-in capital of the
owners. The return on Equity has decreased drastically and there is quite a hell of
decrement in ROE, which is not very much encouraging for the investors in shares.
Investment Ratios
• Degree of financial leverage

• Earning per common shares
• Price earning ratio
Page 19
Investment ratios 2008 2007 2006 2005 2004

Degree of financial
leverage 15.48 1.27 1.13 1.14 1.20
Earning per common

shares 0.017 0.60 0.10 0.76 0.35
Price earning ratio

258.08 4.81 3.38 3.96 8.19
100%
80% Price earning ratio
60%
Earning per
common shares
40%
Degree of financial
20% leverage
0%
2008 2007 2006 2005 2004
A leverage ratio summarizing the affect a particular amount of financial leverage has on a
company's earnings per share (EPS). Financial leverage involves using fixed costs to
finance the firm, and will include higher expenses before interest and taxes (EBIT). The
higher the degree of financial leverage, the more volatile EPS will be, all other things
remaining the same. Most likely, the firm under evaluation will be trying to optimize EPS,
and this ratio can be used to help determine the most appropriate level of financial leverage
to use to achieve that goal.
The company’s ratio ha increased dramatically in the year 2008 by 15 times. So there is
quite a margin for company to get leveraged.
The portion of a company's profit allocated to each outstanding share of common
stock. Earnings per share serve as an indicator of a company's profitability.
Earnings per share are generally considered to be the single most important variable in
determining a share's price. It is also a major component used to calculate the price-to-
earnings valuation ratio. The EPS of company is fluctuating but in current year it has
decreed drastically which is not a good sign for share holders. An important aspect of EPS
that's often ignored is the capital that is required to generate the earnings (net income) in
the calculation. Two companies could generate the same EPS number, but one could do
so with less equity (investment) - that company would be more efficient at using its capital
to generate income and, all other things being equal would be a "better" company. Investors
also need to be aware of earnings manipulation that will affect the quality of the earnings
Page 20
number. It is important not to rely on any one financial measure, but to use it in conjunction
with statement analysis and other measures.
A valuation ratio of a company's current share price compared to its per-share earnings is
Price Earning ratio. In general, a high P/E suggests that investors are expecting higher
earnings growth in the future compared to companies with a lower P/E. However, the P/E
ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E
ratios of one company to other companies in the same industry, to the market in general or
against the company's own historical P/E. It would not be useful for investors using the P/E
ratio as a basis for their investment to compare the P/E of a technology company (high P/E)
to a utility company (low P/E) as each industry has much different growth prospects.
The P/E is sometimes referred to as the "multiple", because it shows how much investors
are willing to pay per dollar of earnings. It is important that investors note an
important problem that arises with the P/E measure, and to avoid basing a decision on this
measure alone. The denominator (earnings) is based on an accounting measure of
earnings that is susceptible to forms of manipulation, making the quality of the P/E only as
good as the quality of the underlying earnings number.
Investment Ratios
• Dividend payout ratio
• Dividend yield ratio
• Book value per share
Investment
ratios 2008 2007 2006 2005 2004
Dividend payout
ratio 19.83 23.62 48.31 28.37 27.74
Dividend yield ratio

7.68 4.90 14.23 7.17 3.38
Book value per
share 18.74 20.87 16.62 7.80 5.29
Page 21
60
50
40 Dividend payout ratio
30 Dividend yield ratio
20 Book value per share
10
0
2008 2007 2006 2005 2004
Indicates the proportion of earnings that are used to pay dividends to shareholders.
A reduction in dividends paid is looked poorly upon by investors, and the stock price usually
depreciates as investors seek other dividend paying stocks
.
A stable dividend payout ratio indicates a solid dividend policy by the company's board of
directors. The situation of DG Khan Cement Co. Ltd. Shows increment in 2006 but from
there is consistent decrement in this ratio by more than two times so company is trying to
build there retained earnings instead of giving dividend.
During bull markets the stock price is more likely to trade significantly higher than book
value, and in a bear market the two values may be close to equal. The dividend yield or the
dividend-price ratio on a company stock is the company's annual dividend payments
divided by its market cap, or the dividend per share divided by the price per share. It is
often expressed as a percentage. There is quite fluctuations in this ratio which shows there
is lack of stability in the company policy towards this section.
Now if we look at the book value per share, as we know that somewhat similar to
the earnings per share, but it relates the stockholder's equity to the number of shares
outstanding, giving the shares a raw value. Comparing the market value to the book value
can indicate whether or not the stock in overvalued or undervalued. During bull markets the
stock price is more likely to trade significantly higher than book value, and in a bear market
the two values may be close to equal.
Page 22
Univariate Model
1. Cash flow/Total debt
Year Calculation in (Rupees’ 000) Values

2008 (641970)/23149658 -2.773%
2007 475661/17821146 2.67
2006 4190452/15036176 27.869
2005 2484759/8698507 28.57
2004 945521/8698507 10.8
2. Net Income/Total Assets (Return on Assets)

2008 25685/53678098 0.047%
2007 1622471/51744331 3.13
2006 2418455/34304376 7.05
2005 1682078/18016505 9.34
2004 794493/11714619 6.78
3. Total debt/Total Assets (debt ratio)

2008 23149658/53678098 43.13%
2007 17821146/51744331 34.44
2006 15036176/34304376 43.83
2005 8698507/18016505 48.28
2004 5397564/11714619 46.07s
Page 23
Multivariate Model
X1= Working Capital/Total Assets
Year Calculation in (Rupees’ 000) X1

2008 6942865/53678098 12.934%
2007 11824725/51744331 22.85
2006 3894459/34304376 11.35
2005 1140911/18016505 6.33
2004 504154/11714619 4.30
X2=Retained Earning/Total Assets

2008 30202533/53678098 56.27%
2007 33923185/51744331 65.56
2006 19259849/34304376 56.144
2005 9317998/18016505 51.72
2004 6317055/11714619 53.9
X3=EBIT/Total assets

2008 1513505/53678098 2.82%
2007 2202393/5174 4.26
2006 3908802/34304376 21.69
2005 2425312/18016505 13.46
2004 1345016/11714619 11.48
X4= Market value of equity/Book value of total debt

2008 253541157*30.97/23149658 339.19%
2007 253541157*30.97/17821146 440.60
2006 184393569*30.97/1503176 379.79
2005 184393569*30.97/8698507 656.51
2004 167630518*30.97/5397564 961.82s
X5=Sales/Total Assets
Page 24

2008 12464347/53678098 23.22%
2007 6419625/51744331 124.79
2006 7955665/34304376 23.19
2005 5279560/18016505 29.30
2004 3882756/11714619 33.14
Page 25
DuPont Analysis
1. Dupont Return on Assets=Net profit margin*Total assets turnover
Dupont Return on
Year Calculation in (Rupees,000)
Assets
2008 7.84*0.24 1.88
2007 0.25*0.15 3.75
2006 0.31*0.74 22.94
2005 0.31*0.35 10.85
2004 0.20*0.33 6.60s
DuPont return on Assets has a decreasing trend. In 2008 net profit of co decrease due to
high cost of goods sold. Co does not utilize its assets properly in 2008. In 2007 trend of this
ratio is good. But in last 3 years it also has increasing trend.
2. DuPont returns on Operating Assets
Dupont Return on
operating Assets
2008
2007
2006
2005
2004
DuPont return on Operating Assets decrease in 2008 as compare to 2007. Co utilizes its
operating assets in 2007 as compare to 2008. Co invests in more long term investments. It
is necessary for the co to change its policy.
Page 26
SWOT ANALYSIS
Strengths
1. Availability of Raw Material.
2. Imported Machinery and plants in most of companies, which provide better
quality to over all process.
3. During fiscal year 2007-08, country exports stood at 7.712 million tones ($435
million) and Pakistan has already established its position as an exporter of
cement and clinker in the region, Sources said the industry projections
suggested that the cement industry exports would reach to $735 million by the
end of 2008-09 and it would touch $1.043 billion by the end of 2009-10.
4. Availability of foreign investment and loans has also played an important role in
softening the demand for bank credit. The moderation in fixed investment
demand in cement, construction and textile is more of a reflection of the fact that
these industries had already expanded their capacities in recent years and
floatation of debt instruments (e.g., chemical, cement, real estate and ship yard)
in the domestic market cement, real estate and ship yard) in the domestic
market
5. The compressive strength is a very important factor of cement. The Portland
cement achieves its maximum strength in 28 days. The Pakistan standard PSS
232-1883 (R) & British Standard BS 12: 1978 provides for 28 days strength of
5000Psi and 5950Psi respectively for mortar cubes.
6. Cement industries in Pakistan are currently operating at their maximum capacity
due to the boom in commercial and industrial construction within Pakistan.
7. Effect of GDP
Following effects of GDP will govern the growth of cement industry in
Pakistan
1. Higher GDP growth has positive impact on cement demand
2. Cement demand growth rate was double the GDP growth rate in last
three years
3. GDP growth is expected to continue to have same positive impact on
demand growth
8. Housing demand to grow:
Following indications have showed a considerable demand of cement in
Pakistan:
• Housing projects consume roughly 40% of cement demand
• Currently 0.3mn houses are built annually against demand of 0.5mn
• Low interest rates, post 9/11 remittances’ inflow, and real estate boom have
helped housing sector growth
Page 27
• Easy mortgage availability and announcement of low cost housing schemes will
determine housing sector growth in the long-run.
9. Government’s development spending shall continue to rise due to:
• Government development expenditures count for one third of total
cement consumption
• Increase in development expenditures has helped cement demand to
grow at very high rates
• Increase in PSDP- as announced in Medium Term Development
Framework 2005-10 will help cement demand to grow in the country
• Infrastructure development in a region triggers private development
projects having even positive impact on cement demand
10.Pakistan cement industry is one the largest exporter in Asia, major markets are
of Afghanistan and Iraq will be after peace. It’s increased GDP by exports,
providing cements in Large Dams Project and earthquake rehabilitations
projects.
11.Laboratory testing facilities meeting all American and European standards and
Vertical cement grinding mills.
12. Cement industry called major Performance Blue Chip in current economic
survey 2007-08 because during the first three quarters of the fiscal year 2007-
08, the combined paid-up capital of ten big companies was Rs. 91 billion, which
Page 28
constituted 13.17 percent of the total listed capital at KSE in which Fauji
Fertilizer, DG Khan Cement, Lucky Cement played major role.
13. Today, we find a relatively better scenario as compare to past. Most of the
cement plants, that used to operate on furnace oil, have now been converted
into coal system, which has substantially reduced cost of production.
14. The most modern selection of production equipment possible in every major
department of the plant.
15. Cement export to India through railway
• Most of the cement export to India is through railway. In order to facilitate
cement export to India, the railways has doubled its cement capacity and
increase its frequency of trains to India from Pakistan. This step has
been taken by Pakistan Railways in order to increase cement export to
India. Which is regarded as a highly profitable market?
16. Use of Coal
• Coal is found in all the four provinces of Pakistan. The country has huge
coal resources, about 185 billion tones, out of which 3.3 billion tones are
in proven/measured category and about 11 billions are indicated
reserves, the bulk of it is found in Sindh.
• At present most of the cement companies have switch to coal or gas as

their basic fuel; the process has been completed in the last 6 to 7 years.
According to the data of the All Pakistan Cement Manufacturing
Association of mid-2007, the cost of cement production per tone by
furnace oil was around Rs2, 083 whereas the cost of production per tone
by coal was Rs8, 68, saving Rs1, 215 per tone. Similarly, the saving per
bag was Rs60.75, which is a huge difference. Reserves of coal can
become strength for Pakistani cement industry if Pakistan import sulphur
washing plant from European country than Pakistan cement industry is
able to utilize local coal to meet its energy requirement
17. Cheaper labor
• The labor of Pakistan is very cheap. This is the important strength of the
cement industry as the cement companies of Pakistan has to pay less to
there labor which result in saving of there income which later on can be
utilized in the expansion of cement plant. Which will increase the cement
production?
18. Good Domestic and Foreign Market
• The export may reach to $ 500 million increase during 2008. Data for the
first quarter of FY08 shows that Afghanistan is Pakistan’s largest cement
export market. The prospects for cement exports seem bright in the
medium term due to rising domestic as well as regional cement demand.
Page 29
19. Good Government Policies
• Government policies are in the favor of cement sector. Due to the

government favorable policies the cement sector gets the highest growth
rate of 21.11% among all the industries of Pakistan in year 2006-07. The
total industry installed capacity is expected to reach 49.1 million tons per
annum by FY10
20. High Quality of Cement
• Pakistan produces good quality of cement. This is the main reason due
to which recently Russia is offering high price for Pakistani cement.
Globally Pakistan is recognized for producing good quality of cement due
to which countries like Afghanistan, India, Middle East and some African
countries prefer to import cement from Pakistan.
Weaknesses
1. The stage of industrial development, in most of the segments, is still at a very low
level of technology and the existing industrial base is very narrow and consists of
very basic industries such as cement, sugar, textile, cigarette, edible oil, fertilizer,
soda ash, caustic soda, PVC etc.
2. Since cement is a specialized product, requiring sophisticated infrastructure and
production location. So, most of the cement industries in Pakistan are located
near/within mountainous regions that are rich in clay, iron and mineral capacity.
Structure of Cement industry in Pakistan is as such that there is not much
substitutability to buyers. Which shows that the Cross elasticity of demand is
negligible.
3. The customer has no choice at all to switch between two brands of cement due to
cartel of all of the cement manufacturers in Pakistan.
4. The freight charges are a massive 20% of the retail prices. The plants located very
close to each other and tapping the same market will have to expand their markets
which will increase their freight expenses. Dandot, Pioneer, Maple Leaf and
Garibwal are all located within a radius of 100 kilometers and are selling bulk of their
production in the same areas and will thus face serious competition from each other.
5. Consumers face a tough decision with regards to prefer which brand over which
because of the similar pricing of cement industry. The formation of cartel by the
cement manufacturers have exploited local consumers a lot and this has led to the
concentrated degree of oligopoly, where the firms are acting as a single unit to
perform their monopoly. Their combined market power is simply a diluted version of
the dominance that a single firm with a monopoly market share can exert.
6. Increase freight charges
• Exporters of the cement often complain that railways freight charges for
carrying cement from Lahore city to the border of India are Rs500 per ton
Page 30
($8 per ton) while it covers only 35 km. Against this, they say on the Indian
side, the freight is only $3 per ton for bringing goods from Chundrigar to the
border area. Cement exports have been badly hit by high fee that is being
charged by trucks and also by foreign shipping companies for the haulage of
cement from Pakistan to India. This increase in freight charges effect our
exports due to which our exports is declining
7. Logistic Problem
• Some of the cement companies of Pakistan have received orders from

Russia with a price tag of Rs 860 per bag. But our logistics is the biggest
hurdle in the way as our transportation system is not good enough to
transport cement to Russia due to which our cement companies might lose
the chance to capture the Russian market which is a highly profitable
market.
8. Usage of Paper bag
• Pakistani cement companies export there cement in paper bags because

paper bags are cheap as compared to plastic bags. But the Cement
exported in paper bags is against the International standards and companies
have to pack the cement in plastic bag. The cement export to India could be
affected by the shortage of plastic bags used for transporting the commodity.
Although there are two companies that are manufacturing plastic bags for
cement but they are not able meet the demand. So that’s why Pakistan
cement companies export cement in paper bags.
9. Idle capacity of various players:
• The biggest problem of cement industry is the idle capacity of various

players. As many cement players are not operating at there full capacity.
Page 31
Threats
1. Unanticipated increase in interest rates or less than expected demand growth might
create severe crises for the sector couple of years forward
2. Lack of demand or depressed demand in future will prove to be lethal for the sector
that has just started to recover from the miseries of 90s. Lack of demand forced
cement units to operate at very low capacity utilization in nineties. There was a
fierce competition among cement manufacturers.
3. A price war was witnessed which ended up with no conqueror. Similar
apprehensions exist for the future when there will be plenty of excess capacity. Any
hurdle in the growth of cement demand may force the sector into the price war. Yet,
we expect cement manufacturers to act prudent and learn lesson from the history.
Any mistake, similar to the one made in the last decade, will again coerce the sector
into the era where all are losers with no winner.
4. Main component of the cost is fuel. Pakistan's cement industry has converted their
plants to coal considering it to be the cheapest fuel, but its price in international
markets has gone up by more than 300 per cent in the last one year, which directly
relate increasing the cost of production.
5. The demand of cement falls heavily during rainy weather in the country, which
directly affects the running cost of a unit. It is only the rising levels of cement
exports, which are sustaining the industry.
6. Instead of appreciating the marketing skills of cement entrepreneurs to explore new
markets for cement, the industry is being pressurized constantly without realizing
that any reduction in cement exports from Pakistan will not only deprive the country
of foreign exchange ($2 billion this year), but will also result in losses to the industry.
7. The burden of increased input costs has to be borne by the consumers. It is only the
government, which can provide relief to the consumers by cutting down or
abolishing the central excise duty.
8. Problems of oversupply situation:
Following problems might arise with the oversupply situation in cement industry:
• Lower capacity utilization will reduce benefits of economies of scale.
High leverage will also adversely affect profitability of new plants.
• New plants will gain market share at the cost of older players, which are
not undergoing expansion. Large idle capacity is will create panic in
players and this may result in price wars in the coming years.
9. IMF Package in Future can cause to decrease GDP and economical development in
Pakistan. Which will also be cause to stop development of infrastructure? So it will
have huge effect on cement industry also.
10. Indian and Iran industry is also expanding its cement capacity
• Presently, India faces an acute cement shortage in its Southern states of

Tamilnado and Madras and in north Punjab. However, reports indicated that
the Indian industry is also working on a fast track to expand their
Page 32
capacity in these regions to off-set the shortfall Major capacities

of countries like India and Iran are expected to come online by FY10 and
onwards which are likely to convert these countries from dependent
importers to potential exporters.
11. High energy prices
• Recently cement industry of Pakistan is facing high energy prices due to

increase in the international prices of coal and oil. As our coal contain high
percentage of sulphur. Due to which Pakistan cement industry is not able to
use local coal as a source of energy. Due to which Pakistan cement industry
has to import coal from different countries at high prices. High finance and
depreciation cost as Pakistan cement industry is expanding its capacity to
get the proper advantage of strong demand of cement in different countries.
The total industry installed capacity is expected to reach 49.1 million tons per
annum by FY10 and because of higher expansion finance and depreciation
cost is also going to rise by the FY10.
12. Decrease profitability due to competition in cement industry
• The sharp decline in cement prices has been witnessed due to domestic
competition among producers has dampened the profitability of the industry.
This increase in competition among the players has further decreased the
prices of cement in the local market. The cement manufacturers decrease
the prices of there products in order to get high market as compared to its
competitor.
13. High level of taxation
• Presently, the cement industry of Pakistan is heavily burdened due to levy of

Federal Excise Duty @ Rs. 750 per ton and General Sales Tax @ 15% on
duty paid value. In addition to Federal Excise Duty and General Sales Tax,
cement industry is also paying the provincial levies (Royalty and Excise
Duty) on acquiring of raw material for production of cement i.e. lime stone
and shall clay.
Opportunities
1. The local cement industry faces high upfront fuel costs. In order to facilitate their
conversion to coal, which is widely available in the country, the government has
given incentives for imported plant and equipment for coal firing units.
2. The demand of Pakistani cement is expected to continue to grow at the rate of 20
per cent for about four years to come. It may then follow traditional growth rate of
Page 33
seven per cent per year. Announcement of major dams will dramatically increase
this demand.
3. Deregulation after accession of Pakistan to WTO is expected to open the window of
competition from cheaper markets. There may be no tariff after this deregulation on
import of cement allowing its entry into Pakistan from cheaper market at lower rate.
Cement from cheaper markets may also block Pakistan’s export of cement to its
neighboring countries. Global market has vigorously taken up the advantage of
economy of scales and multinational giants now control more than 40 per cent of
world production (China not included). The recent acquisition of Chakwal Cement by
an Egyptian giant, Orascom may be a beginning of such an entry in Pakistan by
multinationals. New avenues for export of cement are opening up for the indigenous
industry as Sri Lanka has recently shown interest to import 30,000 tons cement from
Pakistan every month. If the industry is able for avail the opportunity offered, it may
secure a significant share of Sri Lanka market by supplying 360,000 tons of cement
annually.
4. Government Development Expenditure
• Government development expenditures count for one third of total cement

consumption. Increase in development expenditures has helped cement
demand to grow at very high rates. Increase in PSDP- as announced in
Medium Term Development Framework 2005-10 – made the cement
demand to grow in the country. Infrastructure development in a region
triggers private development projects having even positive impact on cement
demand.
5. Construction of large dams
Page 34
• Construction of four large dams will generate demand of 3.7mn tons as

construction activities start. Our estimate does not include demand
generation from Skardu-Katzarah dam as its feasibility study in not yet
completed. Extent of demand generation will depend on size of dam, type of
dam, and extent of relocation/resettlement activities required. Bhasha dam
will generate maximum demand as it is RCC concrete dam whereas other
dams being Earth fill/Rock fill dams will require less cement for their
construction. Resettlement activities for Kalabagh dam will generate
maximum demand as it is located in a highly populated area.
6. Improved access to regional market
• Afghanistan is Pakistan’s largest cement export market. The prospects for

cement exports seem bright in the medium term due to rising domestic as
well as regional cement demand. Pakistan also achieved improved access to
India after the complete removal of the 12.5 percent custom duty on Portland
cement imports in this country from January 2007, showing improved export
opportunities for Pakistan. India is planning to import more cement from
Pakistan to stabilize prices in the market and the government wants a
balance in demand and supply of cement in the current fiscal year. The
import of cement from Pakistan has increased manifold during last four
months. India has registered a number of Pakistani cement manufacturers, a
requirement to facilitate import of cement. Pakistan has already increased

the frequency of trains from one to three in a week to carry cement from
Pakistan to Wagah border. Due to boom in the construction industry, India
needs cement in bulk to meet its growing needs.
7. Demand of Pakistani cement by Russia
Page 35
• Fresh enquiries have been received from Russia and buyers are quoting
very attractive prices as Pakistani cement quality is of very high standard
and holds good strength.
8. Earthquake in China
• In the month of May china is hit by severe earthquake having the magnitude
of 7.8 this earthquake has cause the serious destruction in china. This
disaster is also an opportunity for Pakistan cement industry to export cement
to china.
9. High prices of cement in the international market
• Cement exports are expected to soar by a massive 107 per cent due to the
primary source of overall cement growth in FY08, the high exports owing to
the cement supply shortage in India and Middle East which lead to rocketing
cement prices in the region.
10. Increase in demand of cement due to the up coming sports event
• South Africa is schedule to host the football world cup of 2010 due to which
they need to make the football stadiums for the World Cup and Sri Lanka are
also expected to approach Pakistani companies for cement imports because
Sri Lanka to co-host the cricket world cup of 2011.
Page 36
Recommendations
We would like to conclude this report by ranking overall sector as “Neutral”. We remain
neutral on the sector because on hand expansion is the need of hour. Due to expected
growth in demand, current capacity appears inadequate. On the other hand, expansion
plans set up by the various players of cement sector to grab demand expansion might
cause sector to overflow. Along with risk of being oversupplied, unanticipated increase in
interest rates or less than expected demand growth might create severe crises for the
sector couple of years forward. Weighing risks and rewards, we remain “NEUTRAL” on the
sector.
To break-up cement manufacturers cartel the Competition Commission of Pakistan raided
offices of Association of Cement Manufacturers of Pakistan and confiscated official record.
The association condemned this action and said it is against business norms. They
accused Commission for blaming cement manufacturers for making a cartel for the last 10
years but could not able to prove it. The capital structure of cement companies may
change, as most of the expansions during last two to three years have been debt financed
and companies are expected to retire these debts rapidly during next three to five years.
Moreover, the slow down in economy may occur due to political uncertainty, which might
result in reducing cement demand in future.
However, in case of construction of hydro-powered dams, there will be a sudden jump in
the local sales of those companies located near these dams.
Consolidation is needed for industry stability because of following observations.

1. Cartels are unstable by their nature.
2. Industry needs one or two dominant players for long-term sustainability in
prices and profits
3. Top four players command 35% of market share in the industry that will be
increased to 46% in FY08.
4. World norm is that top four players have more than 60% market share
5. Consolidation process will be needed to increase market share of larger players
rather than going for capacity expansions
6. We may see acquisitions in the industry as the industry goes through
overcapacity cycle.
Page 37
International Trend
Although international energy prices have declined recently, any beneficial impact on
margins has largely been negated by substantial depreciation of Pak Rupee. PACRA,
therefore, believes that the performance of cement companies could weaken further
impacting their financial profile. Pakistan's cement industry is poised to face a tough
challenge as the regional markets, mainly China and India, are likely to emerge as
competitors in the export market, following a slowdown in their domestic economies
and enhanced production capacity.
Page 38
FUTURE OUTLOOK
In the budget FY09 the central excise duty on cement was increased to Rs 900 per ton from
current Rs 750 per ton. On each bag the CED increased by Rs 7.50 per bag (from Rs 37.5
per bag to Rs 45 per bag). This increase was not expected to impact the profits of the
cement sector because this increment in CED was expected to be passed on to the
consumers. However, the rise in the GST by 1% was anticipated to cause an increase in
the local cement prices and dampen the demand for cement.
Local cement dispatches are expected to remain depressed due to slow down in economy
led construction activity in the country and also due to inflation. The government had
allocated Rs 550 billion for PSDP in the budget FY09, however owing to budgetary deficit;
the government later cut the PSDP expenditure.
Cement consumption is correlated to the GDP growth and as the economic condition now
stands, we can predict a slowdown in the GDP growth of the country. Thus the per capita
cement consumption will also fall during FY09. Exports have so far shown a strong growth
and supported the total cement dispatches. Cement manufacturers have been focusing on
the international markets to achieve growth in sales
Pakistan has been exporting to Afghanistan. Regional shortage of cement had presented a
favorable opportunity for our cement manufacturers. Cement demand in Afghanistan is
expected to be 1.5m-2.0m tons per annum for the next few years. Cement manufacturers
have growing opportunities in Middle East and African countries. New export markets like
Russia and European countries have been identified.
Growth in export sales may boost the margins of the industry and reduce the negative
impact of rising costs on its profitability. However, the effects of global recession have
started to impact international demand for cement. Indian market, which was a window of
opportunity for Pakistani cement manufacturers, has been closed as India banned import of
cement from Pakistan due to escalating tensions between the two countries.
Expenses are expected to increase for cement manufacturers. This will negatively impact
the gross margins of the cement sector. During the past, our cement manufacturers shifted
production from oil to coal or gas. Pakistan has huge reserves of coal but manufacturers
need to import coal because the local coal has high sulphur content.
The coal prices in the international market have fallen during the 3rd quarter of FY09 and
will result in lower cost of production in the future. However, the full positive effect of lower
coal prices may not be achieved because of the depreciation of Pakistani rupee which will
neutralize the impact of decreasing international coal prices. Also the government has
raised the power tariff by nearly 50% with variable rates for peak and off peak hours.
The gas prices have also risen. This will increase the cement manufacturers' cost of
production and impact their profitability in FY09. The recent cut of 100 basis points in the
discount rate by the SBP is expected to lead to further expansionary monetary policy.
Interest rates may go down and result in lower financial costs of debt for the company.
DGKC seems to be all set to tap new markets for cement exports. The company's largest
Vertical Cement Grinding Mill at D.G. Khan Site has started operations. After the start of
grinding mill additional quantities of cement will be available. Increased production will help
Page 39
DGKC to aggressively export to new markets and generate higher sales. Also, it will help
DGKC in energy saving and reducing maintenance cost.
DGKC is trying to cut down on costs that have significantly and adversely impacted its
profits in FY08. To reduce electricity cost, DGKC has started a project of power generation
from waste heat at DGK site. The project is expected to generate substantially cheap
electricity of about 10.4MW without using any fuel. This would help to cut down the cost of
production.
DGKC has also decided to use municipal solid waste as fuel for heating purposes. Thus,
negotiations with equipment suppliers are underway and expected to be finalized soon.
Also, DGKC is in contact with different city governments to enter into agreements for
acquiring solid waste.
This project will be beneficial, as it would bring down the company's costs of production,
help resolve the environmental issues related with disposal of solid waste and most
important, it would save huge foreign exchange spent on importing fossil fuels.
Page 40
Annexure
Summarized Income Statement
Summarized Income 2007
2008 2006 2005 2004
Statement Rs.
Rs. Rs. Rs. Rs.
In’000
In’000 in’000 In’000 In 000
Sales Net
Local Sales 14732445 8887306 10348119 6730756 5392393
Export Sales 2741111 511826 607817 641351 305191
Less.
Excise Duty 2729046 1679829 1509449 1141756 990124
Special Excised Duty 99556
Sales tax 1929858 1159214 1349755 877924 766497
Commission to stockiest 250749 140464 141067 72867 58207
Sales Net 12464347 6419625 7955665 5279560 3882756
-.Cost of Sales
Raw and Packing material 1368488 580717 464080 374287 330535
used 480352 293929 230854 185914 161919
Salaries and Wages 1644759 605335 470625 322979 217911
Electricity and Gas 4597486 1902567 2114667 1493514 1123716
Furnace oil 764204 383159 388113 357762 338970
Stores and Spares used 98530 22913 18233 9997 9637
Repair and maintenance 43904 21840 20542 23642 42235
Insurance 1354192 469367 341940 330100 317155
Deprecation on property
plant and Equipment 3331 13108 13203 11311 6923
Deprecation on assets
subjects to finance lease 83731 45349 43678 31652 30284
Royalty 25962 15373 16884 10450 5909
Excise Duty 15541 7159 6980 5724 5881
Vehicle Running 5389 1784 1774 1831 1374
Postage Telephone ,Telegram 3480 945 1492 1581 1276
Printing and Stationery 1499 499 884 548 507
Legal and Professional 9639 6227 4678 3930 3179
Charges 6982 4113 3879 3091 6150
Estate Development 5753 3396 5680 4139 4573
Rent, Rates and taxes 2079 9449 7651 4896 6742
Freight Charges 10534013 4387229 4155837 3177348 2614113
Other Expenses 142686 161989 50205 210983 88603
- 50462 - - -
Opening W.I.P (118292) (142686) (161989) (50205) (210983)
Transfer from Trail run 10558407 4456994 4044053 3338126 2491733
Closing W.I.P 107804 5058 19468 38616 44145
Cost of Goods Manufactured
Opening stock of finished 39300 - - -
goods (118863) (69728) (5058) (19468) (38616)
Transfer from Trail run (11059) (25370) 14410 19148 5529
Closing Stock of finished 19302 43984 65641 26505 -
goods 10528046 4387640 3992822 3330769 2497262
1936301 2031985 3962843 1948791 1385494
-)Own consumption
Page 41
Capitalized 57150 48958 40950 31056 27342

Cost of Goods Sold 2985 2678 2684 2566 3125
Gross Profit 1620 1324 1210 1243 1461
-) Administrative Expenses 1685 1277 3147 3099 1992
Salaries Wages 11956 9027 7261 9742 12425
Electricity
Repair and Maintainance 126 1571 1213 4945 1382
Insurance
Deprecation on property 3545 5353 4066 2678 1752
Deprecation on assets 2210 1897 4983 1913 1256
subjects to finance lease 3522 3369 6394 1365 2471
Vehicle Running 6783 6104 10377 2410 2448
Postage Telephone ,Telegram 176 2699 2561 872 439
Legal and Professional 9004 8491 6975 6177 5944
Charges 1982 2966 3458 1855 937
Traveling and conveyance 3424 2937 17304 1926 360
Rent, Rates and taxes - - - 735 704
Entertainment 110745 104169 121953 76480 68645
School expenses
Fees and subscription
Other Expenses
Auditors Remuneration 35431 29727 23997 17474 14616
Total Administrative 875 670 443 345 383
Expenses 299 884 225 121 40
Selling and Distribution 497 235 172 1397 306
Expense 1342 1132 324 895 900
Salaries Wages
Electricity - - - - 88
Repair and Maintenance 1940 1603 1225 814 765
Insurance 1235 1361 855 855 944
Deprecation on property 1553 1094 891 913 643
Deprecation on leased 3720 1406 1561 1045 1432
property 296 189 294 398 358
Vehicle Running 3395 2643 1569 1919 2213
Postage Telephone ,Telegram
Rent, Rates and taxes 492219 19637 - - -
Traveling and conveyance
Entertainment 2595 2179 1501 2419 1805
Advertisement and Sales 562970 65122 34352 60905 38560
Promotion
Freight Charges-local
Freight and Handling - 93145 182006 83058 60829
Charges-Export
Other Expenses 9734 - - - -
Total Selling and Distribution 5000 11050 9844 4530 -
Expenses - 35112 - - -
Other Operating Expenses 580953 414 - - -
Workers’ profit participation - - - - 206
fund
Book Value of Asset written - - - 6198 -
off
Donation 595687 139721 191850 93786 61735
Page 42
Worker welfare fund

Exchange loss
Loss on Disposal of Property
Plant and Equipment 727 1659 363 582 535
Loss on Sale and Lease back 128 182 181 276 290
transactions - - - 543173 -
Total Other Operating
Expenses
Other Operating Income 820303 465656 265763 152284 34460
Income from Financial Assets 143 118 120 26 85730
Income on Bank Deposits 821301 467615 266427 696341 121015
Interest on Loan to
Employees
Gain on derecognizing of
investment 1592 1634 2847 2002 1980
Dividend Income From 4488 4490 3567 3207 -
-Related Parties
-Others 10394 4170 7609 2911 3827
Total Income from financial 6973 1208 4562 2002 1351
Assets 1858 303 2116 729 289
Income from non financial
assets - - 6986 - -
Rental Income - - - 500 -
Profit on sales of property 846606 479420 294114 707692 128462
plant and assets 1513505 2202393 3908802 2425312 1345016
Scrap Sales
Mark up on loans 186267 141701
Provisions and unclaimed 1040737 323183 305027 329 20049
balances returned back - 28281 35351 42655 35351
Exchange gain - - - 35351 12341
Others
Total other operating income - - - 42655
Profit from operations - - - - 37
Finance Cost 499413 103324 73772 - -
Long term finances 584 6564 12543 12439 9860
- Long term loans 522 98 101 83 90
- Preferred dividend
- Non participatory 205308 - - - -
redeemable capital
- Finance under markup - - 17229 7804 -
- Provident fund -
-Short term borrowings 4165 1813 1679 1405 871
-Finance lease 15569 4496 4994 6860 4235
workers profit participation (1766298) 468173 450696 304041 224601
fund 86194 - -
Loss on derivative financial
instruments (8674) (14163) (9573) - -
Loss on Foreign currency
forward (175273) 1720471 3448533 2121271 1120415
Guarantee commission
Bank charges
Total finance Cost 108214 33000 40500 40000 28700
Excess of Acquire Interest in (309167) 312435 1027000 464000 297000
the net assets of acquire
Share of loss of Associated (5) - (32422) 193 10222
company - (247435) (5000) (65000) (10000)
Page 43
Profit before Taxation

-)Taxation
For the year
- current
(200958)
- Deferred 98000 1030078 439193 325922
Prior Year
-Current
-Deferred
Total taxation
Net Income 25685 1622471 2418455 1682078 794493
Page 44
Summarized Balance Sheet

Summarized Balance Sheet 2008 2007 2006 2005 2004
Equity and Liabilities
Capital and Reserves
Authorized Capital 2500000
-950000000@ ordinary share10 9500000 9500000 2500000 2500000 50000
-50000000@ preference 500000 500000 500000 500000 300000
share10 10000000 10000000 3000000 3000000 1676306
2535412 2535412 1843937 1843937
Issued subscribed and paid up -
capital - - 8351 -
Share deposit money 27634722 29630084 15085354 7196568 4389088
Reserves 32399 1757689 2330558 277493 251661
Un-appropriated profit 30528440 33923185 19268200 9317998 6317055
Total capital and Reserve
Non Current Liabilities 8871051 8686447 7372468 4899225 2730573
Long term finance 393 1141 28886 131985 83487
Liabilities against subject to
finance lease 73890 79467 33814 28674 30365
Long term deposits 54018 39862 26572 45765 38150
Retirement and other benefits 1251000 1624000 1559000 537000 138000
Deferred Taxation 10250352 10430917 9020740 5642649 3020575
Total Non-Current liabilities
Current Liabilities 1450074 1027274 1406869 1154426 493968
Trade and other payables 391610 342612 340757 960620 1360677
Accrued markup 8194330 3942972 2613695 - -
Short term borrowing 2828202 2042281 1619025 599674 487254
Current portion of non-current
liabilities - - - 306048 -
Derivative foreign currency
forward options 35090 35090 35090 35090 35090
Provision for taxation 12899306 7390229 6015436 3055858 2376989
Total Current liabilities 53678098 51744331 34304376 18016505 11714619
Total Liabilities
Assets
Non-Current Assets 24224273 22117551 7521723 6637237 6128083
Property plant and equipment 6839 133376 295058 317262 166583
Assets subject to finance lease 2488307 1907063 11759677 3983175 1126108
Capital work in progress 6592332 8174474 4482213 2610634 1387681
Investments 524176 196913 335810 271428 25021
Long term loans, advances and
deposits 33835927 32529377 24394481 13819736 8833476
Total Non-Current Assets
Current Assets 2323883 1496291 836049 1035081 938847
Stores spares and loose tools 1300325 295140 226286 100994 298538
Stock in trade 463446 144245 74165 76238 52622
Trade debts 15082605 16933790 8543763 2769134 1386816
Investments 427832 229315 152465 121486 120329
Advances, deposits,
prepayments and other 244080 116173 77167 93836 83991
Receivables 19842171 19214954 9909895 4196769 2881143
Cash and bank balance 53678098 51744331 34304376 18016505 11714619
Total Current Assets
Total
Page 45
Horizontal Analysis of Income Statements
2008 2007 2006 2005 2004

Net sales 321.01 % 165.34 % 204.89 % 135.97 100 %
Cost of sale (421.58) (175.7) (159.89) (133.38) 100
Gross profit 139.75 146.66 286.02 140.66 100
administrative
(61.33) (151.75) (177.66) (111.41) 100
expense
selling &dist.
(145.98) (168.88) (89.09) (157.95) 100
expenses
other operating
(964.90) (226.32) (310.76) (151.29) -100
expense
other Operating
659.03 373.20 228.95 550.89 100
income
profit from operation 112.53 163.74 290.61 180.32 100
finance cost (786.41) (208.26) (200.66) (1345.25) 100
share of loss of
- - - - 100
associated company
income before taxes 15.64 153.56 307.79 189.33 100
Provision for taxation (61.66) (30.06) (316.05) (134.75) 100
Net profit 3.23 204.21 304.40 211.72 100
Horizontal analysis of income statement shows that net sales of the Co has increasing
trend. But on the other hand Cost of goods sold jump quickly. This is not a good trend. Cost
of goods sold of the Co increases due to expensive raw materials. Gross profit of the co
decreases from last years due to high cost of goods sold. Administrative and selling
expense of the Co has decreasing trend. Other operating expenses of the Company are
increasing quickly. Company is also increasing trend in other operating income. Profit from
operations also decreases. Co also has high finance cost from last years. Income before
taxes has decreasing trend due to high cost of goods sold and finance cost. Net profit of the
Company is Very small as compare to last years.
Vertical Analysis of Income

Statements
2008 2007 2006 2005 2004

Net sales 100% 100% 100% 100% 100 %
Cost of sale (84.46%) (68.35%) (50.18%) (63.09%) (64.32%)
Gross profit 15.35 31.64 49.81 36.91 35.68
administrative expense (0.88) (1.62) (1.53) (1.45) (1.77)
selling &dist. expenses (4.52) (1.01) (0.43) (1.15) (0.99)
other operating expense (4.78) (2.17) (2.41) (1.78) (1.59)
Page 46
other Operating 6.79 7.47 3.70 13.40 3.37

income
profit from operation 12.14 34.31 49.13 45.94 34.64
finance cost (14.17) (7.28) (5.66) (5.76) (5.78)
Excess of acquires 0.69
interest in the net assets - - - -
of acquire
share of loss of (0.66) (0.22) (0.12)
associated company
income before taxes 1.41 26.80 43.34 40.18 28.86
Provision for taxation (1.61) (1.53) (12.95) (8.32) (8.39)
Net profit 20.20 25.27 30.40 31.86 20.46
In vertical analysis of income statement shows that has high cost of goods sold from last
years. Gross Profit of the Co has decreasing trend. This is decrease due to high cost of
goods sold. Operative expense of the co has minimum portion in the income statement.
Profit from operations also has decreasing trend. Share of loss of associated co also
increases Income before taxes also decreases from last years. Provision for income taxes
also has decreasing trend.
Horizontal Analysis of Balance

Sheet
Assets 2008 2007 2006 2005 2004
issued subscribed &
151.25 151.25 110.00 110.00 100
paid up capital
reserves 629.62 675.08 343.70 163.96 100
accumulated profit
12.87 698.43 926.07 110.26 100
total
Total - 537.01 305.02 147.51 100
non-current Liabilities
long term finance 324.88 318.12 269.99 179.42 100
liabilities against
assets subject to 0.47 1.36 34.50 158.09 100
lease finance
long-term deposits 243.34 261.71
retirement and other
141.59 104.40 69.65 119.96 100
benefit
deffered taxation 906.52 1176.81 1129.71 389.13 100
current liabilities
trade and other
293.56 207.96 284.81 233.70 100
payables
accrued mark up 28.78 25.18 25.03 70.60 100

current portion of
580.43 419.14 332.27 123.07 100
long term liabilities
provision for taxes 100 100 100 100 100
Page 47
total 542.67 310.91 25.47 128.56 100

assets
non-current assets
property plant &
395.29 360.92 122.74 108.31 100
equipment
assets subject to
4.10 80.06 177.12 190.45 100
finance lease
capital work in
220.96 169.35 1044.28 353.71 100
progress
investment 475.06 589.07 323 188.13 100
long-term loans
2094.94 99 1342.11 1084.80 100
&deposits
current assets 100 115.7 116.10 121.51 123
stores spares and loose
247.53 159.37 89.05 110.25 100
tools
stock in trade 435.56 98.86 75.79 33.83 100
trade debts 880.71 274.11 140.94 144.88 100
investment 1087.57 11221.05 616.07 199.67 100
advanced deposits 355.55 190.57 126.71 100.96 100
cash and bank balance 290.60 138.32 91.88 111.72 100
Liabilities and owner equity of the balance sheet shows that issued and paid up capital of
the company is increasing. And reserves of the co also jump 343% to 675% in the year of
2006 to 2007. Accumulated profits of the co have decreasing trend. And it is dangerous for
the co.
Non current liabilities of the co increases from 2004 to 2007 but there is a decline in 2008.
Current liabilities of the co also have increasing trend.
This horizontal analysis of balance sheet shows that Fixed Assets of the Co increase from
last years. It means Co have much productive assets. It shows a good trend of fixed assets.
On other side trend of assets subjects to finance lease going to decrease. Co also have
asset that are work in progress but trend of these assets also going to decrease. Co also
invests in long term investment and this asset also has increasing trend from 2004 to 2008.
Co also has long term deposits and these also have increasing trend.
Current Assets of the Co also have increasing trend. Trade debts of the Co also have
increasing trend and its debts are not in a good position. Short term investments of the co
also increase and Co use its idle cash in good manners.
.
Vertical analysis of balance

sheet
Assets 2008 2007 2006 2005 2004
issued subscribed &
4.72% 4.89% 5.37% 10.23% 14.31%
paid up capital
reserves 51.48 57.26 43.97 39.94 37.47
accumulated profit
0.06 3.39 6.79 1.54 2.15
total
Page 48
Total 56.26 65.55 56.16 51.72 53.92

Non-current
Liabilities
long term finance 16.52 16.79 2.49 27.19 23.31
liabilities against
assets subject to 0.000732 0.0022 0.084 0.73 0.71
lease finance
Long term deposits 0.13 0.15 0.098 0.16 0.26
retirement and other
0.10 0.077 0.077 0.25 0.32
benefit
deffered taxation 2.33 3.14 4.54 2.98 1.18
Total 19.09 20.16 26.29 31.32 25.78
Current liabilities
Trade & other
2.70 1.98 4.10 6.41 4.22
payables
accrued mark up 0.73 0.66 0.99 5.33 11.61
Short term borrowing 15.26 7.62 7.62

secured
current portion of 5.27 3.95 4.72 3.33 4.16
long term liabilities
provision for taxes 0.06 0.068 0.10 0.19 0.29
total 24.03 14.28 17.54 16.96 20.29
assets
non-current assets
property plant & 45.13 42.74 21.92 36.83 52.31
equipment
assets subject to 0.012 0.26 0.86 1.76 1.42
finance lease
capital work in 4.63 3.68 34.28 22.11 9.61
progress
investment 12.28 15.79 13.06 14.49 11.85
long-term loans 0.97 0.38 0.97 1.51 0.21
&deposits
Total 63.03 62.86 71.11 76.71 75.41
Current liabilities
stores spares and 4.32 2.89 2.44 5.75 8.01
loose tools
stock in trade 2.42 0.57 0.66 0.56 2.55
trade debts 0.86 0.27 0.22 0.42 0.45
investment 28.09 32.72 24.90 15.37 11.84
advanced deposits 0.79 0.44 0.44 0.67 1.03
cash and bank 0.45 0.22 0.22 0.52 0.72
balance
Total 36.26 37.13 28.88 23.29 24.59
Vertical Analysis of the balance sheets shows that in 2008 that Equity portion of Co have
large portion of equity .And there is minimum portion of non current liabilities. And it shows
a good trend. Co finances his assets through equity and pay minimum amount of interest.
Page 49
Current liabilities of the co increase from last years. On current assets co do not pay
interest. Co pays his obligation timely and there is no chance of insolvency.
On the other side of balance sheet are assets of the Co. Co have more productive assets.
Analysis show that Company Finance minimum assets at lease. Current assets of the Co
slightly decrease from last year.
Page 50
Liquidity Ratios
1. Days, Sales in Receivables = Gross Receivables/Net Sales/365
Days, Sales in
Receivables
2008 463446/12464347/365 13.57days
2007 144245/6419625/365 8.20
2006 74165/7955665/365 3.40
2005 76238/5279560/365 5.27
2004 52622/3882756/365 4.95
2. Account Receivables Turnover =Net Sales /Average Gross Receivables
Account Receivables
Turnover
2008 12464347/30384550 41.02times
2007 6419625/109205 58.78
2006 7955665/75201.50 105.79
2005 5279560/64430 81.44
2004 3882756/52622 73.78
3. Account Receivables turnover in days =Average Gross Receivables/Net

Sales/365
Account Receivables
Year Calculation in (Rupees’000)
turnover in days
2008 30384.50/12464347/365 8.89days
2007 109205/6419625/365 6.20
2006 75201.50/7955665/365 3.45
2005 64430/5279560/365 4.45
2004 52622/3882756/365 4.95
4. Days Sales in Inventory =Ending Inventory/Cost of Goods sold /365
Year Calculation (Rupees’000) Days Sales in Inventory

2008 1300325/10528046/365 45.08 days
2007 295140/4387640/365 24.55 days
2006 226286/3992822/365 20.68 days
2005 100994/3330769/365 11.07 days
2004 298538/2497262/365 43.63 days
4. Inventory turnover = Cost of Goods sold/Average Inventory
Year Calculation (Rupees’000) Inventory turnover

2008 10528046/797732.5 13.19times
Page 51
2007 4387640/260713 16.83

2006 3992822/163640 24.40
2005 3330769/199766 16.67
2004 2497262/298538 8.36
5. Inventory Turnover in Days =Average inventory /cost of goods sold /365
Year Calculation (Rupees’000) Inventory turnover in days

2008 797732.5/10528046/365 27.66 days
2007 260713/4387640/365 21.69
2006 163640/3992822/365 14.96
2005 199766/3330769/365 21.89
2004 298538/2497262/365 43.63
07. Operating cycle = Account Receivables turnover in days + inventory turnover in

days
2008 =8.89+27.66 =36.55 days
2007 =6.20+21.69 =27.89
2006 =3.45+14.96 =18.41
2005 =4.45+21.89 =26.34
2004 = 4.95+43.63=48.58
08. Working Capital = Current Assets – Current Liabilities (Amount in Rupees’000)

2008 19842171-12899306 =6942865
2007 19214954-7390229 =11824725
2006 9909895-6015436 =3894459
2005 4196769-3055858 =1140911
2004 2881143-2376989 =504154
09. Current Ratio= Current Assets/Current Liabilities

Year Calculation in (Rupees’000) Current Ratio
2008 19842171/12899306 1.54:1
2007 19214954/7390229 2.60:1
2006 9909895/6015436 1.65:1
2005 4196769/3055858 1.37:1
2004 2881143/2376989 1.21:1
10. Quick Ratio= (Cash Equivalent + Marketable Securities+ Net Receivables)/Current

Liabilities
Year Calculation in (Rupees’000) Quick Ratio
2008 (244080+15082605+463446)/12899306 1.22:1
2007 (116173+16933790+144245)/7390229 2.33:1
2006 (7235749+502387+969891)/8429327 1.44:1
2005 (6931615+67244)/6344831 0.96:1
2004 (5078613+5503)/4524698 0.64:1
11. Cash Ratio =Cash Equivalent +Marketable Securities /Current liabilities

Year Calculation in (Rupees’000) Cash Ratio
2008 (244080+185082605)/12899306 1.18
Page 52
2007 (116173+16933790)/7390229 2.31

2006 (77167+8543763)/6015436 1.43
2005 5279560/822532.50 6.42
2004 3882756/504154 7.70
12. Sales to Working Capital = Sales/Average Working Capital

Year Calculation in (Rupees’000) Sales to Working Capital
2008 12464347/9383795 1.33times
2007 6419625/7859592 0.82
2006 7955665/2517685 3.17
2005 5279560/82253.20 6.42
2004 3882756/504154 7.70
Long Term Debt Paying Ability

1. Times Interest Earned =Recurring Earning, Excluding Interest Expenses, Tax expense,
Equity Earnings and Minority Earnings / Interest Expense,
Including Capitalized Interest
Year Calculation in (Rupees’000) Times Interest Earned
2008 1513505/1766298 8.56times
2007 2202393/467759 4.71
2006 3908802/(450696+620534) 3.65
2005 2425312/(304041+75437) 6.39
2004 1345016/(224601+2945) 52.94
2. Fixed Charge Coverage= Recurring Earnings, excluding Interest Expense, Tax expense
Equity earnings and minority earnings + interest portion of
Rentals/Interest expense including Capitalized interest +
Interest portion of rentals
Year Calculation in (Rupees’000 ) Fixed Charge coverage
2008 153505+8194330/1766298+8194330 0.84times
2007 2202393+3942972/467759+3942972 1.39times
2006 3908802+2613695/4500616+620534+2613695 0.84times
2005 2425312+960620/304041+75437+960620 2.53times
2004 13450+1360677/22460+2945+1360677 1.95times
3. Debt Ratio =Total Liabilities/Total Assets

Year Calculation in (Rupees’000 ) Fixed Charge coverage
2008 23149658/53678098 43%
2007 17821146/51744331 34%
2006 15036176/34304376 44%
2005 8698507/9317998 93%
2004 5397564/6317055 85%
4. Debt Equity Ratio=Total Liabilities/Shareholder’s Equity

Year Calculation in (Rupees’000) Debt Equity Ratio
2008 23149658/30528440 76%
2007 17821146/33923185 53
Page 53
2006 15036176/19268200 78
2005 8698507/9317998 93
2004 5397564/6317055 85
Profitability Ratios
1. Net Profit Margin= Net Income before minority share of Earnings and Non
Recurring Items /Net Sales
Year Calculation in (Rupees’ 000) Net Profit Margin
2008 97753/12464347 7.84%
2007 1636634/6419625 25
2006 2428028/7955665 31
2005 1682078/5279560 31
2004 794493/3882756 20
2. Total Asset Turnover = Net Sales/Average total Assets

Year Calculation in (Rupees’ 000) Total Assets Turnover
2008 12464347/52711214.50 24 Times
2007 6419625/43024353.50 15
2006 7955665/10723490.50 74
2005 5279560/14865562 35
2004 3882756/11714619 33
3. Return on Assets =Net Income before minority shares of earning and nonrecurring
items /Average total Assets
Year Calculation in (Rupees’ 000) Return on Assets
2008 97753/52711214.50 18.5%
2007 1636634/43024353.50 3.8
2006 2428028/10723490.50 23
2005 1682078/14865562 11
2004 794493/11714619 6.8
4. Operating income Margin = Operating Income/Net Sales

Operating Income
Year Calculation in (Rupees’ 000)
Margin
2008 1513505/12464347 12%
2007 2202393/6419625 34
2006 3908802/7955665 49
2005 2425312/5279560 46
2004 1345016/3882756 35
Assets Utilization
1. Operating Asset Turnover =Net Sales /Average Operating Assets
Page 54
Operating Asset
turnover
2008 12464347/5367098-(6592332+524176+15082605+427832) 0.20times
2007 6419625/51744331-(8174474+196913+16933790+229315) 0.096times
2006 7955665/34304376-(4482213+335810+152465+8543763) 0.20times
2005 5279560/18016505-(2610634+271428+2769134+121486) 0.28times
2004 3882756/11714619-(1387681+25021+1386816+120329) 0.33times
2. Return on Operating Assets = operating income/Net sales

Return on Operating
Assets
2008 1513505/63120379 24%
2007 22023 9 3/ 66879875 3.3
2006 3908802/38854201 10
2005 2425312/18567919 13
2004 13455016/11859104 11
3. Sales to Fixed Assets =Net Sales /Average Net fixed Assets(Exclude

construction in progress)
Calculation in (Rupees’ 000) Sales to Fixed Assets
Year
2008 12464347/(24231112+22250927)/2 54%
2007 6419625/(7816781++22250927)/2 43
2006 7955665/(7816781+6954499)/2 108
2005 5279560/(6954499+6294666)/2 80
2004 3882756/6294666 62
4. 8.Return on Investment =Net Income before minority share of earning and non
recurring items + (Interest expense)*(1-tax rate)
Year Calculation in (Rupees’ 000) Return on Investment

2008 97753+1766298*0.65/42566447 2.92%
2007 1636634+468173*0.65/3632152 5.34
2006 2428028+450696*0.65/21624793.50 12.58
2005 1682078+304041*0.65/12149138.50 15.47
2004 794493+224601*0.65/9337630 10.07
5. 9.Return on total equity =Net Income before nonrecurring items-Dividend on

redeemable preferred stock/Average total equity
Year Calculation in (Rupees’ 000) Return on total equity

2008 97753/(30528440+33923185)/2 0.30%
2007 1636634/(33923185+19268200)/2 0.37
2006 2428028/(19268200+9317998)/2 0.17
2005 1682078/(9317998+6317055)/2 0.22
2004 794493/6317055 0.13
Page 55
6. 10.Return on Common equity=Net income before Nonrecurring Items-

Preferred dividend/Average common equity
Year Calculation in (Rupees’ 000) Return on common equity

2008
2007
2006
2005
2004
7. 11.Gross profit margin=Gross profit/Net sales
Year Calculation in (Rupees’ 000) Gross profit margin

2008 1936301/12464347 15.53%
2007 2031985/6419625 31.65
2006 3962843/7955665 49.81
2005 1948791/5279560 36.91
2004 1385494/3882756 35.68
Investment Ratios
1. Degree of financial Leverage=EBIT/Earnings before tax
Degree of financial
leverage
2008 1513505/175273+8674-86194 15.48%
2007 2202807/1720471+14163 1.27
2006 3908802/3448533+9573 1.13
2005 2425312/2121271 1.14
2004 1345016/1120415 1.20
2. 2.Earnings per common share=Net income-preferred dividend/Weighted

Average no. of common share outstanding
Earnings per common

share
2008 25685/252485315 0.017%
2007 1622471-103324/252485315 0.60
2006 2418455-73772/2332578650 0.10
2005 1682078-329/219744584 0.76
2004 794493-20049/219744584 0.35
Page 56
3. Price/Earning ratio=Market price per share/Diluted earning per share

Year Calculation in (Rupees’ 000) Price/Earning ratio
2008 30.97/0.12 258.08
2007 30.97/6.43 4.81
2006 30.97/9.14 3.38
2005 30.97/7.82 3.96
2004 30.97/3.78 8.19
4. Percentage of Retained earning=Net income-All dividend/Net income

Percentage of retained
Earning
2008 25685-379093/25685 -13.76
2007 1622471-344743/1622471 0.79
2006 2418455-275478/2418455 0.88
2005 1682078-250705/1682078 0.85
2004 794493-138374/794493 0.83
5. Dividend payout=Dividend per common share/Diluted earning per share

Year Calculation in (Rupees’ 000) Dividend payout
2008 (379093000/158934068)/0.12 19.83
2007 (344743-103324/158934068)/6.43 23.62
2006 (275478-73772/112835676)/9.14 48.31
2005 (250705-329/112835676)/7.82 28.37
2004 (13874-20049/112835676)/3.78 27.74
6. Dividend yield= Dividend per common share/Market price per common share
Year Calculation in (Rupees’ 000) Dividend yield

2008 (379093000/158934068)/30.97 7.68%
2007 (344743-103324/158934068)/30.97 4.90
2006 (275478-73772/112835676)/30.97 14.23
2005 (250705-329/112835676)/30.97 7.17
2004 (13874-20049/112835676)/30.97 3.38
7. Book value per share=Total stockholders equity-preferred stock

equity/Number of common share outstanding
Year Calculation in (Rupees’ 000) Book value per share

2008 30528440-746071/158934068 18.74%
2007 33923185-746071/158934068 20.87
2006 19268200-515580/112835676 16.62
2005 9317998-515580/112835676 7.80
2004 6317055-347949/112835676 5.29
Page 57

Financial Analysis of DG Khan Cement Factory, Ratio Analysis

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Financial Analysis of DG Khan Cement Company Ltd.

Vertical analysis of balance sheet................................................................................... .48

D.G. Khan Cement Company Limited

D.G. Khan Cement Company

Acquisition of DGKCC by Nishat Group

Expansion -Khairpur Project

Why cement sector for our project

The province-wise distribution of cement plant is as under.

Providence Units Capacity (Million Tons)

Name of company New/ Expansion Year of New Capacity

Overview of income statement

Overview of Income statement 2008 2007 2006 2005 2004

Overview of Balance sheet

Overview of Balance sheet 2008 2007 2006 2005 2004

Non-current Liabilities 10250352 10430917 9020740 5642649 3020575

Liquidity Position with Graphical

Activity Ratios 2008 2007 2006 2005 2004

40 A/R turnover in days

Debt Ratios 2008 2007 2006 2005 2004

150 debt to tangible networth

Profitability Ratios 2008 2007 2006 2005 2004

Profitability - Financial Year 2002 to Financial Year 2008

0 total asset turnover

• Degree of financial leverage

Investment ratios 2008 2007 2006 2005 2004

Earning per common

Price earning ratio

80% Price earning ratio

Dividend yield ratio

1. Cash flow/Total debt

Year Calculation in (Rupees’ 000) Values

2. Net Income/Total Assets (Return on Assets)

Year Calculation in (Rupees’ 000) Values

3. Total debt/Total Assets (debt ratio)

Year Calculation in (Rupees’ 000) Values

Year Calculation in (Rupees’ 000) X1

X2=Retained Earning/Total Assets

Year Calculation in (Rupees’ 000) X2

Year Calculation in (Rupees’ 000) X3

X4= Market value of equity/Book value of total debt

Year Calculation in (Rupees’ 000) X4

Year Calculation in (Rupees’ 000) X5

2. DuPont returns on Operating Assets

• At present most of the cement companies have switch to coal or gas as

17. Cheaper labor

18. Good Domestic and Foreign Market

19. Good Government Policies

• Government policies are in the favor of cement sector. Due to the

20. High Quality of Cement

• Some of the cement companies of Pakistan have received orders from

8. Usage of Paper bag

• Pakistani cement companies export there cement in paper bags because

9. Idle capacity of various players:

• The biggest problem of cement industry is the idle capacity of various

• Presently, India faces an acute cement shortage in its Southern states of

capacity in these regions to off-set the shortfall Major capacities

11. High energy prices

• Recently cement industry of Pakistan is facing high energy prices due to

12. Decrease profitability due to competition in cement industry

13. High level of taxation

• Presently, the cement industry of Pakistan is heavily burdened due to levy of

4. Government Development Expenditure

• Government development expenditures count for one third of total cement

5. Construction of large dams