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.

BASIT ALI

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Financial Analysis of DG Khan Cement Company Ltd.

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. Ghulam Abbas 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.

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Financial Analysis of DG Khan Cement Company Ltd.

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...............................................................................................................13 Debt Ratios.....................................................................................................................14 Profitability - Financial Year 2002 to Financial Year 2008 ...........................................16 Assets Utilization.............................................................................................................17 Return on Investment......................................................................................................18 Return on total equity...................................................................................................18 Investment Ratios............................................................................................................19 Investment Ratios............................................................................................................21 Multivariate Model...............................................................................................................24 DuPont Analysis .................................................................................................................25 SWOT ANALYSIS...............................................................................................................26 Strengths............................................................................................................................26 Weaknesses....................................................................................................................29 Threats............................................................................................................................30 Opportunities...................................................................................................................32 International Trend..........................................................................................................36 FUTURE OUTLOOK.......................................................................................................36 Annexure............................................................................................................................38 Summarized Income Statement......................................................................................38 Summarized Balance Sheet............................................................................................42 Horizontal Analysis of Income Statements......................................................................43 Vertical Analysis of Income Statements..........................................................................43 Horizontal Analysis of Balance Sheet..............................................................................44 Vertical analysis of balance sheet...................................................................................45 Liquidity Ratios................................................................................................................48 Long Term Debt Paying Ability........................................................................................50

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Financial Analysis of DG Khan Cement Company Ltd. Profitability Ratios............................................................................................................51 ...................................................................................................................................51 Assets Utilization............................................................................................................51 Investment Ratios............................................................................................................53

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Financial Analysis of DG Khan Cement Company Ltd.

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

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Financial Analysis of DG Khan Cement Company Ltd. 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 preheater 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.

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Financial Analysis of DG Khan Cement Company Ltd.

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 Mian Raza Mansha Saqib Elahi Khalid Qadeer Qureshi Mohammad Azam Zaka ud din Inayat Ullah Niazi

Chairperson/Director Chief Executive/Director Director Director Director Director 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.

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Financial Analysis of DG Khan Cement Company Ltd. 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 Punjab Sindh NWFP Baluchistan Total Units 8 8 6 1 23 Capacity (Million Tons) 7.488 3.851 4.945 0.758 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.

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Financial Analysis of DG Khan Cement Company Ltd. 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 Northern Region Askari Cement Askari cement Bestway cement D.G Khan cement Fauji cement Lucky cement Maple Leaf cement Pioneer cement Sub-Total Southern Region Essa cement Total New/ Expansion Year Commission 1964 1996 1988 1988 1997 1996 1998 1994 of New Capacity Created(Tons) 945,000 630,000 1,039,500 1,039,500 945,000 1,260,000 1,039,500 630,000 7,528,500 315,000 7,843,500

Expansion New New Expansion New New Expansion New

Expansion

1988

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Financial Analysis of DG Khan Cement Company Ltd.

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.

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Financial Analysis of DG Khan Cement Company Ltd.

Overview of income statement
Overview of Income statement Sales Cost of sales Gross profit Administrative expenses Selling and distribution expenses Other operating expenses Other operating income Profit from operations Finance cost Share of loss of associated companies Profit\ Loss before tax Taxation Profit\ Loss for the year Basic earnings per share Rupees Diluted earnings per share 2008 12,445,996 -10,530,723 1,915,273 -111,658 -561,465 -581,913 847,344 1,507,581 -1,749,837 -8,674 -250,930 197,700 -53,230 -0.21 2007 6,419,625 4,387,640 2,031,985 -104,169 -65,122 (139,721 479,420 2,202,393 -467,759 -14,163 1,720,471 -98,000 1,622,471 6.43 6.43 2006 7,955,665 3,992,822 3,962,843 -121,953 -34,352 -191,850 294,114 3,908,802 -450,696 -9,573 3,448,533 1,030,078 2,418,455 10.37 9.14 2005 5,279,560 3,330,769 1,948,791 -76,480 -60,905 -93,786 707,692 2,425,312 -304,041 2,121,271 -439,193 1,682,078 9.12 7.82 2004 3,882,756 2,497,262 1,385,494 -68,645 -38,560 -61,735 128,462 1,345,016 -224,601 1,120,415 -325,922 794,493 4.31 3.78

Overview of Balance sheet
Overview of Balance sheet Capital and Reserve Non-current Liabilities Current Liabilities Assets Non-current Assets Current Assets 33835927 19842171 32529377 19214954 24394481 9909895 13819736 4196769 8833476 2881143 2008 30528440 10250352 12899306 2007 33923185 10430917 7390229 2006 19268200 9020740 6015436 2005 9317998 5642649 3055858 2004 6317055 3020575 2376989

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Financial Analysis of DG Khan Cement Company Ltd.

Liquidity Position with Graphical Presentation Liquidity Position
Liquidity Position Current Ratio Acid Test Ratio Cash Ratio 2008 1.54 1.22 1.18 2007 2.60 2.33 2.31 2006 1.65 1.44 1.43 2005 1.37 0.96 0.94 2004 1.21 0.64 0.62

3 2.5 2 1.5 1 0.5 0 2008 2007 2006 2005 2004 current ratio acid test ratio cash ratio

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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Financial Analysis of DG Khan Cement Company Ltd.

Activity Ratios
Activity Ratios Days Sales in Receivables Account Receivables Turnover Account Receivables Turnover in Days 2008 13.57 days 41.02 times 8.89 days 2007 8.20 days 58.78 times 6.20 days 2006 3.40 days 105.79 times 3.45 days 2005 5.27 days 81.94 times 4.45 days 2004 4.95 days 73.78 times 4.94 days

120 100 80 60 40 20 0 2008 2007 2006 2005 2004 days sales in receivable s A/R turnover A/R turnover in days

Activity Ratio Inventory Turnover in days Inventory Turnover Days Sales in Inventory

2

2

1

4

Operating Cycle
Activity Ratio Operating Cycle 2008 36.55days 2007 27.89 days 2006 18.41 days 2005 26.34 days 2004 48.58 days

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Financial Analysis of DG Khan Cement Company Ltd.

60 50 40 30 20 10 0 2008 2007 2006 2005 2004 operating cycle

Debt Ratios
Debt Ratios Debt to Tangible net worth Debt To Equity Ratio Debt Ratio 2008 77 76 43 2007 52 53 34 2006 78 78 44 2005 93 93 48 2004 85 85 46

250 200 150 100 50 0 2008 2007 2006 2005 2004 debt to tangible networth debt/equity ratio debt ratio

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 Page 14

Financial Analysis of DG Khan Cement Company Ltd. 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
Gross Profit Margin Operating Profit Margin Net Profit Margin

2008
15 12 7.84

2007
32 34 25

2006
49 49 31

2005
37 46 31

2004
36 35 20

140 120 100 80 60 40 20 0 2008 2007 2006 2005 2004 gross profit margin operating income magin net profit margin

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.

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Financial Analysis of DG Khan Cement Company Ltd. 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 JulyMarch 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 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.

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Financial Analysis of DG Khan Cement Company Ltd. 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 Sales to Fixed Assets Return on Operating Assets Operating Asset turnover Return on Assets 2008 54 24 20 18.5 2007 43 33 9.6 3.8 2006 108 10 20 23 2005 80 13 28 11 2004 62 11 33 6.60

250 200 150 100 50 0 2008 2007 2006 2005 2004 sales to fixed assets return on operating assets operating assets turnover return on assets total asset turnover

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. Page 17

Financial Analysis of DG Khan Cement Company Ltd.

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.

Return on Investment
Return on total equity Return Ratios 2008 2007
5.34 0.37

2006
12.58 17

2005
15.47 22

2004
10.07 13

Return on 2.92 Investment Return on 0.30 Total Equity

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Financial Analysis of DG Khan Cement Company Ltd.

25 20 15 10 5 0 2008 2007 2006 2005 2004 Return on investment Return on total equity

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

Investment ratios
Degree of financial leverage Earning per common shares Price earning ratio

2008 15.48 0.017 258.08

2007 1.27 0.60 4.81

2006 1.13 0.10 3.38

2005 1.14 0.76 3.96

2004 1.20 0.35 8.19

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Financial Analysis of DG Khan Cement Company Ltd.

100% 80% 60% 40% 20% 0% 2008 2007 2006 2005 2004 Price earning ratio Earning per common shares Degree of financial leverage

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-toearnings 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 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

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Financial Analysis of DG Khan Cement Company Ltd. 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
Dividend payout ratio Dividend yield ratio Book value per share

2008

2007

2006

2005

2004

19.83 7.68 18.74

23.62 4.90 20.87

48.31 14.23 16.62

28.37 7.17 7.80

27.74 3.38 5.29

60 50 40 30 20 10 0 2008 2007 2006 2005 2004 Dividend payout ratio Dividend yield ratio Book value per share

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

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Financial Analysis of DG Khan Cement Company Ltd. 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.

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Financial Analysis of DG Khan Cement Company Ltd.

Univariate Model
1. Cash flow/Total debt Year 2008 2007 2006 2005 2004 Calculation in (Rupees’ 000) (641970)/23149658 475661/17821146 4190452/15036176 2484759/8698507 945521/8698507 Values -2.773% 2.67 27.869 28.57 10.8

2. Net Income/Total Assets (Return on Assets) Year 2008 2007 2006 2005 2004 Calculation in (Rupees’ 000) 25685/53678098 1622471/51744331 2418455/34304376 1682078/18016505 794493/11714619 Values 0.047% 3.13 7.05 9.34 6.78

3. Total debt/Total Assets (debt ratio)
Year Calculation in (Rupees’ 000) 2008 23149658/53678098 2007 17821146/51744331 2006 15036176/34304376 2005 8698507/18016505 2004 5397564/11714619 Values 43.13% 34.44 43.83 48.28 46.07s

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Financial Analysis of DG Khan Cement Company Ltd.

Multivariate Model
X1= Working Capital/Total Assets Year 2008 2007 2006 2005 2004 Calculation in (Rupees’ 000) 6942865/53678098 11824725/51744331 3894459/34304376 1140911/18016505 504154/11714619 X1 12.934% 22.85 11.35 6.33 4.30

X2=Retained Earning/Total Assets Year 2008 2007 2006 2005 2004 Calculation in (Rupees’ 000) 30202533/53678098 33923185/51744331 19259849/34304376 9317998/18016505 6317055/11714619 X2 56.27% 65.56 56.144 51.72 53.9

X3=EBIT/Total assets Year 2008 2007 2006 2005 2004 Calculation in (Rupees’ 000) 1513505/53678098 2202393/5174 3908802/34304376 2425312/18016505 1345016/11714619 X3 2.82% 4.26 21.69 13.46 11.48

X4= Market value of equity/Book value of total debt Year 2008 2007 2006 2005 2004 Calculation in (Rupees’ 000) 253541157*30.97/23149658 253541157*30.97/17821146 184393569*30.97/1503176 184393569*30.97/8698507 167630518*30.97/5397564 X4 339.19% 440.60 379.79 656.51 961.82s

X5=Sales/Total Assets Page 24

Financial Analysis of DG Khan Cement Company Ltd.

Year 2008 2007 2006 2005 2004

Calculation in (Rupees’ 000) 12464347/53678098 6419625/51744331 7955665/34304376 5279560/18016505 3882756/11714619

X5 23.22% 124.79 23.19 29.30 33.14

DuPont Analysis
1. Dupont Return on Assets=Net profit margin*Total assets turnover Year 2008 2007 2006 2005 2004 Calculation in (Rupees,000) 7.84*0.24 0.25*0.15 0.31*0.74 0.31*0.35 0.20*0.33 Dupont Return on Assets 1.88 3.75 22.94 10.85 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 Year 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. Calculation in (Rupees,000) Dupont Return on operating Assets

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Financial Analysis of DG Khan Cement Company Ltd.

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 • Easy mortgage availability and announcement of low cost housing schemes will determine housing sector growth in the long-run.

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Financial Analysis of DG Khan Cement Company Ltd. 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 200708, the combined paid-up capital of ten big companies was Rs. 91 billion, which constituted 13.17 percent of the total listed capital at KSE in which Fauji Fertilizer, DG Khan Cement, Lucky Cement played major role.

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Financial Analysis of DG Khan Cement Company Ltd. 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.

19. Good Government Policies

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Financial Analysis of DG Khan Cement Company Ltd. • 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 ($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

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Financial Analysis of DG Khan Cement Company Ltd. 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.

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

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Financial Analysis of DG Khan Cement Company Ltd. 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 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

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Financial Analysis of DG Khan Cement Company Ltd. • 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 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

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Financial Analysis of DG Khan Cement Company Ltd. 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

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Financial Analysis of DG Khan Cement Company Ltd. • 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

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Financial Analysis of DG Khan Cement Company Ltd. • 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.

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.

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Financial Analysis of DG Khan Cement Company Ltd. 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.

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.

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.

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Financial Analysis of DG Khan Cement Company Ltd.

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 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.

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Financial Analysis of DG Khan Cement Company Ltd.

Annexure Summarized Income Statement
Summarized Income Statement
Sales Net Local Sales Export Sales Less. Excise Duty Special Excised Duty Sales tax Commission to stockiest Sales Net -.Cost of Sales Raw and Packing material used Salaries and Wages Electricity and Gas Furnace oil Stores and Spares used Repair and maintenance Insurance Deprecation on property plant and Equipment Deprecation on assets subjects to finance lease Royalty Excise Duty Vehicle Running Postage Telephone ,Telegram Printing and Stationery Legal and Professional Charges Estate Development Rent, Rates and taxes Freight Charges Other Expenses Opening W.I.P Transfer from Trail run Closing W.I.P Cost of Goods Manufactured Opening stock of finished goods Transfer from Trail run Closing Stock of finished goods -)Own consumption

2008 Rs. In’000
14732445 2741111 2729046 99556 1929858 250749 12464347 1368488 480352 1644759 4597486 764204 98530 43904 1354192 3331 83731 25962 15541 5389 3480 1499 9639 6982 5753 2079 10534013 142686 (118292) 10558407 107804 (118863) (11059) 19302 10528046 1936301

2007 Rs. In’000
8887306 511826 1679829 1159214 140464 6419625 580717 293929 605335 1902567 383159 22913 21840 469367 13108 45349 15373 7159 1784 945 499 6227 4113 3396 9449 4387229 161989 50462 (142686) 4456994 5058 39300 (69728) (25370) 43984 4387640 2031985

2006 Rs. in’000
10348119 607817 1509449 1349755 141067 7955665 464080 230854 470625 2114667 388113 18233 20542 341940 13203 43678 16884 6980 1774 1492 884 4678 3879 5680 7651 4155837 50205 (161989) 4044053 19468 (5058) 14410 65641 3992822 3962843

2005 Rs. In’000
6730756 641351 1141756 877924 72867 5279560 374287 185914 322979 1493514 357762 9997 23642 330100 11311 31652 10450 5724 1831 1581 548 3930 3091 4139 4896 3177348 210983 (50205) 3338126 38616 (19468) 19148 26505 3330769 1948791

2004 Rs. In 000
5392393 305191 990124 766497 58207 3882756 330535 161919 217911 1123716 338970 9637 42235 317155 6923 30284 5909 5881 1374 1276 507 3179 6150 4573 6742 2614113 88603 (210983) 2491733 44145 (38616) 5529 2497262 1385494

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Financial Analysis of DG Khan Cement Company Ltd.
Capitalized Cost of Goods Sold Gross Profit -) Administrative Expenses Salaries Wages Electricity Repair and Maintainance Insurance Deprecation on property plant and Equipment Deprecation on assets subjects to finance lease Vehicle Running Postage Telephone ,Telegram Printing and Stationery Legal and Professional Charges Traveling and conveyance Rent, Rates and taxes Entertainment School expenses Fees and subscription Other Expenses Auditors Remuneration Total Administrative Expenses Selling and Distribution Expense Salaries Wages Electricity Repair and Maintenance Insurance Deprecation on property plant and Equipment Deprecation on leased property Vehicle Running Postage Telephone ,Telegram Printing and Stationery Rent, Rates and taxes Traveling and conveyance Entertainment Advertisement and Sales Promotion Freight Charges-local Freight and Handling Charges-Export Other Expenses Total Selling and Distribution Expenses Other Operating Expenses Workers’ profit participation fund Book Value of Asset written off Donation 57150 2985 1620 1685 11956 126 3545 3441 2210 3522 6783 176 1136 9004 1982 3424 110745 48958 2678 1324 1277 9027 1571 5353 2738 1897 3369 6104 2699 2780 8491 2966 2937 104169 40950 2684 1210 3147 7261 1213 4066 6093 4983 6394 10377 2561 3277 6975 3458 17304 121953 31056 2566 1243 3099 9742 4945 2678 3103 1913 1365 2410 872 795 6177 1855 1926 735 76480 27342 3125 1461 1992 12425 1382 1752 3841 1256 2471 2448 439 766 5944 937 360 704 68645

35431 875 299 497 1342 1940 1235 1553 3438 3720 296 3395 14135 492219 2595 562970 9734 5000 580953 595687

29727 670 884 235 1132 1603 1361 1094 2312 1406 189 2643 50 19637 2179 65122 93145 11050 35112 414 139721

23997 443 225 172 324 1225 855 891 1272 1561 294 1569 23 1501 34352 182006 9844 191850

17474 345 121 1397 895 814 855 913 981 1045 398 1919 31239 2419 60905 83058 4530 6198 93786

14616 383 40 306 900 88 765 944 643 495 1432 358 2213 13572 1805 38560 60829 206 61735

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Financial Analysis of DG Khan Cement Company Ltd.
Worker welfare fund Exchange loss Loss on Disposal of Property Plant and Equipment Loss on Sale and Lease back transactions Total Other Operating Expenses Other Operating Income Income from Financial Assets Income on Bank Deposits Interest on Loan to Employees Gain on derecognizing of investment Dividend Income From -Related Parties -Others Total Income from financial Assets Income from non financial assets Rental Income Profit on sales of property plant and assets Scrap Sales Mark up on loans Provisions and unclaimed balances returned back Exchange gain Others Total other operating income Profit from operations Finance Cost Long term finances - Long term loans - Preferred dividend - Non participatory redeemable capital - Finance under markup - Provident fund -Short term borrowings -Finance lease workers profit participation fund Loss on derivative financial instruments Loss on Foreign currency forward Guarantee commission Bank charges Total finance Cost Excess of Acquire Interest in the net assets of acquire Share of loss of Associated company

727 128 820303 143 821301

1659 182 465656 118 467615

363 181 265763 120 266427

582 276 543173 152284 26 696341

535 290 34460 85730 121015

1592 4488 10394 6973 1858 846606 1513505 1040737 499413 584 522 205308 4165 15569 (1766298) 86194 (8674) (175273) 108214 (309167) (5) -

1634 4490 4170 1208 303 479420 2202393 323183 28281 103324 6564 98 1813 4496 468173 (14163) 1720471 33000 312435 (247435)

2847 3567 7609 4562 2116 6986 294114 3908802 305027 35351 73772 12543 101 17229 1679 4994 450696 (9573) 3448533 40500 1027000 (32422) (5000)

2002 3207 2911 2002 729 500 707692 2425312 186267 329 42655 35351 42655 12439 83 7804 1405 6860 304041 2121271 40000 464000 193 (65000)

1980 3827 1351 289 128462 1345016 141701 20049 35351 12341 37 9860 90 871 4235 224601 1120415 28700 297000 10222 (10000)

Page 40

Financial Analysis of DG Khan Cement Company Ltd.

Profit before Taxation -)Taxation For the year - current - Deferred Prior Year -Current -Deferred Total taxation

(200958)

98000

1030078

439193

325922

Net Income

25685

1622471

2418455

1682078

794493

Page 41

Financial Analysis of DG Khan Cement Company Ltd.

Summarized Balance Sheet
Summarized Balance Sheet Equity and Liabilities Capital and Reserves Authorized Capital -950000000@ ordinary share10 -50000000@ preference share10 Issued subscribed and paid up capital Share deposit money Reserves Un-appropriated profit Total capital and Reserve Non Current Liabilities Long term finance Liabilities against subject to finance lease Long term deposits Retirement and other benefits Deferred Taxation Total Non-Current liabilities Current Liabilities Trade and other payables Accrued markup Short term borrowing Current portion of non-current liabilities Derivative foreign currency forward options Provision for taxation Total Current liabilities Total Liabilities Assets Non-Current Assets Property plant and equipment Assets subject to finance lease Capital work in progress Investments Long term loans, advances and deposits Total Non-Current Assets Current Assets Stores spares and loose tools Stock in trade Trade debts Investments Advances, deposits, prepayments and other Receivables Cash and bank balance Total Current Assets Total 2008 2007 2006 2005 2004 2500000 50000 300000 1676306 4389088 251661 6317055 2730573 83487 30365 38150 138000 3020575 493968 1360677 487254 35090 2376989 11714619 6128083 166583 1126108 1387681 25021 8833476 938847 298538 52622 1386816 120329 83991 2881143 11714619

9500000 500000 10000000 2535412 27634722 32399 30528440 8871051 393 73890 54018 1251000 10250352 1450074 391610 8194330 2828202 35090 12899306 53678098 24224273 6839 2488307 6592332 524176 33835927 2323883 1300325 463446 15082605 427832 244080 19842171 53678098

9500000 500000 10000000 2535412 29630084 1757689 33923185 8686447 1141 79467 39862 1624000 10430917 1027274 342612 3942972 2042281 35090 7390229 51744331 22117551 133376 1907063 8174474 196913 32529377 1496291 295140 144245 16933790 229315 116173 19214954 51744331

2500000 500000 3000000 1843937 8351 15085354 2330558 19268200 7372468 28886 33814 26572 1559000 9020740 1406869 340757 2613695 1619025 35090 6015436 34304376 7521723 295058 11759677 4482213 335810 24394481 836049 226286 74165 8543763 152465 77167 9909895 34304376

2500000 500000 3000000 1843937 7196568 277493 9317998 4899225 131985 28674 45765 537000 5642649 1154426 960620 599674 306048 35090 3055858 18016505 6637237 317262 3983175 2610634 271428 13819736 1035081 100994 76238 2769134 121486 93836 4196769 18016505

Page 42

Financial Analysis of DG Khan Cement Company Ltd.

Horizontal Analysis of Income Statements
Net sales Cost of sale Gross profit administrative expense selling &dist. expenses other operating expense other Operating income profit from operation finance cost share of loss of associated company income before taxes Provision for taxation Net profit 2008 321.01 % (421.58) 139.75 (61.33) (145.98) (964.90) 659.03 112.53 (786.41) 15.64 (61.66) 3.23 2007 165.34 % (175.7) 146.66 (151.75) (168.88) (226.32) 373.20 163.74 (208.26) 153.56 (30.06) 204.21 2006 204.89 % (159.89) 286.02 (177.66) (89.09) (310.76) 228.95 290.61 (200.66) 307.79 (316.05) 304.40 2005 135.97 (133.38) 140.66 (111.41) (157.95) (151.29) 550.89 180.32 (1345.25) 189.33 (134.75) 211.72 2004 100 % 100 100 100 100 -100 100 100 100 100 100 100 100

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
Net sales Cost of sale Gross profit administrative expense selling &dist. expenses other operating expense 2008 100% (84.46%) 15.35 (0.88) (4.52) (4.78) 2007 100% (68.35%) 31.64 (1.62) (1.01) (2.17) 2006 100% (50.18%) 49.81 (1.53) (0.43) (2.41) 2005 100% (63.09%) 36.91 (1.45) (1.15) (1.78) 2004 100 % (64.32%) 35.68 (1.77) (0.99) (1.59)

Page 43

Financial Analysis of DG Khan Cement Company Ltd. other Operating income profit from operation finance cost Excess of acquires interest in the net assets of acquire share of loss of associated company income before taxes Provision for taxation Net profit 6.79 12.14 (14.17) 0.69 (0.66) 1.41 (1.61) 20.20 7.47 34.31 (7.28) (0.22) 26.80 (1.53) 25.27 3.70 49.13 (5.66) (0.12) 43.34 (12.95) 30.40 40.18 (8.32) 31.86 28.86 (8.39) 20.46 13.40 45.94 (5.76) 3.37 34.64 (5.78) -

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
issued subscribed & paid up capital reserves accumulated profit total Total non-current Liabilities long term finance liabilities against assets subject to lease finance long-term deposits retirement and other benefit deffered taxation current liabilities trade and other payables accrued mark up current portion of long term liabilities provision for taxes 2008 151.25 629.62 12.87 324.88 0.47 243.34 141.59 906.52 293.56 28.78 580.43 100 2007 151.25 675.08 698.43 537.01 318.12 1.36 261.71 104.40 1176.81 207.96 25.18 419.14 100 69.65 1129.71 284.81 25.03 332.27 100 119.96 389.13 233.70 70.60 123.07 100 100 100 100 100 100 100 Page 44 2006 110.00 343.70 926.07 305.02 269.99 34.50 2005 110.00 163.96 110.26 147.51 179.42 158.09 2004 100 100 100 100 100 100

Financial Analysis of DG Khan Cement Company Ltd. total assets non-current assets property plant & equipment assets subject to finance lease capital work in progress investment long-term loans &deposits current assets stores spares and loose tools stock in trade trade debts investment advanced deposits cash and bank balance 542.67 310.91 25.47 128.56 100

395.29 4.10 220.96 475.06 2094.94 100 247.53 435.56 880.71 1087.57 355.55 290.60

360.92 80.06 169.35 589.07 99 115.7 159.37 98.86 274.11 11221.05 190.57 138.32

122.74 177.12 1044.28 323 1342.11 116.10 89.05 75.79 140.94 616.07 126.71 91.88

108.31 190.45 353.71 188.13 1084.80 121.51 110.25 33.83 144.88 199.67 100.96 111.72

100 100 100 100 100 123 100 100 100 100 100 100

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 sheet
Assets
issued subscribed & paid up capital reserves accumulated profit total 2008 4.72% 51.48 0.06

analysis
2007 4.89% 57.26 3.39 2006 5.37% 43.97 6.79

of
2005

balance
2004 14.31% 37.47 2.15

10.23% 39.94 1.54

Page 45

Financial Analysis of DG Khan Cement Company Ltd. Total Non-current Liabilities long term finance liabilities against assets subject to lease finance Long term deposits retirement and other benefit deffered taxation Total Current liabilities Trade & other payables accrued mark up Short term borrowing secured current portion of long term liabilities provision for taxes total assets non-current assets property plant & equipment assets subject to finance lease capital work in progress investment long-term loans &deposits Total Current liabilities stores spares and loose tools stock in trade trade debts investment advanced deposits cash and bank balance Total 56.26 16.52 0.000732 0.13 0.10 2.33 19.09 2.70 0.73 15.26 5.27 0.06 24.03 45.13 0.012 4.63 12.28 0.97 63.03 4.32 2.42 0.86 28.09 0.79 0.45 36.26 65.55 16.79 0.0022 0.15 0.077 3.14 20.16 1.98 0.66 7.62 3.95 0.068 14.28 42.74 0.26 3.68 15.79 0.38 62.86 2.89 0.57 0.27 32.72 0.44 0.22 37.13 56.16 2.49 0.084 0.098 0.077 4.54 26.29 4.10 0.99 7.62 4.72 0.10 17.54 21.92 0.86 34.28 13.06 0.97 71.11 2.44 0.66 0.22 24.90 0.44 0.22 28.88 3.33 0.19 16.96 36.83 1.76 22.11 14.49 1.51 76.71 5.75 0.56 0.42 15.37 0.67 0.52 23.29 4.16 0.29 20.29 52.31 1.42 9.61 11.85 0.21 75.41 8.01 2.55 0.45 11.84 1.03 0.72 24.59 51.72 27.19 0.73 0.16 0.25 2.98 31.32 6.41 5.33 53.92 23.31 0.71 0.26 0.32 1.18 25.78 4.22 11.61

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 46

Financial Analysis of DG Khan Cement Company Ltd. 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 47

Financial Analysis of DG Khan Cement Company Ltd.

Liquidity Ratios
1. Days, Sales in Receivables = Gross Receivables/Net Sales/365 Year 2008 2007 2006 2005 2004 Calculation in (Rupees,000) 463446/12464347/365 144245/6419625/365 74165/7955665/365 76238/5279560/365 52622/3882756/365 Days, Sales in Receivables 13.57days 8.20 3.40 5.27 4.95

2. Account Receivables Turnover =Net Sales /Average Gross Receivables Year 2008 2007 2006 2005 2004 Calculation in (Rupees,000) 12464347/30384550 6419625/109205 7955665/75201.50 5279560/64430 3882756/52622 Account Receivables Turnover 41.02times 58.78 105.79 81.44 73.78

3. Account Receivables turnover in days =Average Gross Receivables/Net Sales/365 Year 2008 2007 2006 2005 2004 Calculation in (Rupees’000) 30384.50/12464347/365 109205/6419625/365 75201.50/7955665/365 64430/5279560/365 52622/3882756/365 Account Receivables turnover in days 8.89days 6.20 3.45 4.45 4.95

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

4. Inventory turnover = Cost of Goods sold/Average Inventory Year 2008 Calculation (Rupees’000) 10528046/797732.5 Inventory turnover 13.19times

Page 48

Financial Analysis of DG Khan Cement Company Ltd. 2007 2006 2005 2004 4387640/260713 3992822/163640 3330769/199766 2497262/298538 16.83 24.40 16.67 8.36

5. Inventory Turnover in Days =Average inventory /cost of goods sold /365 Year 2008 2007 2006 2005 2004 Calculation (Rupees’000) 797732.5/10528046/365 260713/4387640/365 163640/3992822/365 199766/3330769/365 298538/2497262/365 Inventory turnover in days 27.66 days 21.69 14.96 21.89 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) 2008 19842171/12899306 2007 19214954/7390229 2006 9909895/6015436 2005 4196769/3055858 2004 2881143/2376989 Current Ratio 1.54:1 2.60:1 1.65:1 1.37:1 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 49

Financial Analysis of DG Khan Cement Company Ltd. 2007 2006 2005 2004 (116173+16933790)/7390229 (77167+8543763)/6015436 5279560/822532.50 3882756/504154 2.31 1.43 6.42 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 ) 2008 23149658/53678098 2007 17821146/51744331 2006 15036176/34304376 2005 8698507/9317998 2004 5397564/6317055 4. Debt Equity Ratio=Total Liabilities/Shareholder’s Equity Year Calculation in (Rupees’000) 2008 23149658/30528440 2007 17821146/33923185

Fixed Charge coverage 43% 34% 44% 93% 85%

Debt Equity Ratio 76% 53

Page 50

Financial Analysis of DG Khan Cement Company Ltd. 2006 2005 2004 15036176/19268200 8698507/9317998 5397564/6317055 78 93 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
Page 51

Financial Analysis of DG Khan Cement Company Ltd. 1. Operating Asset Turnover =Net Sales /Average Operating Assets Operating Asset turnover 0.20times 0.096times 0.20times 0.28times 0.33times

Year 2008 2007 2006 2005 2004

Calculation in (Rupees’ 000) 12464347/5367098-(6592332+524176+15082605+427832) 6419625/51744331-(8174474+196913+16933790+229315) 7955665/34304376-(4482213+335810+152465+8543763) 5279560/18016505-(2610634+271428+2769134+121486) 3882756/11714619-(1387681+25021+1386816+120329)

2. Return on Operating Assets = operating income/Net sales Return on Operating Year Calculation in (Rupees’ 000) 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) Year 2008 2007 2006 2005 2004 Calculation in (Rupees’ 000) 12464347/(24231112+22250927)/2 6419625/(7816781++22250927)/2 7955665/(7816781+6954499)/2 5279560/(6954499+6294666)/2 3882756/6294666 Sales to Fixed Assets 54% 43 108 80 62

4. 8.Return on Investment =Net Income before minority share of earning and non recurring items + (Interest expense)*(1-tax rate) Year 2008 2007 2006 2005 2004 Calculation in (Rupees’ 000) 97753+1766298*0.65/42566447 1636634+468173*0.65/3632152 2428028+450696*0.65/21624793.50 1682078+304041*0.65/12149138.50 794493+224601*0.65/9337630 Return on Investment 2.92% 5.34 12.58 15.47 10.07

5. 9.Return on total equity =Net Income before nonrecurring items-Dividend on redeemable preferred stock/Average total equity Year 2008 2007 2006 Calculation in (Rupees’ 000) 97753/(30528440+33923185)/2 1636634/(33923185+19268200)/2 2428028/(19268200+9317998)/2 Return on total equity 0.30% 0.37 0.17

Page 52

Financial Analysis of DG Khan Cement Company Ltd. 2005 2004 1682078/(9317998+6317055)/2 794493/6317055 0.22 0.13

6. 10.Return on Common equity=Net income before Nonrecurring ItemsPreferred dividend/Average common equity Year 2008 2007 2006 2005 2004 Calculation in (Rupees’ 000) Return on common equity

7. 11.Gross profit margin=Gross profit/Net sales Year 2008 2007 2006 2005 2004 Calculation in (Rupees’ 000) 1936301/12464347 2031985/6419625 3962843/7955665 1948791/5279560 1385494/3882756 Gross profit margin 15.53% 31.65 49.81 36.91 35.68

Investment Ratios
1. Degree of financial Leverage=EBIT/Earnings before tax Year 2008 2007 2006 2005 2004 Calculation in (Rupees’ 000) 1513505/175273+8674-86194 2202807/1720471+14163 3908802/3448533+9573 2425312/2121271 1345016/1120415 Degree of financial leverage 15.48% 1.27 1.13 1.14 1.20

2. 2.Earnings per common share=Net income-preferred dividend/Weighted Average no. of common share outstanding Year 2008 2007 2006 2005 Calculation in (Rupees’ 000) 25685/252485315 1622471-103324/252485315 2418455-73772/2332578650 1682078-329/219744584 Earnings per common share 0.017% 0.60 0.10 0.76 Page 53

Financial Analysis of DG Khan Cement Company Ltd. 2004 794493-20049/219744584 0.35

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 Year Calculation in (Rupees’ 000) 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 2008 2007 2006 2005 2004 Calculation in (Rupees’ 000) (379093000/158934068)/30.97 (344743-103324/158934068)/30.97 (275478-73772/112835676)/30.97 (250705-329/112835676)/30.97 (13874-20049/112835676)/30.97 Dividend yield 7.68% 4.90 14.23 7.17 3.38 equity-preferred stock

7. Book value per share=Total stockholders equity/Number of common share outstanding Year 2008 2007 2006 2005 2004 Calculation in (Rupees’ 000) 30528440-746071/158934068 33923185-746071/158934068 19268200-515580/112835676 9317998-515580/112835676 6317055-347949/112835676

Book value per share 18.74% 20.87 16.62 7.80 5.29

Page 54

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