D.G.

KHAN CEME
INSTITUTE OF
BUSINESS MANAGEMENT
 Introduction
DG Khan Cement Company Limited is a prominent player in the Pakistani cement industry,
contributing significantly to the country's construction sector. Established in 1978 as part of the
Nishat Group, one of the largest industrial conglomerates in Pakistan, DG Khan Cement has
grown to become a leading cement manufacturer known for its commitment to quality and
innovation. DG Khan Cement is a subsidiary of the Nishat Group, a diversified business
conglomerate with interests in textiles, power generation, financial services, and more. The
company was founded by Mian Muhammad Mansha, a prominent industrialist.

The company operates two state-of-the-art cement plants in Dera Ghazi Khan and Khairpur,
with a combined production capacity that positions it among the top cement producers in
Pakistan. The strategic locations of these plants facilitate efficient distribution across the
country. DG Khanement offers a diverse range of cement products catering to various
construction needs. The product portfolio includes Ordinary Portland Cement (OPC), Sulphate
Resistant Cement (SRC), and Low Alkali Ordinary Portland Cement.

DG Khan Cement is renowned for its commitment to maintaining high-quality standards. The
company adheres to international best practices in production processes, quality control, and
environmental sustainability. The company places a strong emphasis on innovation and
sustainability. It invests in modern technologies to enhance production efficiency and reduce
environmental impact. DG Khan Cement actively contributes to sustainable development
initiatives within and beyond its operational areas.

DG Khan Cement plays a vital role in supporting Pakistan's infrastructure development. Its
products are widely used in residential, commercial, and infrastructure projects, contributing to
the growth of the construction sector and the overall economy. As part of the Nishat Group's
commitment to social responsibility, DG Khan Cement engages in various CSR initiatives.
These include community development projects, educational support, and healthcare initiatives
aimed at improving the well-being of the communities in which it operates. DG Khan Cement
stands as a cornerstone in Pakistan's cement industry, blending a rich legacy with a forward-
looking approach. Through its commitment to quality, innovation, and sustainability, DG Khan
Cement continues to be a key player, contributing to the nation's progress development.
 VISION STATEMENT
To transform the Company into a 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

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
Financial Statements
Common size
Over the past five years, DG Khan Cement's common size balance sheet from 2018 to
2022 indicates some notable shifts in its financial landscape. The authorized share
capital, representing ownership structure, has remained consistent, holding at 7% for
ordinary shares and 0% for preference shares, showcasing stability in the company's
ownership structure. However, there's a noticeable decline in other reserves from 34% in
2018 to 17% in 2022. This could be due to strategic choices like distributing profits to
shareholders or deploying reserves for specific purposes. Meanwhile, the common size
for revenue reserves remains steady, hovering around 29%, indicating that the company
has maintained a reliable level of profitability.
DG Khan Cement's common size balance sheet analysis suggests a company that has
maintained stability in its capital structure while adapting to changes in the economic
and operational environment. The observed trends and changes reflect a combination of
strategic decision-making and responses to market conditions, highlighting the
company's ability to navigate challenges while sustaining financial health. Further
analysis and consideration of external factors can provide a more comprehensive
understanding of DG Khan Cement's financial performance and strategic direction.
On the liabilities front, there's an interesting trend. Non-current liabilities have gradually
decreased from 18% in 2018 to 15% in 2022. This implies that DG Khan Cement has
been effectively managing its long-term debt. On the flip side, there's an increase in
current liabilities, going from 19% in 2018 to 33% in 2022. This surge in short-term
borrowings and accrued markup might suggest an uptick in immediate financial
obligations or a shift in working capital dynamics.
Shifting focus to assets, the common size of non-current assets has seen a slight dip from
75% in 2018 to 72% in 2022. This could signify a potential change in the company's
investment strategy or depreciation of existing assets. Conversely, there's a rise in
current assets, especially in stores, spares, loose tools, and stock-in-trade, increasing
from 4% in 2018 to 12% in 2022. This might be attributed to an increased need for
working capital, possibly tied to expansion or alterations in production and inventory
strategies.
In summary, DG Khan Cement's financial maneuvering seems to reflect a balancing act
between maintaining stability and adapting to changing financial landscapes. The
decline in other reserves and the increase in current liabilities suggest strategic financial
decisions, while shifts in the common size of assets and liabilities imply dynamic
operational adjustments. A more in-depth analysis, considering external factors, would
provide a more nuanced understanding of DG Khan Cement's financial journey from
2018 to 2022.
DG Khan Cement's common size income statement provides valuable insights into the
company's financial performance over the years. In 2018, sales accounted for 100% of
the total revenue. Over the subsequent years, the cost of sales saw a decrease in
proportion, indicating potential efficiency improvements or cost management strategies.
The gross profit, representing the profitability of core operations, fluctuated, peaking in
2019 before stabilizing.
Administrative expenses and selling/distribution expenses remained relatively consistent
as percentages of sales, suggesting effective cost control measures. Notably, net
impairment losses on financial assets were minimal but increased in 2021, possibly
reflecting changes in market conditions. The positive changes in fair value of biological
assets demonstrate the company's adaptability to market fluctuations.
While other expenses saw a significant decrease in 2019, they rebounded in the
following years, signaling potential challenges or investments. Other income remained
steady, contributing positively to the overall profit. Finance costs, though showing a
decrease, remained a substantial part of the common size, emphasizing the importance
of managing financial obligations.
Profit before taxation witnessed a significant dip in 2020, possibly due to external
economic factors. Taxation as a percentage of sales also varied, impacting the bottom
line. The overall net profit, attributable to both equity holders and non-controlling
interests, exhibited fluctuations, reflecting the dynamic nature of the cement industry.
In summary, DG Khan Cement's common size income statement illuminates trends in
revenue composition, cost management, and profit distribution. These fluctuations may
be influenced by market conditions, operational adjustments, and financial strategies.
This analysis aids stakeholders in understanding the company's financial health and
strategic decisions over the period.

INDEX
Over the five-year span from 2018 to 2022, DG Khan Cement's index ratios unveil a
dynamic financial narrative. Starting with equity, the steadfast 100% index for
authorized share capital signifies a consistent capacity for equity expansion, showing the
company hasn't sought additional authorization for issuing new shares. The unchanging
100% index for issued, subscribed, and paid-up share capital indicates effective
utilization of the company's authorized capital, with all shares being issued.
However, a notable trend emerges in other reserves, with the index declining from 100%
in 2018 to 70% in 2022. This decline implies potential distribution of reserves or
strategic allocation for specific purposes, impacting the company's financial flexibility.
On the profit front, the fluctuating indices for un-appropriated profits (100%, 100%,
103%, 93%, 110%) suggest variations in retained profits. The peak in 2022 indicates
robust profitability, potentially influenced by dividend distribution or reinvestment
decisions.
Non-controlling interests demonstrate fluctuations (102%, 100%, 109%, 101%, 118%),
signaling changes in the proportional interests of minority shareholders. These changes
might be linked to acquisitions, divestitures, or shifts in the ownership structures of
subsidiary companies. Moving to liabilities, the decreasing index for non-current
liabilities (94%, 100%, 109%, 114%, 94%) suggests effective management of long-term
debt. Conversely, the varied indices for current liabilities (155%, 100%, 177%, 166%,
194%) indicate substantial shifts in short-term financial needs, particularly notable in
2022.
In the realm of assets, the consistent indices for non-current assets (100%, 100%, 109%,
103%, 103%) reflect stability, with potential variations in investments and long-term
loans to employees. The noteworthy increase in the index for stores, spares, and loose
tools (179%, 100%, 249%, 160%, 324%) signals heightened working capital
requirements, possibly linked to expansion or changes in production strategies.
In essence, DG Khan Cement's index ratios narrate a story of prudent equity utilization,
strategic allocation of reserves, fluctuations in profitability, and adjustments in liabilities
and assets to adapt to evolving financial landscapes. A more nuanced analysis
considering external factors and industry trends would provide a comprehensive
understanding of the forces driving these changes.
DG Khan Cement's financial journey from 2018 to 2022 reflects a commendable overall
performance. Notably, the company demonstrated robust sales growth, expanding to
186% of the 2018 level by 2022. This upward trajectory is indicative of DG Khan
Cement's ability to capture market share and meet the rising demand for its products.
Such sustained sales growth is a positive sign for stakeholders, affirming the company's
strong market position.
Examining profitability measures, the gross profit margin exhibited a healthy increase,
reaching 128% in 2022. This signifies the company's adeptness at maintaining favorable
profit margins on its products. However, the net profit margin experienced fluctuations,
suggesting potential challenges in controlling non-operating expenses or managing tax
obligations effectively.
Efficiency ratios, including administrative and selling/distribution expenses relative to
sales, saw slight increases, showcasing DG Khan Cement's ability to control operational
costs amid sales growth. This implies effective management in maintaining operational
efficiency during periods of expansion.
Financial stability indicators, such as the finance cost to sales ratio, fluctuated but
remained within a reasonable range. This suggests that DG Khan Cement successfully
managed its financial obligations, even amidst business fluctuations. However, the
uptick in the finance cost ratio in 2022 warrants further investigation to understand the
underlying factors.
In summary, DG Khan Cement's financial performance is marked by positive growth,
operational efficiency, and adept financial management. While the company continues
to excel in sales and gross profit margins, careful attention to controlling non-operating
expenses and understanding factors influencing net profit margins will be pivotal for
sustained financial health. The overall outlook remains optimistic, but strategic
adjustments may be needed to navigate the complexities of the evolving business
landscape.

Ratios
Liquidity Ratios:

Year Current Ratio Quick Ratio

2018 0.75 0.54
2019 0.79 0.55
2020 1.04 0.87
2021 0.93 0.78
2022 1.07 0.90

Profitability Ratios:
Year Gross Profit Net Profit ROA (%) ROE (%)
Margin (%) Margin (%)
2018 26.25 26.53 8.70 11.25
2019 13.00 4.29 1.92 3.67
2020 4.72 4.72 -2.16 -3.17
2021 18.36 8.35 4.31 5.69
2022 18.20 5.44 4.38 3.52

Solvency Ratios:

Year Debt to Equity Ratio Interest Coverage Ratio

2018 0.21 12.71
2019 0.27 0.63
2020 0.34 -0.75
2021 0.37 1.76
2022 0.30 1.81

Efficiency Ratios:

Year Inventory Receivables Asset Turnover

Turnover Turnover
2018 5.07 19.18 0.35
2019 15.34 15.97 0.46
2020 6.37 69.18 0.40
2021 7.45 20.64 0.50
2022 7.62 23.16 0.63

Additional Ratios:

Year Debt Ratio Times Operating P/E Ratio P/S Ratio

(%) Interest Profit
Earned Margin (%)
2018 17.50 12.71 17.37 5.68 1.00
2019 22.00 0.63 5.65 15.39 0.56
2020 28.97 -0.75 4.73 -15.39 1.05
2021 30.06 1.76 10.43 13.88 1.20
2022 23.99 1.81 9.54 9.21 1.21

Average Collection Period (ACP):

Year ACP (Days)
2018 5.66
2019 11
2020 22
2021 14
2022 9

Liquidity Ratios:

DG Khan Cement's liquidity ratios have generally shown a positive trend over the five-
year period. The current and quick ratios increased from 2018 to 2020, reflecting
improved short-term liquidity. However, there was a slight decline in 2021, necessitating
a closer examination of current asset composition. These ratios are crucial indicators of
the company's ability to meet its short-term obligations, and the fluctuations may prompt
further analysis to understand the factors driving these changes. High current and quick
ratios generally signify a company's ability to meet short-term obligations. The decline
in 2021 was mainly because of COVID as the sales declined and construction decreased
leading to the company holding their assets.

Profitability Ratios:

The profitability of DG Khan Cement has exhibited volatility, with gross and net profit
margins fluctuating over the years. While 2020 marked a challenging period, there was a
notable recovery in 2021. However, a subsequent decline in 2022 suggests a need for in-
depth investigation into the factors influencing these fluctuations. Return on assets
(ROA) and return on equity (ROE) followed a similar pattern, improving in 2021 but
showing a decline in 2022. Understanding the root causes of these shifts is crucial for
assessing the company's overall financial health and sustainability.

Solvency Ratios:

DG Khan Cement demonstrated a positive trend in solvency ratios. The debt to equity
ratio consistently decreased, indicating a reduced reliance on debt for financing. The
interest coverage ratio also improved, signalling an enhanced ability to cover interest
expenses. These solvency ratios reflect a healthier financial structure and a reduced risk
of financial distress. Continued monitoring of these ratios will be essential to ensure a
sustainable capital structure.

Efficiency Ratios:

The company's efficiency ratios reflect improved operational management. Inventory

turnover increased steadily, indicating more efficient inventory management.
Receivables turnover showed fluctuations but improved in 2022, suggesting better
control over receivables. Asset turnover increased over the years, indicating effective
utilisation of assets to generate revenue. These efficiency improvements are positive
signs for the company's operational effectiveness and overall performance.

Additional Ratios:

DG Khan Cement's additional ratios exhibit mixed results. The debt ratio declined,
reflecting a lower proportion of assets financed by debt, and the times interest earned
 ratio improved, indicating a better ability to cover interest payments. Market-related
ratios, such as P/E ratio and P/S ratio, displayed fluctuations, possibly influenced by
changing market sentiment. The operating profit margin remained relatively stable.
These ratios provide insights into the company's financial structure, market valuation,
and operational efficiency.

Average Collection Period (ACP):

The average collection period for DG Khan Cement improved over the five-year period,
indicating more efficient management of receivables. A lower ACP is favourable as it
signifies a quicker conversion of credit sales into cash. This improvement suggests
enhanced effectiveness in the company's receivables collection process, contributing to
better working capital management. Monitoring ACP trends is essential for assessing
ongoing efficiency in cash flow generation from sales.

ANALYSIS WITH INDUSTRY LEADER

LUCKY CEMENT

Liquidity Ratios:
Year Current Ratio Quick Ratio
2022 1.48:1 0.87:1

Profitability Ratios:
Year Gross Profit Net Profit ROA (%) ROE (%)
Margin (%) Margin (%)
2022 27.81 18.87 8.29 11.93
Solvency Ratios:
Year Debt to Equity Ratio Interest Coverage Ratio
2022 0.13:1 41.25

Efficiency Ratios:
Year Inventory Receivables Asset Turnover
Turnover Turnover
2022 3.66 14 days 0.44

Additional Ratios:
Year Operating P/E Ratio P/S Ratio
Profit
Margin (%)
2022 79.93 9.70 26.42

Financial Performance Comparison: DG Khan Cement vs. Lucky Cement (2022)

Lucky Cement outperforms DG Khan Cement in terms of liquidity, profitability, and solvency, indicating a
stronger financial position. However, DG Khan Cement demonstrates higher efficiency in managing
inventory and receivables. Both companies have comparable market valuations based on P/E and P/S ratios.
The detailed analysis provides valuable insights into the financial health and performance of DG Khan
Cement and Lucky Cement in the year 2022.

In terms of liquidity, Lucky Cement emerges as the frontrunner in 2022, boasting a current ratio of 1.48:1
compared to DG Khan Cement's 1.07. Additionally, Lucky Cement's quick ratio of 0.87:1 surpasses DG
Khan Cement's 0.90, indicating superior short-term liquidity and a greater ability to meet immediate
obligations without relying on inventory. This suggests that Lucky Cement has a more robust financial
position concerning its current assets and liabilities, providing a stronger buffer against potential short-term
financial challenges.

Moving to profitability, Lucky Cement demonstrates a striking advantage over DG Khan Cement. With
higher gross and net profit margins (27.81% and 18.87%, respectively) compared to DG Khan Cement's
18.20% and 5.44%, Lucky Cement showcases more efficient cost management and a superior ability to
convert revenue into profits. The return on assets (ROA) and return on equity (ROE) also favor Lucky
Cement, signaling a more effective utilization of resources and greater value creation for shareholders. These
disparities underscore Lucky Cement's stronger financial performance in generating profits and creating
shareholder wealth.

In terms of solvency, Lucky Cement significantly outperforms DG Khan Cement. Lucky Cement's debt to
equity ratio of 0.13:1 is substantially lower than DG Khan Cement's 0.30, indicating a lesser reliance on debt
for financing. Moreover, Lucky Cement's interest coverage ratio is notably higher at 41.25, emphasizing its
robust capacity to cover interest expenses. This highlights Lucky Cement's superior financial stability and
lower financial risk compared to DG Khan Cement, providing a more favorable outlook for long-term
financial health.

RECOMMENDATIONS

A diversified strategy is advised in order to take DG Khan Cement to new heights and overcome the industry
leader. First and foremost, the business needs to invest in automation and modern technology to maximise
operating efficiency. Production procedures may become more efficient as a result, cutting expenses and
raising total productivity. Simultaneously, cultivating a culture of continuous improvement and offering staff
continuing training will result in a trained and motivated team, hence augmenting operational efficiency.

DG Khan Cement can strategically enhance its cost management by consistently negotiating favourable
terms with suppliers, exploring opportunities for bulk purchasing, and implementing stringent cost control
measures. This proactive approach can result in reduced input costs and improved overall cost efficiency.
Diversifying the product portfolio is another key recommendation to mitigate risks associated with product
reliance. By expanding offerings to cater to a broader market and exploring innovative, eco-friendly building
materials, DG Khan Cement can align with industry trends and meet evolving consumer demands. Market
research will be pivotal in identifying emerging trends and ensuring the company remains competitive in the
dynamic construction materials sector.
Additionally, DG Khan Cement should prioritise financial discipline and debt management. Maintaining a
prudent approach to debt, exploring refinancing opportunities for favourable interest rates, and implementing
strict working capital management practices can optimise cash flows and reduce the dependence on external
financing. Investing in robust marketing and branding strategies, emphasising product quality, reliability, and
sustainability, will enhance DG Khan Cement's visibility and market presence.

Establishing a strong online presence and engaging with customers through digital channels will further
contribute to market connectivity. Embracing sustainability initiatives in manufacturing and product
development, coupled with effective communication of these efforts, will not only enhance the company's
reputation but also attract environmentally conscious customers. Finally, investing in research and
development and fostering a culture of innovation can keep DG Khan Cement ahead of technological
advancements, leading to unique product offerings and sustained competitiveness. Exploring strategic
partnerships and alliances with industry players will also strengthen market presence and pave the way for
securing larger project contracts.