The net profit of the Dewan Salman Fibers in nine months ended March 31, recorded a tremendous jump of Rs 224 million because of cut in the financial charges and higher sales.
The Dewan Salman Fibers has come of age by means of tremendous operating performance in nine months of the current fiscal year amid prospects of even better profitability outlook at the end of the fiscal 2004.
The PSF giant has recorded net earnings of Rs 246 million or EPS 0.72 rupee, which reflects a turnaround from irksome figure of Rs 22 million or EPS: 0.06 rupee in the corresponding period last year.
The visible impact of decline in financial charges due to the debt re-profiling exercise undertaken by the company has altered the course of the bottom line, which now looks hale and hearty as against the previous year.
Looking at the nine months financial performance, its net sales had registered Rs 13 billion as against Rs 12 billion, showing 8 percent increase on the back of over all rise in PSF demand due to the scarcity of cotton production in the country.
Apart from the increase in sales from the main plants, the newly-installed Specialty Fibre Plant (SFP) had contributed to the value-added sales of approximately 16,000 tonnes as against the total capacity of 20,000 tonnes.
"We also see a major impact of lowering of cost of sales due to the installation and functioning of two PSF plants on gas instead of expensive electricity", said Faisal Shahji, research analyst at Capital One Equities.
He said despite some interruptions in the gas supplies, the above factor would bode well for the company to contain the conversion cost factor in the following period.
However, despite an over capacity utilisation, margins of DSFL remained squeezed as the prices of major raw materials viz PTA and MEG had swelled on the back of shortages in the international market and the rise in the crude oil prices, he said, adding the Dewan had offloaded a part of its inventory by exporting PSF to areas like Turkey and Syria and Acrylic to Iran mainly to minimise per kg cost of fibre.
Nonetheless, the major contributor to the growth in the bottom line is a decline in the financial burden as the last redemption of the expensive terms finance certificate at 19 percent (issued to finance Acrylic plant project) is due in the current month as the company has acquired low-cost foreign loans for debt re-profiling and capital expenditure for the SFP.
Simultaneously, the company is also enjoying very low rates viz. 3 percent - 4 percent on short term loans.
Keeping in line with nine months sales, favourable impact of lower financial charges and gradual drop in cost of sales due to conversion of plant 1 and 2 to gas firing system, we expect DSFL to post net earnings of Rs 335 million - Rs 345 million as against Rs 28 million.
However, we also foresee a visible deferred tax benefit owing to Rs 1 billion capitalisation in the Speciality fiber plant and other deferred tax reversals, which would reflect a better bottom line, he maintained.
Conversely, he said we do not expect the company to gain substantially in shape of margins in the backdrop of the recent price increase from Rs 74 a kg to Rs 75 a kg. However, we expect that the company may break the jinx and announce a bonus issue for FY04, he added.
Dewan share prices have shown a notable upsurge of 36 percent at the index since January 1, 2004 the price level of Rs 19.20 a share.
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