Dandot Cement Limited (PSX: DNCC) was incorporated in Pakistan as a public limited company in 1980 and began its production in 1983. The company is engaged in the production and marketing of cement. DNCC is a subsidiary of Calicom Industries (Private) Limited.
Pattern of Shareholding
As of June 30, 2023, DNCC has a total of 248.173 million shares outstanding which are held by 718 shareholders. Calicom Industries (Private) Limited is the major shareholder of DNCC holding 81.011 percent of its shares. Local public accounts for 15.40 percent shares of the company followed by joint stock companies having 2.58 percent stake in DNCC. The remaining shares are held by other categories of shareholders.
Historical Performance (2019-23)
During the period under consideration, DNCC’s topline has posted growth only once i.e. in 2019. That was the only year when the company posted net profit while its bottomline stayed in the red zone in the remaining years. DNCC’s net sales drastically slumped in 2020. The company suspended its production activities and sales since 2021. DNCC registered highest net loss in 2020 followed by a significant decline in its net loss in 2021. In the subsequent years, the company’s net losses escalated. The detailed performance review of the period under consideration is given below.
In 2019, DNCC’s net sales mounted by 21.97 percent year-on-year. However, topline growth was merely the result of upward price revision while sales and production volumes considerably fell during the year. This was due to both internal and external vulnerabilities that DNCC faced during the year. Firstly, there was excess output available in the market because of increase capacities in the North region. Moreover, there was sluggish demand because of sheer reduction in government-funded projects. While this had already put brakes on the operational activity of DNCC in 2019, it also faced inconsistent electricity supply from WAPDA which caused serious damages to its production equipment and abrupt stoppages in the plant operations. While the company increased its prices to make up for the exorbitant electricity and coal prices, it couldn’t post any gross profit, however, it led to 23.46 percent year-on-year shrinkage in its gross loss. Administrative expense slid by 2.39 percent in 2019. The company squeezed its workforce from 689 employees in 2018 to 567 employees in 2019 due to stunted operations. Distribution expense multiplied by 74.46 percent in 2019 due to higher payroll expense incurred during the year. DNCC also registered net other income of Rs.412.52 million in 2019 as against other expense of Rs.29.43 million posted in 2018. The company’s other expense shrank in 2019 due to high-base effect as the company posted write-off of interest receivable from Gharibwal Cement Company and booked hefty provision for the obsolescence of stores, spares and loose tools in 2018. Furthermore, other income grew manifold due to interest payable and balances written back during 2019. This proved to be the game-changer for DNCC in 2019 and enabled it to post operating profit of Rs.1.236 million as against operating loss of Rs.543.69 million registered in 2018. OP margin stood at 0.08 percent in 2019. Another turning point for DNCC’s financial performance in 2019 was the finance income of Rs.608.55 million versus finance cost of Rs.185.11 million incurred in 2018. The company earned finance income from its long-term loan. DNCC posted net profit of Rs.624.55 million in 2019 versus net loss of Rs.717.91 million in 2018. EPS stood at Rs.6.59 in 2019 versus loss per share of Rs.7.57 reported in the previous year. NP margin clocked in at 39.19 percent in 2019.
DNCC’s net sales declined by 81.42 percent in 2020 due to sluggish sales volume as the company suspended its operations in September for the rest of the year. Production volumes for ordinary Portland cement and clinker by 89.41 percent and 95.47 percent respectively in 2020 (see graph of production volume). Low retention price per bag coupled with high input cost resulted in gross loss of Rs.193.49 million, down 43.7 percent year-on-year. administrative expense tumbled by 40.92 percent in 2020 due to drastic decline in payroll expense as number of employees fell to 311. Distribution expense slipped by 73.10 percent in 2020 due to considerably low payroll expense. DNCC incurred net other expense of Rs.17.87 million in 2020 mainly on account of increased provisioning for doubtful debts, obsolescence of stock-in-trade, stores, spares and tools. Moreover, other income fell in 2020 due to high-base effects due to write-backs recorded in the previous year. DNCC posted operating loss of Rs.248.42 million in 2020. Finance cost of Rs.371.29 million added to ado. This was on account of finance expense incurred on long-term loan and higher interest expense on loan from financial institutions and related parties. DNCC reported net loss of Rs.695.056 million in 2020 with loss per share of Rs.7.33.
While the industry volumes bounced back due to resumption of construction activities in the country, DNCC couldn’t make any sales in 2021 due to closure of its plant operation since September 2019. Consequently, there was no cost of sales and distribution expense incurred during the year. The same continued in 2022 and 2023. DNCC incurred administrative expense of Rs.41.80 million in 2021, up 20.6 percent year-on-year. This was due to directors’ remuneration of Rs.6 million incurred in 2021. DNCC’s workforce was compressed to 38 employees in 2021. Administrative expense slid by 10.20 percent and 7.44 percent respectively in 2022 and 2023, however, the company started building up its workforce since 2022. This is evident in the workforce of 69 employees in 2022 and 118 employees in 2023. The building up of workforce was due to the fact that the company was nearing the completion of its BMR and was planning to resume its operations in FY24. In 2021, DNCC posted net other income of Rs.128.84 million due to hefty finance income of Rs.312.627 million on its long-term loans. In the subsequent years, the company incurred net other expense due to absence of finance income on long-term loan coupled with hefty depreciation expense and provisioning done for obsolete inventory. In 2021, DNCC recorded operating profit of Rs.87.04 million which turned into operating losses of Rs.163.14 million and Rs.165.86 million in 2022 and 2023 respectively. Finance cost declined by 47.26 percent in 2021 due to monetary easing and downtick seen in long-term financing. However, finance cost escalated by 12.96 percent and 8.63 percent respectively in 2022 and 2023 due to monetary tightening and increased borrowings. DNCC reported net loss of Rs.77.742 million with loss per share of Rs.0.79 in 2021, down 88.82 percent year-on-year. Conversely, net loss surged by 320 percent to clock in at Rs.326.55 million in 2022 with loss per share of Rs.1.42. In 2023, net loss further mounted by 12.52 percent to clock in at Rs.367.435 million with loss per share of Rs.1.48.
Recent Performance (9MFY24)
As per its planning, BMR activities were completed in the 1HFY24 with the lighting up of kiln in December 2023. DNCC made net sales of Rs.1191.56 million in 9MFY24 as against no sales made during the similar period last year. The industry was also facing sluggish demand due to economic downturn and political uncertainty which drove down construction and infrastructure related activities in the country - both in public and private sector. Low retention prices due to excess supply and thin demand resulted in gross profit of Rs.92.06 million in 9MFY24 with GP margin of 7.73 percent. While administrative expense slid by 1.04 percent in 9MFY24, DNCC incurred distribution expense of Rs.1.94 million during the period which may be due freight charges incurred on local sales. The company also recorded net other income of Rs.0.58 million in 9MFY24 versus net other expense of Rs.1.57 million recorded during 9MFY23. The company posted operating profit of Rs.61.67 million during 9MFY24 versus operating loss of Rs.30.897 million recorded during the similar period last year. Finance cost inched up by 9.87 percent during 9MFY24 due to high discount rate and also because the company obtained short-term loans during the period to meet its working capital requirements. Hefty finance cost didn’t allow DNCC to post positive bottomline in 9MFY24; however, its net loss shrank by 31.32 percent to clock in at Rs.129.55 million with loss per share of Rs.0.52 versus loss per share of Rs.1.01 recorded during 9MFY23.
Future Outlook
As of March 31, 2024, the company’s accumulated loss stood at Rs.5895.420 million with its current liabilities exceeding its current assets by Rs.2050.64 million. This cast significant doubts on DNCC’s ability to continue as a going concern. However, with the resumption of operations, uptick in retention prices off-late and the installation of solar power plant, the company is pinning hopes to derive healthy financial performance in the coming financial year.
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