Karachi, May 16, 2023 (PPI-OT): DGKC - Treading on thin ice

DGKC has not yet announced any expansion, while the industry’s installed capacity has increased by 20% during the current fiscal year. This is predicated on the expansion undertaken by DGKC in 2018, adding 2.8mn TPA to its annual production capacity.

Consequently, DGKC’s market share is expected drop to 10.4%/9.3% in FY23/FY24, compared to 11.2% in FY22. To note, DGKC’s market share enhanced from 13.2% in FY19 following the capacity enhancement.

Gross margins clocked in at 16.1% in 9MFY23, due to elevated coal costs along with high power costs owing to non-availability of gas/RLNG.

Going forward, we expect margins to improve, as the company is likely to see better availability of imported coal, along with the commissioning of due to availability of imported 19MW solar projects (7MW at KHP already commissioned in 4QFY23).

Finance cost has been a sore point for DGKC, as the company is highly leveraged, with a D/E of 0.59 as of last financial disclosure. As a result, finance cost to EBITDA of the company stood at 60.7% in 9MFY23.

We have a “Buy” rating on the stock, with Dec’23 TP of PkR63.4/sh, offering a potential upside of 30.9% from the last close, majorly driven expected improvement in margins going forward.