Staff Report:
DGKC announced its 4QFY24 result, reporting an unconsolidated loss of approximately Rs1.69bn (LPS of Rs3.86), a 71% YoY decrease in losses.

The result was lower than expected in 4QFY24 due to lower-than-expected gross margins.

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Alongside the result, the company did not announce any cash dividend, which was also below industry expectations.

The company recorded gross margins of 8% in 4QFY24 compared to 26% in 3QFY24 and 11% in 4QFY23.

Gross margins are lower on a QoQ and YoY basis due to lower retention prices on exports, according to our channel checks.

Net revenue remained flat YoY and increased by 19% QoQ to Rs16.9bn in 4QFY24. The increase in revenue on a QoQ basis was due to higher export dispatches.

To recall, 4QFY24 domestic dispatches for DGKC decreased by 8% YoY and by 3% QoQ to 0.84mn tons, while export dispatches increased by 5% YoY and by 163% QoQ to 0.45mn tons.

Distribution expenses in 4QFY24 increased by 29% YoY and by 140% QoQ to Rs992mn due to inflationary impact and freight costs related to higher exports, as per channel checks.

Taxation expense stood at Rs868mn in 4QFY24 due to the impact of minimum taxation despite a loss before tax of Rs824mn. In FY24, the effective tax rate was 81% compared to 215% in FY23.

In FY24, DGKC posted a profit of Rs542mn compared to a loss of Rs3.6bn in FY23.

Gross margins in FY24 stood at 15.9% compared to 14.7% in FY23. The improvement in gross margins was due to higher domestic retention prices.

DGKC is currently trading at a FY25E PE of 5.3x and a dividend yield of 5%.