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Chemicals: Dawood Hercules Chemicals Ltd - Analysis of Financial Statements Financial Year 2005 - 2001 Q 2010

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Highlights - Corporate News

OVERVIEW : Dawood Hercules Chemicals Limited was incorporated as a public limited company on 17th April 1968, as a joint venture between Dawood Group of Industries and Hercules Inc USA. It is listed on Karachi, Lahore and Islamabad stock exchanges. Dawood Hercules manufactures urea and markets it under the brand name of Bubber Sher. It also produces anhydrous ammonia, which is used in manufacturing of soda ash, fructose and other miscellaneous chemicals.





Name of company DAWOOD HERCULES


Nature of Business Fertiliser

Ticker DAWH

Market Capitalisation 20,043,202,278.98


Countrywide off-take of urea for the first quarter of 2010 was 1414 thousand tons as against 1543 thousand tons depicting a reduction of 8% over the last period. However, the domestic production of 1167 thousand tons of urea is 2% higher than the corresponding period last year. To bridge the gap between demand and supply during the period under review, the government imported 184 thousand tons of urea as against 373 thousand tons for the corresponding period last year. The inventory of urea in the country as of
31st March 2010 was 69 thousand tons as against 38 thousand tons last year.

Dawood Hercules is committed to expanding agricultural growth for increased food availability. To meet this burgeoning demand the company has adopted better fertilizer application techniques for growth in food production.


During the period under review, the company sold 89560 million tons of urea as against 93010 million tons for the same period last year. However, the sales revenue of the company was approximately higher than last year due to higher selling price of urea. The company maintained its market share at around 6%, same level of the corresponding period of last year.

The plant remained closed for a total period of 33 days during the first quarter of FY10 on account of gas cuts and annual turnaround as against 32 days for the comparable period last year. The production of urea by the company was 92121mt as against 90397mt for the same period last year. This rise was a result of efficient plant operations. Capacity utilization was 83% as against 81% in last comparable period.

Due to gas curtailment in the current period, the company sustained a production loss of 27589mt as against 20522mt for the same period last year.

The company recorded a profit of Rs 356 million including the share of profit from associate for the first quarter FY10 as against the net loss of Rs 505 million for the same period last year.

Earnings per share for the first quarter FY10 stood at Rs 2.96 as compared to loss per share of Rs 4.20 for the same period last year. The main reason for the loss in 1QFY09 was attributed to the absorption of impairment loss on SNGPL shares and reduction in the share of income from associate.


During the year FY09, the company recorded sales of Rs 11,040 million as compared to Rs 7,429 million in FY08, depicting an increase of 49% in sales value over the last year, which is the highest in the history of the company.

The profitability of the company has gone down. It suffered a loss of Rs 1,138 million for FY09 as against net profit of Rs 3,063 million against last year. The main reasons for the loss are recognition of impairment loss of Rs 3,791 million and decline in share of profit from associate by Rs 519 million during the year. This resulted in a negative net profit margin of -10%, return on asset of -4% and return on equity of -5.72% in FY09.

Liquidity of the company has decreased over the last year, with a current ratio of 3.19 in FY08 to 2.01 in FY09. Both, the current assets and the current liabilities increased over the year from Rs 5,027 million and Rs 1,577 million in FY08 to Rs 5,987 million and Rs 2,983 million in FY09 respectively. Under the current liabilities, short-term financing increased drastically from Rs 70.139 million in FY08 to Rs 1,196.604 million in FY09. It was used to subscribe to the right issue of Engro Chemical Pakistan Limited and for import of DAP fertilizer.

In terms of asset management, the company has shown an improvement over the last year. The increase in inventory turnover from 9 times in FY08 to 82 times in FY09 is attributed to the higher cost of sales. Cost of sales rose from a level of Rs 4,312 million in FY08 to Rs 7,080 million in FY09 within which cost of purchased product increased from Rs 739 million to Rs, 3,098 million in FY09. Days inventory outstanding decreased from 40.61 days in FY08 to 4.46 days in FY09. This resulted in a short operating cycle of 4.77 days as compared to 40.95 days last year.

Fixed Asset turnover increased from 536.3% in FY08 to 636.09% in FY09. Sales to equity ratio showed an incline from 42.74 days to 55.52 days in FY09 due to 49% increase in sales revenue over the year.

The debt management ratios for the company have remained around the same level over the past three years. Debt to asset ratio was 32.84% in FY09 whereas debt to equity and long-term debt to equity were 49% and 34% respectively. Times interest earned decreased from 6 times to 0.78 times in FY09 resulting from a very low operating profit. Finance cost also increased by 9% from Rs 901 million in FY08 to Rs 985 million in FY09.

The EPS for the company this year was Rs (10.41) as compared to Rs 28 of last year, due to the decrease in profitability of the company. The book value per share increased to Rs 181.8 resulting from the increase in the shareholders equity. The P/E ratio also fell down to Rs (17.61) as a result of the dip in the EPS.


As a result of governments recent decision to curtail the supply of gas by 20% to all fertilizer plants on SNGPLs network and its diversion to the power sector, the gas supply to the company stands reduced. This sizeable reduction in the gas supply will have a significant adverse effect on production and consequently on the financial health of the company.

On a national level, gas curtailment of fertilizer industry is likely to lead to a shortage of urea, an important agricultural input. The government will have to make the necessary arrangements in time to ensure adequate supply for the following crop season.






Gross Profit Margin (%) 3834374236

Net Profit Margin (%) 8753 20241 -10

Return on Assets (%)23144511-4

Return on Equity (%) 30.66 22.15 53.65 17.62 -5.72




Current Ratio (times)




Inventory Turnover (times) 17.4612.8 5.79.01 81.92

Days Inventory Outstanding 20.91 28.52 64.04 40.614.46

Operating Cycle (days) 21.64 28.8264.3 40.954.77

Fixed Asset Turnover (%) 539.1 381368.27 536.3636.09

Sales/Equity (%) 35.18 41.86 26.53 42.74 55.52




Debt/Asset (%) 26.84 42.63 35.36 32.18 32.84

Debt/Equity (%)36.69 74.30 54.71 47.44 48.91

Long-term Debt/Equity (%) 0.932.35 35.79 38.37 33.91

Times Interest Earned14.835.66 15.72 60.78




Earnings per share (Rs)34.61 24.79 92.6528-10.41

Price/Earnings ratio (times) 7.411.94.257.87-17.28

Book Value per share (Rs) 129.82111.90227.94158.92181.78

Number of shares issued (million)72.06 82.87 82.87109.38109.38

Market Price (Dec 31)256 295 392 220 176

DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].



Courtesy: Business Recorder

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