Earnings Report /
Pakistan

Cherat Cement: 1QFY23 Review - Massive jump in margins

  • CHCC has posted 1QFY23 NPAT of PKR1.5bn (EPS: PKR7.63), up 24% YoY and 45% QoQ.

  • GMs has clocked in at a stellar 32% (up 3.0ppt/3.4ppt YoY/QoQ) vs. our estimated gross margins of 23%.

  • Finance cost has increased by 61% YoY to PKR480mn, owing to elevated interest rates

Intermarket Securities
26 October 2022

Cherat Cement (CHCC) has posted 1QFY23 NPAT of PKR1.5bn (EPS: PKR7.63), up 24% YoY and 45% QoQ. The result came in much higher than our expected earnings of PKR834mn (EPS: PKR4.29). A massive surge in gross margins lead to the major deviation.

Key observations

  • Net revenue has clocked in at PKR9.0bn, up 26% YoY but down 5% QoQ. The YoY jump in sales is majorly attributed to swift increase in local cement prices, which had more than offset the reduction in volumes in 1QFY23.  That said, revenues were lower than our expected topline of PKR8.7bn.

  • Gross margin has clocked in at a stellar 32% (up 3.0ppt/3.4ppt YoY/QoQ) vs. our estimated gross margins of 23%. Lower than expected coal costs and elevated retention prices have helped CHCC post a healthy gross margin.

  • Finance cost has increased by 61% YoY to PKR480mn, owing to elevated interest rates.

  • Among other line items i) distribution expenses have increased by 17% YoY to PKR131mn in 1QFY23 amid a surge in transportation expenses, and (ii) effective tax rate has clocked in at 30% vs. 26% in SPLY due to super tax.

Cherat Cement has posted phenomenal margins and earnings in 1QFY23, majorly backed by improved inventory management and better retention prices. Looking ahead, we expect that the cooling down of international coal prices and expected increase in local demand will likely help the company sustain gross margins at healthy levels. Hence, profitability is likely to improve further in the coming quarters. We maintain our Buy rating on CHCC with a TP of PKR161/sh.