Earnings Report /
Pakistan

Cherat Cement: 3QFY22 review – Low volumes hurt; broadly in-line

  • CHCC has posted 3QFY22 NPAT of PKR1.1bn (EPS: PKR5.48), down 3% yoy and 10% qoq.

  • GMs have clocked in at 26.7% (down 3.8ppt yoy and a mere 0.6ppt qoq) vs. our estimated gross margins of 26.9%.

  • Despite significant cost pressures amid higher energy prices, CHCC has managed to post decent GMs and net profits in 3Q.

Rahul Hans
Rahul Hans

Head of Research

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Intermarket Securities
25 April 2022

Cherat Cement (CHCC) has posted 3QFY22 NPAT of PKR1.1bn (EPS: PKR5.48), down 3% yoy and 10% qoq. The result is broadly in line with our expected earnings of PKR1.1bn (EPS: PKR5.87). This takes 9MFY22 NPAT to PKR3.4bn (EPS: PKR17.68), reflecting a growth of 55% yoy.

Key highlights of 3QFY22 result:

  • Net revenues have increased to PKR7.6bn, up 14% yoy and 2% qoq. The increase in sales is majorly attributed to an increase in local cement prices during the quarter.

  • GMs have clocked in at 26.7% (down 3.8ppt yoy and a mere 0.6ppt qoq) vs. our estimated gross margins of 26.9%. Use of Afghan coal coupled with increase in retention prices have cushioned GMs against the surge in international coal prices.

  • Finance cost has declined by 5% yoy to PKR305mn, due to partial retirement of long-term debt in our view.

  • Among other line items (i) distribution expenses have increased by 16% yoy to PKR143mn in 3QFY22 despite a decline in exports, possibly due to increase in transportation expenses and (ii) effective tax rate has clocked in at 28% vs. 27% in SPLY. We await further clarity on the former.

Despite significant cost pressures amid higher international energy prices, CHCC has managed to post decent GMs and net profits in 3Q. Looking ahead, we expect gross margins and earnings to sustain in 4QFY22 due to increases in local cement prices, which will likely offset the surge in coal prices and local demand will also improve sequentially as Ramadan ends and the end of the fiscal year approaches, in our view. We maintain our Buy rating on CHCC with a TP of PKR161/sh.