Earnings Report /
Pakistan

Cherat Cement: 4QFY22 review – Surprise payout led by decent earnings growth

  • CHCC has posted 4QFY22 NPAT of PKR1.0bn (EPS: PKR5.25), up 4% YoY, but down 4% QoQ.

  • GMs have clocked in at 28.5% (up 0.8ppt/1.9ppt YoY/QoQ) vs. our estimated gross margins of 28.9%.

  • Effective tax rate has clocked in at 52% vs. 26% in SPLY due to one-off super tax implication.

Intermarket Securities
25 August 2022

Cherat Cement (CHCC) has posted 4QFY22 NPAT of PKR1.0bn (EPS: PKR5.25), up 4% YoY, but down 4% QoQ. The result came in higher than our expected earnings of PKR899mn (EPS: PKR4.63). Lower than expected effective tax rate majorly led to the deviation. This takes FY22 NPAT to PKR4.46bn (EPS: PKR22.93), reflecting a growth of 39% YoY. The company has announced final cash surprise payout of PKR3.0/sh, despite undertaking greenfield expansion.   

Key result highlights:

  • Net revenues have increased to PKR9.5bn, up 40%/22% YoY/QoQ. The jump in sales is majorly attributed to massive increase in local cement prices during the quarter. This is lower than our expected topline of PKR10.2bn.

  • GMs have clocked in at 28.5% (up 0.8ppt/1.9ppt YoY/QoQ) vs. our estimated gross margins of 28.9%. Effective use of coal inventory coupled with increase in retention prices have helped CHCC to post decent gross margins.

  • Finance cost has increased by 42% YoY to PKR454mn, owing to elevated interest rates.

  • Among other line items i) despite the decline in exports, distribution expenses have increased by 27% YoY to PKR144mn in 4QFY22 amid surge in transportation expenses and (ii) effective tax rate has clocked in at 52% vs. 26% in SPLY due to one-off super tax implication. However, we expected an ETR of 60%.

Despite significant cost pressures amid elevated international energy prices, coupled with super tax imposition during the quarter, CHCC has managed to post decent a GM and net profit in 4Q. Looking ahead, we expect gross margins are likely to normalize, but earnings are likely to decline amid lower demand owing to monsoon season and extended eid holidays in 1HFY23. But, we believe that local demand will likely rebound post-winter. We believe that earnings will likely rebound beyond Dec’22 as international coal prices start to ease-off. Hence, we maintain our Buy rating on CHCC with a TP of PKR161/sh.