Cherat Cement Surprise payout led by earnings growth

Cherat Cement Company Limited (CHCC) has posted profit after tax of PKR1.0 billion (EPS: PKR5.25) for 4QFY22, up 4%YoY, but down 4%QoQ. The results are higher than market expectations of PKR899 million (EPS: PKR4.63).

Lower than expected effective tax rate majorly led to the deviation. This takes FY22 net income to PKR4.46 billion (EPS: PKR22.93), reflecting a growth of 39%YoY. The Company has announced final cash surprise payout of PKR3.0/share, despite undertaking Greenfield expansion.

Net revenues increased to PKR9.5 billion, up 40%YoY and 22%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 PKR10.2 billion.

Gross Margins rose to 28.5% as against market estimated gross margins of 28.9%. Effective use of coal coupled with increase in retention price has helped CHCC in posting decent gross margins.

Finance cost has increased by 42%YoY to PKR454 million, owing to elevated interest rates.

Among other line items: 1) despite the decline in exports, distribution expenses have increased by 27%YoY to PKR144 million in 4QFY22 amid surge in transportation expenses and (2) effective tax rate raised to 52% as against 26% in for the same period last year due to one-off super tax implication. However, analysts 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 a decent a gross margins and net profit for last quarter.

Looking ahead, analysts 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, analysts believe that local demand will likely rebound post-winter. Analysts believe that earnings will likely rebound beyond December 2022 as international coal prices start to ease-off


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