Cherat Cement (CHCC) has posted 4QFY21 NPAT of PKR983mn (EPS: PKR5.06), in line with our expected earnings of PKR985mn (EPS: PKR5.07), taking FY21 NPAT to PKR3.20bn (EPS PKR16.50). The qoq decline in earnings stemmed from (i) decline in cement sales and a 2.7ppt qoq decline in gross margins to 27.8%. The result was accomplished with final cash dividend of PKR1.25/sh, taking total dividend in FY21 to PKR2.25/sh; we were not expecting any dividend in the result.

Key highlights in 4QFY21 result:

Net revenue increased by 87% yoy but down 1% qoq to PKR6.8bn in 4QFY21. Key factors behind the sequential decline in revenue was lower local sales (down 8% yoy); but compared with last year, revenue has increased significantly due to better retention prices and higher cement offtake.

Consequently, GMs clocked in at 27.8% (up 35ppt yoy and down 3ppt qoq), vs our estimated gross margins of 27.3%. The qoq decline in margins were primarily led by massive surge in international coal and energy prices as compare to increase in local cement prices. 

Finance cost declined by 48% yoy to PKR319mn amid lower interest rates and possible partial retirement of long-term borrowing, in our view.

Among other line items (i) distribution expenses increased by 30% to PKR113mn in 4QFY21, mainly because of higher exports and increase in transportation expenses, and (ii) effective tax rate of 26% vs. tax reversal of PKR318mn.

This is a decent result by CHCC where gross margins have risen yoy despite steep increase in international coal and oil prices. Earnings are likely to increase in coming quarters, amid higher local cement sales and increase in cement prices. Therefore, we have a Buy call on the scrip with the TP of PKR225/sh.      

Courtesy – Intermarket Securities Limited