Cherat Cement Company Limited (CHCC) announced result for 2QFY22 where company posted an EPS of PkR6.06, up 43.7% on YoY basis however declined by 1.3% on QoQ basis. For 1HFY22, PAT stood at PkR2.4bn (EPS: PkR12.20), up 110%YoY. The result was in-line with our expectations.

Gross margins of the company clocked in at 27.3% for 2QFY22, declining by 1.8ppts on sequential basis as increasing coal prices become a drag. On YoY basis, margins increased by 1.4ppts. For 1HFY22, gross margins stood at 28.1%, increasing by 4.3ppts on YoY basis.

Topline for 2QFY22 stood at PkR7.6bn, up 20/6% YoY/QoQ as dual impact of increasing prices and dispatches take effect though on sequential basis, topline increase is mainly due to increase in prices as manufacturers passed on the increase in coal prices.

Finance cost of the company decreased by 32%YoY to PkR600mn for 1HFY22 as improved cash flow during the period resulted in a decrease in working capital financing, in our view. On the other hand, operating expenses increased by 26%YoY for 1HFY22.

Even though recent increase in coal prices can remain a drag on margins and profitability in near term, we maintain our Buy stance on the stock where expected decline in coal prices post 1QCY22 is expected to be a major trigger while local demand and prices remain strong. We have a TP of PkR199.6/sh for the company, providing an upside of 40%.

Courtesy – AKD Research