Cherat Cement (CHCC) has posted 3QFY21 NPAT of PKR1.1bn (EPS: PKR5.63), better than our expected profits of PKR955mn (EPS: PKR4.92), where higher gross margins and lower finance costs were the main deviation. The yoy jump in earnings stemmed from (i) substantial 30ppt yoy rise in gross margins to 30.5%, and (ii) decline in finance cost by 52% yoy.

3QFY21 Key result highlights:

Net revenue increased by 73% yoy to PKR6.83bn in 3QFY21. Key factors behind the revenue increase were higher local sales (up 16% yoy), and (ii) rise in retention prices to PKR349/bag (up 49% yoy and 14% qoq) amid higher retail cement prices and no discounts being offered by the company.

Consequently, GMs clocked in at 30.5% (up 30ppt yoy and 5ppt qoq), vs. estimated gross margins of 28.5%, primarily led by higher retention prices as mentioned above and possible availability of coal inventory at lower prices.

Finance cost for the quarter declined by 52% yoy to PKR321mn amid lower interest rates and possible partial retirement of long-term borrowing, in our view.

Among other line items (i) distribution expenses increased by 32% to PKR123mn in 3QFY21, mainly because of 16% increase in exports along with increase in transportation expenses amid higher fuel prices, and (ii) The effective tax rate was 27% in 3QFY21 vs tax reversal of PKR189mn in 3QFY20.

CHCC has reported massive improvement in gross margins – highest since 3QFY17. Further increase in cement prices in the North region, along with demand growth will boost future earnings, in our view. Our TP for the stock is PKR180/sh.

Courtesy – Intermarket Securities Limited