Cherat Cement Company: Corporate Update

September 13, 2021

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Cherat Cement Company Limited (CHCC) Net Profit Reached Rs3.2bn (EPS of Rs16.50) in FY2021 as compared to loss of Rs1.9bn (LPS Rs9.74) in previous year.

Management of the company attributes rise in profitability to Higher cement prices in local market (up 27% YoY in FY21), increase in Volumetric Sales in both domestic and export market and (3) significant decline in finance cost.

Cherat Cement Sales Revenue increased by 47% YoY in FY21. Management attributes increase in revenue to YoY 17% growth in dispatches and Rs1,300/ton (Rs65/bag) increase in cement retention prices in FY21.

Management also discussed rise in company’s gross margins in FY21 and disclosed that apart from price/volume factors lower fixed cost contribution and change in energy mix has provided further support to the higher margins.

Moreover, company’s management also mentioned that growth in domestic demand for FY22 is expected at 9% as higher PSDP disbursement in 1HFY22 and start of pre-election infrastructure projects from 2HFY22 will give impetus to the construction Segment in Pakistan.

With new Government in Afghanistan and relative political stability, Export of north region is expected to increase given decline in duties by new Afghan Government.

However, south region exports are expected to decline in FY2022 as lower exports to Bangladesh/Sri Lanka and higher freight charges. Cherat Cement company’s current capacity utilization is above 85%.

Company management also discussed current power mix of the company and disclosed that natural gas is contributing 55% in the energy mix followed by 35% contribution of WHR plant and 5/5% electricity contribution from PESCO/PEDO.

Furthermore, management also discussed mix of its coal usage and disclosed that imported coal is contributing 50-60% in total coal usage followed by 25-30% local coal and 20-25% coal is imported from Afghanistan. Current cost of imported coal is at Rs35k/ton, while Afghani/local coal cost is 25/19K/ton at company premises. To highlight, after new regime in Afghanistan imported coal is not available but is expected to arrive in near future. Moreover, Afghani coal is normally priced at 10-15% discount to South African imported coal price.

On new 11,000tpd capacity addition project, the management has disclosed that total cost of the project is estimated around Rs. 34bn and will be funded with 70% debt and 30% with internally generated cash during the period. Company has envisaged to achieve COD of new capacity expansion before June-2024.

Furthermore, CHCC management also discussed BMR of line-I and disclosed that the BMR is expected to save on raw material usage and Rs350/ton on line-I due to efficiency measures.