Karachi, September 14, 2021 (PPI-OT): CHCC: Corporate briefing session key takeaways
Cherat Cement Company Limited (CHCC) held its corporate briefing session yesterday to discuss FY21 results and the outlook of the company. We present key takeaways from the session.
Cherat Cement Company Limited (CHCC) announced its FY21 result on 26th Aug, 2021 wherein the company posted earnings of Rs3.2bn translating into an EPS of Rs16.5. Primary reasons for the increase in company’s profitability were better prices and higher dispatches which grew by 21% YoY. Company reported a 2.75ppts QoQ dip in gross margins during 4QFY21 and posted an EPS of Rs5/share during the quarter. Company also announced a final dividend of Rs1.25/share with the result, in addition to interim DPS of Rs1/share.
The company believes that higher coal prices are a major risk for the margins of the cement business and also expressed concern over inability to fully pass on the impact to the end consumer.
Sea freight has also increased up to US$28/ton and the dollar appreciation is another add-on to higher production costs. CHCC fulfills 55-60% of its total coal requirement from South African coal which costs Rs35k/ton (delivered at site price), 20-25% Afghan coal which costs Rs25k/ton and 15% local coal which costs Rs19k/ton. Company tries to maintain coal inventory for ~2.5 months.
For cement dispatches growth, management gave the guidance of 6-7% annual growth expectations, but also feared challenges to emerge from Afghanistan on uncertainty over the currency to be used for trading purpose with Afghanistan amid the country’s ongoing dollar crunch. Trade from Torkham border has resumed and company is optimistic on demand from the same where current export price for Afghanistan is in the range of US$36-40/ton.
The company’s current power requirement is met by a mix of gas (55%), WHR (33%) and the remaining 10% through PESCO and PEDO. Company has faced minimal gas constraints in recent times but highlighted shortage in winter leading to shift to either Grid (~Rs18.5/unit) or Furnace Oil (~Rs20/unit) depending on the circumstances.
Discussing about utilization levels, the company shared that it is running at 85-90% utilization as of now and expects it to sustain at 90% next year. Company has also been carrying out a BMR on its line-1, using internal cash sources, which is expected to be completed by Jun-2022. CHCC expects a saving of Rs300-350/ton as a result of this BMR. Company’s solar plant is expected to come online by Jan-2022.
The company targets COD by Jun-2024 for its upcoming Greenfield expansion in D.I Khan that has a capacity of ~11ktons/day. Project cost is estimated at Rs34bn where 70% of the expansion cost will be financed by debt and the rest through internal cash sources. The management shared that the CAPEX estimate can increase by a further Rs2bn in case it adds a WHR with the new plant.