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CHCC FY23 Analyst Briefing Takeaways, (AKD Off the Analyst's Desk Sept 28, 2023)

AKD, Off the Analyst's Desk

CHCC FY23 Analyst Briefing Takeaways

 

Cherat Cement Company Limited (CHCC) held its analyst briefing today to discuss FY23 result and brief about future outlook. To recall, company posted earnings of PkR4.4bn (EPS: PkR22.7) in FY23 compared to PkR4.5bn (EPS: PkR22.9) in previous year, a decline of 1%YoY. The annual decline was majorly due to higher financial charges and taxation.

 

• In terms of sales volumes, local sales witnessed a decline of 22%YoY during the year, while exports rose by 13%YoY. Management expects this export growth trend to continue as the company's factory is closest to the Torkham Border (Main Pak-Afghan transit route).
• Looking ahead, management anticipates marginal industry sales growth of 3-4% YoY in FY24. Regarding pricing, they expect the industry to maintain price discipline.
• In FY23, cement retention prices were PkR13k/ton and have now increased to ~PkR15k/ton. Additionally, current ex-factory export prices are ~US$45-47/ton, while the local maximum retail price (MRP) stands at ~PkR1,200/bag.
• Regarding the coal mix, the company uses roughly 45-50% of local coal, with the remainder is sourced from Afghanistan or South Africa. The new and more efficient production line-iii consumes slightly less than ~700kcal per ton of cement, whereas the older lines use more than ~700kcal per ton.
• At present, Afghan coal prices are ~PkR47-48k/ton while local Darra coal prices range from PkR38-40k/ton. Moreover, South African (Richard’s Bay) coal prices are almost equal to Afghan coal prices.
• Over the previous years, the company has significantly reduced its leverage, decreasing its debt-to-equity ratio (D/E) to 0.59x from 0.96x in the previous year. Management is committed to further reducing leverage and repaying commercial loans ahead of schedule. Moreover, ~34% of the company's total loans are subsidized.
• The power mix for FY23 consisted of 50.7%/37.6%/7.5%/3.1%/0.7%/0.4% of Gas/WHR/Solar/PEDO/FO/Grid. With a strong reliance on power from gas, WHR, and solar, the company effectively mitigated some impact of rising coal prices through its efficient power mix.
• Management expects a stable gas supply while price increase to remain minimal. Currently, power from gas costs ~PkR15/kWh, while cost of grid is ~PkR43/50 per kWh for non-peak and peak hours, respectively.
• On the expansion front, the company has acquired assets (land and mining) from Saif Cement in D.I Khan for ~PkR1.3bn as requirement of the Greenfield project. However, due to significant rupee devaluation and LC restrictions, the management has not shared project costs and timelines at this time.

 

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