Cherat Cement: good earning, super tax

FY15 was never going to be the best year for Cherat Cement, despite the walloping good time that the countrys cement industry has enjoyed over the past 12 months. For CHCC, the opportunity to cash in on strong domestic demand was dented by a plant shutdown, earlier in the year. Given the disruption, the companys top line grew by two percent; timid compared to some other performances in the sector.
However, the company did put up a remarkable effort in containing slippage in its gross margins. Its dependency on the national grid has meant rising power costs for the company. However, growth in cost of sales was arrested in the last quarter. Hence, even though COGS outpaced sales growth; the difference may have been worst, if not for the performance in 4QFY15.
The company was the trend setter when it announced plans to augment capacity. Since then two other cement manufacturers in the country have announced similar aims, while others reportedly continue to mull over growth plans.
The super tax enforced in the recent budget has taken a bite out of the bottom line for the sector. Similar to Attock Cement, which announced its FY15 results, last week; CHCC also faced a steeper tax rate. The current tax expense for the outgoing fiscal stands at Rs425 million, as compared to Rs243 million in FY14, despite a marginal growth in revenues.
During the year, the companys management had informed of its plans to install another Waste Heat Recovery System for its second production line. So although FY15 was not a stellar year for the company in terms of profitability; it was a time for it to lay the foundation for strong performance in coming quarters.

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Cherat Cement

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Rs (in million)         FY14        FY15       chg

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Net sales               6451        6565        2%

Cost of sales           4349        4582        5%

Gross profit            2103        1984       -6%

Gross margin              33%        30%

Distribution costs       188         206        9%

Administrative expenses  141         164       16%

Other income              77         201      162%

Other expenses           133         105      -21%

Finance costs             29          38       32%

NPAT                    1316        1288       -2%

Net margin                20%         20%

EPS                     9.60        8.01

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