Cherat cement: Channeling growth

Cherat cement is slowly finding its footing in the industry and climbing up the ladder as it goes. The company announced its financial results for the first half of FY17 boasting a 17 percent increase in revenues and a 40 person increase in gross profit against 1HFY16. In numbers, revenues clocked at Rs4 billion in 1HFY17 against Rs3.5 billion in 1HFY16. The company also announced an interim cash dividend for the quarter ending December 2016 at Re1 per share i.e. 10 percent.

In the financial statements, despite marginal increases to distributing, marketing, administrative and other indirect expenses, the higher gross profit resulted in an after-tax profit of Rs1 billion in 1HFY17 against Rs676 million this period last fiscal year. Profits rose by 52 percent year-on-year which is a phenomenal start for Cherat.

Meanwhile, margins also substantially rose from 34 percent to 41 percent. For cement players, it has always been a margins game where prominent players have been dallying between 40 and 50 percent since the start of FY16. Now the race is getting closer, and other small to mid-tier cement players are also upping the game. Net margin also grew from 19 percent to 25 percent year-on-year.

The company announced earlier that along with the earlier expansion plans announced, it would be adding a third production line which is a purchase from Tianjin Cement Industry Design and Research Institute Company Limited (TCDRI). This new production line will go side by side with its two other cement plants located in Nowshera, KP. The plant would have a capacity of over 7,100 tons per day (approximately 2.3 million tons) and is expected to be commissioned in 27 months. The total cost of the project is Rs13.5 billion and the plant will include a waste heat recovery unit (WHR).

Cherat is the first cement company to see its recent expansion plants materialize since it announced an expansion in 2014. In January of 2017, the company announced the commissioning of this second line which took up the capacity of its plant to 2.4 million tons from its existing 1.1 million tons. This plant also has a WHR installed.

Currently, Cherat took its capacity from 2 to 4 percent of total installed capacity across the industry.

After the third production line comes online sometime during FY20, Cherat cement will contribute to 6 percent of the industrys installed capacity at that time (given other companies are also expanding) taking its installed capacity to 4.5 million tons annually. At this capacity, Cherat will join the mid-league of cement players that will include Kohat, Gharibwal, Pioneer and Mapleleaf but since the plant is located in North and most of the expansions (and competition) is in the South, Cherat may even capture a greater portion of the market share.