Investment Analysis

Table of Contents

a) Letter of Transmittal
b) ACKNOWLEDGEMENTS
c) EXECUTIVE SUMMARY
d) COMPANY PROFILE OF BOC BANGLADESH LIMITED
e) Range of Products and Services
f) Origin of the Report
g) Objective of the Report
h) Research Methodology
i) Limitations of the Study
j) Overall Economy Analysis
k) GDP & Inflationary Trends in Bangladesh
l) Stock Market Condition:
m) Market Capitalization:
n) Share Price Index:
o) Bangladesh Stock Market Summary
p) Company Analysis
q) SWOT analysis
r) Ratio Analysis
s) JUSTIFICATION

Letter of Transmittal
April 23, 2009
Sheikh Tanzila Dipti
Lecturer
Stamford University of Bangladesh
Siddeshwari, Dhaka.

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Subject: Submission of Report on Investment Analysis of B.O.C.

Dear madam,
It is our great pleasure to submit the trimester report on "Investment Analysis: study on
B.O.C " Which is a part of BBA 8th semester to you for your consideration.
We made sincere efforts to study related materials, documents, observe relevant records
about B.O.C. for preparation of the report.
Within the time limit, we have to make this report as comprehensive as possible. But
there may be some mistakes due to various limitations. For this reason, I beg your kind
consideration in this regard.

Thank You.
Yours Faithfully,
Group- XEBEC
BBA 8th Semester
Stamford University of Bangladesh
Siddeshwari, Dhaka.

ACKNOWLEDGEMENTS

At first we would like to thank our instructor for giving us such an important job like
Investment Analysis as a class project. We would like to place our gratitude to the
Supervisor of BOC Bangladesh Limited to enable us to complete our class project in their
esteemed organization. Without his helpful guidance, the completion of this research
project was unthinkable.

EXECUTIVE SUMMARY
This report Investment Analysis of BOC Bangladesh Limited is prepared to fulfill the
partial requirement of Finance 430 program of Business Administration Program of
Stamford University, Bangladesh. The topic of dissertation was selected upon
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consultation with course instructor of respective department.

The main aim of this report is to find out the financial situation and valuation of the stock
of BOC Bangladesh Ltd. From this analysis we have calculated the share price of BOC
and this analysis from the annual report issued by BOC Bangladesh Ltd. from the year
2002-2007, which was the main source of information.

After analyzing the different ratios of BOC Bangladesh Ltd. we can see that there was a
slight decrement in Earning per Share and in 2003. Their EPS was 13.58, which is good
for any company. From the analysis we can also say that BOC has failed to use its asset
efficiently. In 2003 it's earning per share has decreased slightly. This position has a bad
impact on investors view. But according to chairman's statement the business results for
the year were satisfactory. From the sources of information there is no industry average
and because of that we can't compare those ratios. For this we can't actually say that
those ratios were good or bad.
Finally, we have used some qualitative factor and also some quantitative factor to find
assumptions about Investment. We have used DDM model as a quantitative factor. For
this analysis we have taken imagination required rate of return (Kr), based on different
types of risk associated with this company.

COMPANY PROFILE OF BOC BANGLADESH LIMITED

BOC Bangladesh Limited is both an old and a relatively new company. Old because it
has been present in what is now Bangladesh, in one form or the other, since the days of
British India. New because it was registered under it's own identity only in 1973. The
Company began, after the independence of Bangladesh, with a modest turnover of a little
over Tk.6 million. The turnover in 1999 exceeded Taka 1 billion.
BOC Bangladesh Limited started out as Bangladesh Oxygen Limited with 3 small
Oxygen plants and Dissolved Acetylene plants, one of each in Dhaka, Chittagong and
Khulna. In addition, it had an operating contract to run the Oxygen plants of Chittagong
Steel Mills (CSM), which is still there today. For the manufacture of Welding Electrodes
the Company had only one very small extruder.
From inception, the Company had remained the sole supplier of Medical Oxygen in the
Country. In the mid 70's a Nitrous Oxide plant still the only one in Bangladesh, was
imported and installed in Dhaka to provide the nation with this vital anesthetic gas. Later
in the decade a Carbon Dioxide plant was bought and installed in Dhaka and this was the
first in the Country to produce dry ice. In the early 80's the first liquid gas plant was
imported from New Zealand and again installed in Dhaka, where the demand for Oxygen
was concentrated.
Shortly after that came the first boom in ship cutting and demand for Oxygen "went
through the roof". The Company invested immediately in additional compressing
capacity for the surplus Oxygen at CSM while simultaneously pursuing the Government
to permit it to invest in new production capacity. Eventually the Company was permitted
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to import 400 cubic metres per hour air separation plant from Australia, capable of
producing Liquid Oxygen, Nitrogen and, for the first time in Bangladesh, Agron. This
was installed in Chittagong, essentially to feed the ship cutting market on the beach. In
the early 90's booster was added to this to increase output, pending investment in further
capacity.
Meanwhile, the welding business of the Company was also growing fast and in the early
80's a state of the art RAM extruder was added to the production line, dramatically
improving output and quality of electrodes. The Company, in another innovative move,
invested in a wire drawing machine for the electrode factory. A second RAM was added
in the late 80's to keep up with demand.
The Company went "public" in 1985 when the Government renounced its right shares in
favor of the public. Today, BOC Bangladesh is one of the premier companies in the
Country. Bangladesh Oxygen Limited changed its name to BOC Bangladesh Limited in
March 1995 in line with a world wide programme of the BOC Group.
The 90's witnessed another change in the fortunes of the Company with deregulation and
liberalisation of the economy. A site was specially purchased at Rupganj, near Dhaka,
where the Company installed a 30 tonnes per day air separation plant, the largest in the
country. The US made plant produces Oxygen, Nitrogen and Argon and is
technologically, as advanced as any in the world. It came on stream in 1995.
At the same time, the Company also invested in a modern integrated welding electrode
plant, made by the largest welding electrode manufacturers in the world, which was
imported and installed at the new site in Rupganj. A technical collaboration arrangement
was also made with the suppliers ESAB AB of Sweden and the plant went into
production in 1995. Welding business received ISO 9002 certification in the following
year. A distribution agreement has been signed with world class Welding Company, The
Lincoln Company of USA.
In March 1998 a second line of production was added to the integrated Welding
Electrode Factory at Rupganj, doubling the capacity. Same year, in November 1998 a
new site with a 20 TPD liquid plant was acquired in Shitalpur, Chittagong.
The BOC Group, of which BOC Bangladesh Limited is a member, has its headquarters at
Windlesham in the UK. It employs in excess of 40,000 people and contributes to the
economies of nearly 60 countries world wide, with an annual turnover of E3.3 billion
plus.

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Range of Products and Services Infant Warmer

Special Gases & Gas mixtures Infant Incubators
Gas Welding Rod & Flux Dry Ice
Gas Welding and Cutting Equipment Argon
Any other gas on request Lamp gases
Refrigerant Gases (Freon & Suva) LPG
Medical Gases Cylinders Liquid Helium
Anaesthesia Ventilators Hydrogen
Anaesthesia Machines Entonox
ICU/CCU Monitoring System Nitrous Oxide
ICU/CCU Ventilators OT Table
Infusion/Syringe Pump OT Light
Physiotherapy equipment Humidifier
Autoclave/Sterilizer Nebulizer
Gynaecological Tables Resuscitators
Medical Disposables Hemodialysis
Medical Equipment on request Photo therapy
Compressed Oxygen
Liquid Nitrogen Other Products (Materials)
Dissolved Acetylene Mild Steel & Cast Iron Electrodes
Carbon dioxide Low Hydrogen/Low Alloy Electrodes
Compressed Helium Stainless Steel & Bronze Electrodes
Sulphurhexafluoride Arc Welding Equipment & Accessories
Sulphurdioxide Spot Welding Machines
Medical Oxygen MIG Welding Equipment & Accessories
Liquid Oxygen TIG Welding Equipment & Accessories
Compressed Nitrogen Plasma Cutting Equipment &
Sterilizing Gases Accessories
Pulse Oximeter Welding Services & Training
Nerve Stimulator Welding Equipment Repair
Blood Gas Analyser

Origin of the Report

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This report is prepared to fulfill the partial requirement of Fin 430 of business
administration program of Stamford University on the stock valuation of a company. So
the business organization BOC Bangladesh Limited is chosen and we are discussing on
different aspects of this company and also of this industry over five years from 1999 to
2003. We did this report on financial performance because it's a requirement of Finance
course. We have tried to reflect our experience on our report in terms of Investment
Analysis of BOC Bangladesh Limited.

Objective of the Report

The specific objectives aimed for this report is:

1. To fulfill the partial requirement of the course under the guidance of course
coordinator.

2. To gain experience and knowledge of analyzing the economy from the real life, this
will help us in the practical working environment.

3. To find out the financial situation of BOC Bangladesh Limited.

4. Identify macroeconomic environment.

5. Forecast the value of the stock of BOC Bangladesh Limited.

6. Make assumptions about investment decision process of investors.

Research Methodology

Information used to prepare this report has been collected from both the Secondary
source and the primary survey. The secondary sources of information were collected
from BOC Bangladesh Limited, Dhaka Stock Exchange, Annual report of BOC
Bangladesh Limited, periodicals and materials from various newspapers and articles and
also different websites. An open discussion method was followed to gather primary
information by interviewing the company secretary of the company.

Limitations of the Study

Lack of availability of information and data, some time there are some back dated
information they provide
The record system of the annual report is not efficient
Lack of access in many section of the organization
Time is not sufficient to complete the study perfectly

Overall Economy Analysis

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Bangladesh is an agricultural country. With some three-fifths of the population engaged

in farming. Jute and tea are principal sources of foreign exchange. Other important
agricultural products are wheat, pulses (leguminous plants, such as peas, beans, and
lentils), sweet potatoes, oilseeds of various kinds, sugarcane, tobacco, and fruits such as
bananas, mangoes, and pineapples. The country is the world's largest exporter of jute and
jute goods. Tea is also one of the major foreign exchange earners. Bangladesh also
exports frozen shrimps, frog legs and handicrafts. There has also been a rapid growth in
manufacturing industries, which offer a wide range of exportable goods such as leather
goods and ready-made garments. Within the last few years' remittances from
Bangladeshis employed abroad have contributed largely toward foreign exchange
earnings. The prevailing political and economic stability has greatly encouraged
investment in the private sector. For higher GDP growth, investments in both public and
private sectors will need to be accelerated. The trend of foreign direct investment is very
encouraging.

GDP & Inflationary Trends in Bangladesh

Bangladesh is the youngest country in the South Asian region. Following the launching
of a series of comprehensive stabilization measures, the economy of Bangladesh mostly
restored both robust economic growth and macro-economic stability in early 1990s from
the backdrop of the deep macro-economic crisis of the period since independence
(Bhattacharaya, 2004). In particular, the economy has experienced accelerated economic
growth during the early 1990s in comparison with the 1980s. However, after that period,
the economy experienced most severe exigency states like increasing inflationary
pressures, deteriorating government’s budgetary balances and decreasing foreign
exchange reserves (Mahmud, 1997).

During the first half of the 1980s the country experienced a double-digit episode of
inflation while the growth rate of GDP was below 4-percent level as illustrated in Figure
1. The GDP growth rate declined moderately during the second half of 1980s when
inflation rate gradually decreased to below 8-percent. However, a moderate rate of
inflation and an increasing rate of GDP growth are observed throughout the 1990s.
Throughout the first half of the 1990s, inflation rate was, on average, 5.37 percent, while
GDP growth rate was 4.06 percent. Although inflation rate increased, on average, to 5.52
percent in the second half of the 1990s, the growth rate of GDP continued to increase.
The increasing trend of inflation rate during the latter half of 1990s had been corrected
since the beginning of the new decade after 1990s and was observed at 4.14 percent, on
average, during 2001 to 2005, when growth rate of GDP was, on average, 5.19 percent.

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Figure 2 depicts the historical trends of inflation rate and real GDP growth rate of
Bangladesh during the period of 1981 to 2005. Although it is unwise to conclude anything
simply on the basis of a visual inspection of Figure 2, however, it illustrates more or less an
inverse relationship between rate of inflation and GDP growth rate in Bangladesh throughout
this period.

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Moreover, to understand the historical nature of the relationship between inflation and
economic growth in Bangladesh more accurately, the sample covering 1981 to 2005 is
grouped into 7 observations. Initially, the range of inflation is selected on the basis of the
maximum and minimum levels of inflation from the whole sample. For instance, if inflation
rate is 3-percent or less, it is assigned at level 3. Similarly, the level is 5, if inflation rate is
more than 3-percent but less than or equal to 5-percent. Subsequently, within this range of
inflation, average GDP growth rates are calculated against each linear level of inflation. For
illustration, what is the average GDP growth rate when inflation rates are 3 percent or less
during the period from 1981 to 2005 and so on. In this context, Figure 3 illustrates a positive
relationship between inflation and GDP growth up to the inflation rate of 7 percent
(approximately) and a negative relationship is observed after that level of inflation rate.

Stock Market Condition:

Capital Market:
As of 31 March 2008 the total issued capital of all listed securities including treasury bonds
of Dhaka Stock Exchange was TK250,467 million (US$ 3652.19 million) which was TK
214,472 million (US$ 3127 million) on 31 December 2007. In Chittagong Stock Exchange
the total issued capital on 31 March 2008 was TK 938,85.41 million (US$1380.67 million)
which was TK. 891,73.87 million (US$1311.38 million) on 31 December 2007.

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Stock Market Operation:

During January-March 2008 Quarter the total turnover in Dhaka Stock Exchange was 891.54
million securities while the total amount traded on Dhaka Stock Exchange during the same
period was TK. 130,020.53 million(US$ 1895.69 million).
In the same period the total turnover in Chittagong Stock Exchange was 191.75 million
securities while the total amount traded on Chittagong Stock Exchange during the same
period was TK. 209,66.92 million (US$ 305.73 million).

Market Capitalization:

Total market capitalization of all securities including treasury bonds listed on the Dhaka
Stock Exchange was TK. 840,536 million (US$12256 million) as on 31 March 2008
compared to TK753,955 million (US$10994
million) as on 31 December 2007.
In the Chittagong Stock Exchange total market capitalization of all listed securities was
Tk.707,382 million (US$10402.68 million) as on 31March 2008 compared to Tk 612,582
million (US$ 9008.56 million) as on 31
December 2007.

Share Price Index:

DSE all share price index stood at 2547.34 on 31 March 2008 compared to 2535.96 on 30
December 2007.The
CSE all share price index stood at 8329.01 on 31 March 2008 while it was 7657.06 on 31
December 2007. The
index bases are 100 and 1000 for DSE and CSE respectively.
(1 US$ =TK 68.58 For January-March 2008 quarter)

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Bangladesh Stock Market Summary

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Company Analysis

Attractively high margin and growth

We have considered oxygen with other gases and welding electrodes under the sector.
Sale of oxygen grew by around 20% and electrodes by 17% annually during 1999-2003.
The gas is mainly used in ship-breaking which is a major supplier of steel in the country.
Nitrogen is used for industrial purpose in creating super-chilling temperature. Business of
oxygen and nitrogen enjoys wide gross margin, as natural air is the main raw material for
those gases. This is so for manufacturing of electrodes also. BOC, the market leader in
selling gases and electrodes, generated a healthy profit of 206,692 million Tk in the year
2003.

Demand for medical oxygen is increasing Ship-breaking business is the major consumer
of industrial oxygen. Demand for medical gases including oxygen is consistently
increasing. However in the industrial sector, demand depends upon performance of ship-
breaking industry. This year sale of oxygen is likely to be hampered as government has
liquidated Chittagong Steel Mills.

Increasing prospects from a wider perspective

As the country is not optimally industrialized, it has opportunities for a large number of
small and medium sized steel-fabricating and repairing units to support the growing base.
This, together with rapid urbanization will be increasing the demand for steel works and
thereby industrial oxygen and electrodes. Therefore, we expect that the sector will keep
growth tempo in the long run.

Dominated by BOC

The business is capital-intensive and requires advanced technological equipment and

expertise barring new entrants. Also, in the marketing front, BOC is highly aggressive
and a giant. Therefore, it is difficult for any other company to emerge in this line. BOC is
holding near about 50% market share in fuel & power sector. There are not so many
companies in fuel & power sector in Bangladesh. There are only 5 companies in this
business. These companies are BOC Bangladesh Ltd., Bangladesh Welding electrodes,
National oxygen, Chittagong Oxygen, Hatim Oxygen.

Major Market Cap of overall industry

Bank sector is holding the first position with 32% in major market cap but in this section
there are 26 companies. On the other hand fuel & power is capturing near about 4% of

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market cap and there are only 5 companies. This position also indicates the positive sign
for investment in fuel & power sector.

Net Price/
FUEL & Price No. of share Face Share profit NAV per EPS Div per P/E NAV Yield Market
POWER
value Capital after share share per Cap Tk
SECTOR
(mln) Tax (mln) share (mln)
(mln) (mln)
BOC Bd. 146.20 15218280 10 152 209.05 68.84 13.44 20 10.64 2.12 6.84 3463.82
Ltd.
Bd. 5.50 10400000 10 104 1.27 13.87 .12 - 45.14 .40 1.60 53.04
Welding
National 21 140000 100 14 (73.50) (425.02) (525.02) - - - - 3.75
Ox.

(Source: Monthly Review Dec, 2003)

For any kind of industry analysis, it is very important to have the data of all companies in
that sector. But in case of Fuel & power all of the companies are not listed in DSE, so
that we have fall in a difficult position to compare the fuel sector with overall market. If
we think of investing in fuel sector, it will be very clever to invest in BOC Bangladesh.
From the performance table we can easily say that BOC should be the first choice for
investment. The market cap for BOC is 3463.82 mln Tk and leading the first position in
fuel & power sector. On the other hand Bangladesh welding electrodes leads in second
position with market cap of 53.04 mln Tk.

Ratio Analysis
Given that,
RFR=8%=.08
Beta=1
Rm=28.88%=0.2888
Here,

r
Rp= f+β(Rm- f) r
=.08+1(0.2888-0.08)

=0.2888
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=28.88%
Stock Beta Estimated E(R) Difference Comments
return
Overvalued
1 25.75% 28.88% -3.13% (sale/not buy)
BOC

E(R)
28.8 SML

1 Beta

SWOT analysis

Strength:

• The sole supplier of Medical Oxygen in the Country.

• They are the first one, who liquid gas plant was imported from New Zealand and
again installed in Dhaka.
• The business of ship cutting makes the demand of Oxygen higher.
• BOC is the only one company in their product range in Bangladesh.
• BOC was permitted to import 400 cubic metres per hour air separation plant from
Australia, capable of producing Liquid Oxygen, Nitrogen and, for the first time in
Bangladesh.

Weakness:

• lack of experties
• Incompetent ports, entry/exit complicated and loading/unloading takes much time
• Time-consuming custom clearance
• Unreliable dependability regarding Delivery/QA/Product knowledge
• Communication gap created by incomplete knowledge of English
• Subject to natural calamities
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• Lack of marketing tactics

Opportunity:

• Day by day they are expanding their range of product.`

• In recent year their market demand is increasing highly.
• Business of oxygen and nytrogen enjoys wide gross margin.
• Demand for medical gases including oxygen isw consistently increasing.

Threat:

• Political Environment
• Social Environment
• Economy of Bangladesh
• Inflationary Trend

JUSTIFICATION

BOC Bangladesh Ltd. is the market leader in fuel and power market in Bangladesh.

High probability of increased profit and earning in the coming year.¬

Asset per share is increasing day by day, thus there is no chance for default.¬

They are giving high rate of dividend, as example they proposed 200% dividend per
share in the year 2003.

They are always introducing new product, so that it become easy for them to capture the
local market.

The¬ management of BOC Bangladesh Ltd. is having great quality, who has the ability
to face critical situation. Three of the directors are from foreign countries.

BOC products play a vital role in applications as diverse as purifying water, producing
microchips, treating hospital patients and manufacturing cars.

Every year BOC is awarded around 90 patents for new, innovative processes.

BOC has manufacturing operations in about 50 countries and sales in many others.

The competitors of BOC are very weak compared to its business.

They are increasing their product portfolio and also introducing new manufacturing
plant.
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Last but not the least; our estimated market value is more than of its current market
price.

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