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BSRM STEELS LIMITED

Company Overview
BSRM Steels Limited mainly engaged in the production and
supply of Xtreme 500W deformed bars of reinforced steel. It
was incorporated in July 2002, commenced its commercial
operation from April, 2008 and got listed to DSE and CSE in
January 2009. The main purpose of the company is to
manufacture M.S. products by setting up rolling and re-rolling
mills and marketing the same. The company has launched
BSRM Maxima which is the first Rebar of the country designed
specifically for the mega projects.
The companys flagship product Xtreme 500W contributed
93.7% of total revenue in 2015. Rest of the revenue contribution
came from D-Bar Grade-B420DWR, D-Bar GR 400, D-Bar GR 300,
D-Bar Grade-75 and Miss Rolls. Domestic market remained as
the core revenue source spawning about 96.2% of the
companys revenue and rest 3.8% of the revenue derived from
export sales during the year 2015.
The company has decided to merge the 95% subsidiary BSRM
Iron & Steel Co. Ltd. (BISCO) with BSRM Steels Ltd., which is an
in-house billet manufacturing plant with an installed capacity of
190,000 MT per annum. The company also has one associate in
the name of BSRM Steels Mills Limited, holding 25.35%
ownership, is also a billet manufacturing plant.
Currently, annual installed capacity of BSRM Steels is 700,000
MT and in the year 2015, capacity utilization was 99.5% out of
its 600,000 MT production capacity. As of December 2015,
around 44% of raw materials are purchased from its sister
concern BISCO. However, to meet total requirement, about 56%
of its raw materials are imported from Japan, Taiwan, Korea,
Turkey, North America and South America.
The company became listed with DSE and CSE in 2009. As of
May 2016, around 70.87% shares are held by its sponsors/
directors, 17.94% by the institutional, 0.36% by foreign and
10.83% by the general investors.
Industry Overview
Bangladesh has more than 400 steel, re-rolling and auto-rerolling mills with a combined annual production capacity of 0.8
mn tones, against the total demand of only 0.4 mn tones
(market value of BDT 300 bn). The government projects account
for nearly 40% of total steel consumption.
Bangladesh is one of the lowest consumers of steel products in
the world. Per capita steel consumption in Bangladesh now
stands at only 25 kilograms, while it is 55 Kilograms in India, 324
kilograms in developed nations. Although a number of
companies of the sector, including BSRM, GPH, RSRM, Rahim
Steel and Bashundhara Steel, are producing the raw material,
billet, locally, around 1.5 mn tones are still imported every year.
At present, three big steelmakers -- BSRM, Abul Khair Steel and
KSRM -- supply more than 50% of the country's annual need for
3.5- 4.0 mn tonnes of steel. Besides the competition from big
players, the smaller mills are also facing challenges such as price
fall in international steel market and a decline in domestic
demand for construction materials, which are forcing them out
of the market. Over capacity of the steel industry also indicates
enormous export potential, though the option is yet to explore.
1

DSE: BSRMSTEEL
BLOOMBERG: BSRM:BD
Since steel demand is derived from other sectors like
construction buildings, roads, consumer durables and
infrastructure, its fortune is dependent on the growth of these
user industries. However, Initiation of Padma Bridge
construction, acceleration of Governments big infrastructure
projects under Annual Development Program (ADP) and revival
of the local real-estate industry will undoubtedly boost-up the
steel consumption locally.

Company Fundamentals
Market Cap (BDT mn)

31,545.8

Market weight

1.2%

Free-float (Public +Inst.)

29.1%

Paid-up Capital (BDT mn)

3,417.8

3 Months Average Turnover (BDT mn)

52.7

3 Months Return

-1.3%

Current Price (BDT)

92.3

52-week price range (BDT)

70.6 - 106.9

Sector Forward P/E

14.0
2016 (Q1

2013

2014

2015

Financial Information (BDT mn):


36,295
Sales
1,402
PAT

38,571

33,493

1,248

2,097

3,759

28,155

32,381

28,485

29,705

Assets

Annualized)

41,068

712

615

659

585

7,530

8,769

10,370

10,286

Div. % (C/B)

15/0

15/0

30/0

-/-

Margin:
Gross Profit

LT Debt
Equity

10.5%

9.0%

14.4%

18.6%

Operating Profit

7.9%

6.6%

11.0%

15.5%

Pretax Profit

5.7%

4.5%

8.5%

13.4%

Net Profit
Growth:
Sales

3.9%

3.2%

6.3%

9.2%

-5.1%

6.3%

-13.2%

22.6%

Gross Profit

54.0%

-8.9%

38.0%

59.0%

Operating Profit

67.2%

-10.9%

44.5%

72.3%

Net Profit
Profitability:
ROA

40.0%

-11.0%

68.1%

79.2%

5.1%

4.1%

6.9%

12.9%

ROE
Leverage:
Debt Ratio

20.1%

15.3%

21.9%

36.4%

64%

66%

54%

44%

Debt-Equity Ratio

239%

243%

148%

126%

Interest Cov. Ratio


Valuation:
Price/Earnings

3.39

2.92

4.43

11.91

22.8

25.7

15.2

8.4

Price/BV

4.3

3.7

3.1

3.1

EPS (BDT)

4.1

3.6

6.1

11.0

DPS (BDT)

1.5

1.5

3.0

--

21.7

25.3

30.0

29.8

NAVPS (BDT)

June 30, 2016

Investment Positives

The commercial operation of its associate company


(25.35% ownership), BSRM Steels Mills Limited, with an
annual capacity of producing 8,62,000 M.Ton MS billets,
has started from June 16, 2016. This will eliminate the
import dependency of its raw material i.e. billet.
BSRMSTEEL will be benefitted as the price of billet
fluctuates significantly in the global market.

In budget 2016-17, imposition of 20% RD (Regulatory Duty)


and 15% VAT from the existing specific duty of BDT
7,000/MT on imported billet will benefit the local billet
manufacturer like BSRM.

The company has increased the production capacity to


700,000 MT per annum in December 2015 from earlier
600,000 MT per annum. According to the company
management, capacity utilization will be 720,000 to
730,000 tons per year from its current capacity.

The Company is going to set up a coal based 150 MW


captive power plant by investing BDT 1.0 billion, which is
likely to commence operation by 2018. The plant will
benefit the company by providing smooth power supply at
reduced cost.

BSRM Steels Limited raised BDT 2.45 billion at a discount


rate of 9.5% p.a. through issuance of Zero coupon bond.
The proceeds of the bonds will be utilized for BSRM Steels'
capital expenditures, refinancing of costly loans and equity
investment in the power project of BSRM Group of
companies. However, debt ratio of the company is
decreasing over the period.

BSRM is the pioneer and leading the market from the front
in the branded steel products.
Investment Negatives

In budget 2016-17, increased tariff value of scrap/ship


scrap and different kinds of MS products ranging between
20-25% will affect the business of the company as they
have to import raw materials for its billet making plant.
Declining price trend of finished steel in local market
caused the revenue of the company to register negative
growth in 2015. Moreover, the plant was shut down for 23
days in 2015 for installing its expanded capacity.
The group is exposed to foreign exchange risk in certain
purchase of raw materials from abroad. Majority of the
foreign currency transactions are denominated in USD and
relate to procurement of raw-materials from abroad.

Designation
Head of Research
Research Analyst

For any Queries: research@ilslbd.com


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3,759

2,097
1,001

2012

1,402

1,248

2013

2014

2015

2016 (Q1 Annu)


Source: DSE & ILSL Research

Last 5 years Price Movement (BDT)


120
100
80
60
40
Jun/12

Jun/13

Jun/14

Jun/15

Jun/16

Source: DSE & ILSL Research

Concluding Remark
BSRM is operating in a high cost- low margin steel industry. In its
latest 3 months performance declarations, the company
reported its profit after tax of BDT 939.81 mn which was 304.51
mn registering 208% growth for the same period of the previous
year. This was due to significant plunge of raw-material (billet)
prices in the international market. COGS decreased to 81% as
percentage of sales from 92% in the same period. Finance
expense has decreased by BDT 40 mn because of repayment of
both the long term and short term loan. The company is
expected to perform better in the coming days as it has
successfully completed its BMRE project and started its
associate companys operation, which will surge its production
as well as profitability.
Source: Annual Reports, Interview with the company management, DSE news,
Company website, the Financial Express, the Daily Star, ILSL Research

Disclaimer: This document has been prepared by International Leasing Securities

ILSL Research Team:


Name
Rezwana Nasreen
Towhidul Islam

Profit After Tax (BDT mn)

Limited (ILSL) for information only of its clients on the basis of the publicly available
information in the market and own research. This document has been prepared for
information purpose only and does not solicit any action based on the material
contained herein and should not be construed as an offer or solicitation to buy or
sell or subscribe to any security. Neither ILSL nor any of its directors, shareholders,
member of the management or employee represents or warrants expressly or
impliedly that the information or data of the sources used in the documents are
genuine, accurate, complete, authentic and correct. However all reasonable care
has been taken to ensure the accuracy of the contents of this document. ILSL will
not take any responsibility for any decisions made by investors based on the
information herein.

June 30, 2016