Share prices of two BSRM companies dropped the most in the Dhaka Stock Exchange on Monday
The BSRM has been drastically losing profits as pressure mounts on it because of the minimum turnover tax increased in the budget for the current fiscal year.
What adds to the misery of the most dominant group in the Bangladeshi steel sector is its declining sales for tough competition with other companies in the face of low demand for rods in the market.
"Our profits have dropped considerably in the first half of the current fiscal year due to a hike in the minimum tax rate and a drop in sales due to low demand for steel rod in the public and private sectors," Shekhar Ranjan Kar, chief financial officer and company secretary at BSRM Group, told The Business Standard.
The information was revealed after two of its companies – Bangladesh Steel Mills Re-rolling Limited and BSRM Steel Mills Limited – published their unaudited financial reports of the last six months in the fiscal year 2019-20 on Sunday.
The share prices of both companies in the Dhaka Stock Exchange dropped the most on Monday.
BSRM Limited share prices dropped by 9.91 percent during the day's trading. The closing price of the company's share was Tk49.20. On the other hand, BSRM Steel's share price registered a fall of 8.74 percent and the closing price of its share was Tk37.90.
Burden of Tax
The steel sector has been going through a dull time after the new tax measures came into effect in the current fiscal year.
In the budget, VAT and tax were increased from Tk200 to Tk3,300 on per tonne of steel rod at the retail level. Later, the government reduced it by Tk500 to Tk2,800 in light of businessmen's demands. This amount was fixed as the minimum tax.
Earlier, there was a provision to make adjustments to such taxes based on profits and losses.
"Our profits have halved as production cost of steel has gone up with the imposition of the increased tax rate," Shekhar said, adding that the steel sector is passing through a tough time now.
The imposition of Tk2,800 on the sale of per tonne rod is totally illogical whereas a retail seller gets only Tk200-Tk300 in profit, he further said.
Production surpasses demand
The steel companies have increased their production capacity over the last decade, keeping various government megaprojects and industrialisation in focus.
Thus, the companies have witnessed almost continuous business growth.
According to the Bangladesh Steel Manufacturers' Association, the country is now self-sufficient in the steel sector.
In 2019, the combined annual capacity of producing steel was 9 million tonnes and the country consumed 7 million tonnes – the consumption was only 1.6 million tonnes a decade ago.
The steel industry has become almost a Tk50,000 crore industry. The local steel market grew at a rate of 15-20 percent in the last two fiscal years.
Around 100 rolling mills are active in Bangladesh now. In the past few years, a good number of steel and re-rolling mills were set up in the country. Now some big plants such as BSRM, AKS, RSRM and GPH Ispat are in operation.
The BSRM Group holds 25 percent of the market share.
Sales of BSRM Limited declined 42 percent in the first half of the current fiscal year and its net profit dropped by 37 percent during the same period.
The company sold rods worth around Tk2,248 crore in the first six months of FY2019-20 in contrast to Tk3,860 crore in the same period a year before.
It posted a net profit of Tk47.56 crore while the earnings per share was Tk1.53.
The company's sales have gone up by 1,258 percent to Tk8,311 crore over a decade. It has been providing rod to various government megaprojects. Its production capacity has reached 7 lakh tonnes annually.
BSRM Steel Mills Limited was set up to produce billets to averse the risk of potential loss from volatile billet prices in the international market.
Currently, the BSRM Ltd holds a 44.97 percent equity share of the company.
The annual production capacity of this plant is 8.62 lakh tonnes. Most billets produced by it has been consumed by BSRM Steels Limited.
The company's sales fell by 29 percent in the first half of the 2019-20 fiscal year, and its profits dropped by 79 percent in the same period.
Its sales in the first half of the current fiscal year was Tk2,031 crore, down from Tk2,871 crore over the same period of the 2018-19 fiscal year.
BSRM Steels registered a net profit of Tk16.82 crore in the first half of FY20 while its EPS stood at Tk0.45. The company's sales have increased by 285 percent to Tk6,106 crore over a decade.