Navana CNG capitulates to debts

To diversify its business, Navana CNG entered the bottled liquefied petroleum gas (LPG) sector three years ago but it has ended up with an increasing debt burden by failing to make sales to the expected level.

Navana CNG started bottled LPG business under a subsidiary company – Navana LPG – in 2018 and, to set up a new plant, it borrowed around Tk300 crore from several banks with high interest.

But its LPG business did not grow at its expected rate in the last three years, and due to insufficient income from LPG, it cannot repay the loan instalments in full.

Further, the company is incurring loss by repaying part of the loan instalments. As a result, its debt has increased by 67% to Tk500 crore.

Despite the unhealthy situation, the company has shown shareholders profits over the last two years by taking the deferred tax provision into the income section.

However, when MJL Bangladesh started its LPG business in 2015 under the brand name of Omera Petroleum. A year and a half later, it made a profit in this business because it started the business with foreign loans on easy terms and low interest.

The company is far ahead of Navana in LPG sales.

In the 2020-21 fiscal year, Navana had LPG sales of just Tk279 crore compared to MJL Bangladesh's Tk1,200 crore.

This company belonging to the Navana Group started its journey with CNG in 2004. It has not yet reached the leading position in CNG sales and conversion in Bangladesh. On the contrary, sales have fallen by 14% and profits by 95% in the last decade.

To diversify its business, the company started the business of polymer pipes and fittings in 2011 and welding electrodes in 2013. Although it has done good business in welding electrodes, the pipe business is still not stable.

The money the company earns from these four businesses is not enough to repay the loan instalments. Because in the last financial year its loan instalment was Tk136 crore while the gross profit was only Tk98 crore.

In this regard, Nafis Ahmed, company secretary of Navana CNG, told The Business Standard, "The company's business is currently in a downturn. Hopefully, if the business is good, the debt burden will be reduced."

Shafiul Islam, chairman of the company, said in its FY2021 annual report that business did not go well due to the Covid-19 pandemic.

"But we are trying to turn things around with the introduction of new products. As part of this, we have introduced the LPG conversion system in CNG stations," he added.

Navana CNG got listed on stock exchanges in 2009.

Its share prices also are not stable. Once or twice a year, the company's share price rises abnormally for no reason. For example, in July last year, its share price rose 36%. In the following month, it went back to its previous position. They had similar fluctuations this year as well.

Stock market analysts say the company is at risk due to a lack of corporate governance and excessive bank loans.

To get out of this risk, it needs to increase the size of its business several times. And investing in such companies is very risky, they added.

The company held 21 board meetings in the last financial year. But the two independent directors on their board did not attend the meetings although their responsibility is to look after the interests of the general shareholders.

In this regard, the company secretary said, "Our independent directors resigned last year. Two new ones have come and their appointments have been approved by the board. The appointment will become effective with the approval of the shareholders at a general meeting."