Rezwana Nasreen

Head of Research
rezwana@ilslbd.com

BSRM STEEL LIMITED

Company Overview

Investment Negatives

BSRM Steel mainly engaged in production and supply of Xtreme

500W deformed bars of reinforced steel. It commenced its
commercial operation from April, 2008. Its annual installed
capacity is 600,000 MT of which 96% has already been utilized in
2012. BSRM Steel Limited (BSL) was listed to DSE and CSE in
January 2009. BSRM Steels annual consumption of billet (raw
material for producing high quality steel) is 7.2 lakh tones. BSRM
Steel owned 95% interest of its only subsidiary BSRM Iron & Steel
Co. Ltd. (BISCO), which is an in-house billet manufacturing plant.
Still at present, to meet its total requirement, 70% of its raw
materials are imported from Japan, Taiwan, Korea, Turkey, North
America and South America.

Industry Overview

Company Fundamentals

Bangladesh has more than 400 steel, re-rolling and auto-re-rolling

mills with a combined annual production capacity of 80 lakh tones,
against the total demand of only 40 lakh tones. The government
accounts 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 15 lakh tones
are still imported every year.
Over capacity of the steel industry indicates enormous export
potential, though the option is still kept unexplored following some
bottlenecks in the export process.
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.

Investment Positives

Since the prices of billet fluctuate violently in the international

market - increasing the cost of rod production locally, BSRM
Group has taken initiative to set-up a melt shop to produce
860,000 MT MS Billet under the name of BSRM Steel Mills
(BSRM Steel owned 25% stake). The plant is scheduled to
commence its commercial operation by the middle of 2014.
This will fully eliminate its dependence on imported billet,
reduce costs significantly and increase operational efficiency
of the company.
To ensure undisrupted power availability to its upcoming
billet plant, BSRM Steel planned to set-up a captive power
plant. The company already inked a Tk 149.66 crore (Rs 104.4
crore) deal with Siemens Ltd in last April to build the gas
insulated switchgear (GIS) substation that is expected to be
completed within 15 months.
BSRM Steel Ltd. is the leader in the local steel market. Despite
having the highest prices, it caters to more than 25% of the
total domestic steel demand.

BSRM Steels gross and net margin squeezed to 4.96% and

2.26% respectively in 2012, due to rise in the costs of raw
materials, gas & electricity, bank borrowing and BDT
depreciation. Setting up its own billet plant will surely help the
company to secure better margin.
BSRM Steel Ltd. is heavily exposed to leverage. It has two
syndicated term loan at 6-month t-bill rate+6%. This high
interest eats-up a significant portion of its profit. Both loans
will be expired in February, 2014. Moreover, BSRM Steel has
got nod from Bangladesh Bank to borrow $40 million at 6month LIBOR + 4.50% interest rate from foreign sources for its
upcoming billet manufacturing plant.

Market Cap (BDT mn)

Market weight
Free-float (Public +Inst.)
Paid-up Capital (BDT mn)
3 Months Average Turnover (BDT mn)
3 Months Return
Current Price (BDT)
52-week price range (BDT)
Fuel & Power Sector Forward P/E
2010

24,847.0
1.2%
51.6%
3,418.0
46.9
12.0%
72.7
43.7 108.0
17.6x
2013

2011

2012

31,243
922
24,070
2,185
3,221
15/0

38,262
1,001
26,807
977
6,448
10/5

39,130
1,901
27,933
625
7,076
---

8.8%
7.0%
4.4%
4.4%

7.9%
6.0%
3.4%
3.0%

6.5%
4.5%
3.9%
2.6%

12.4%
10.0%
7.1%
4.9%

39%
21.9%
8.6%
68.1%

42%
27.7%
21.5%
-4.4%

22%
0.9%
-9.2%
8.6%

2%
94.5%
129.4%
89.9%

8.7%
85.4%

5.1%
34.4%

3.9%
20.7%

6.9%
28.1%

Financial Information (BDT mn):

22,008
Sales
965
PAT
12,234
Assets
1,198
LT Debt
2,135
Equity
Div. % (C/B)
0/20

(Annualized)

Margin:
Gross Profit
Operating Profit
Pretax Profit
Net Profit
Growth:
Sales
Gross Profit
Operating Profit
Net Profit
Profitability:
ROA
ROE
Leverage:
Debt Ratio
Debt-Equity
Ratio
Interest
Coverage
Valuation:Ratio
Price/Earnings
Price/BV
EPS (BDT)
NAVPS (BDT)
DPS (BDT)

9.8%

9.1%

5.7%

4.8%

56.1%

67.9%

23.8%

19.1%

2.9

2.3

2.6

3.4

25.8x
11.6x
2.8
6.2
0.0

26.9x
7.7x
2.7
9.4
1.5

24.8x
3.9x
2.9
18.9
1.0

13.1x
3.5x
5.6
20.7
---

September 15, 2013

Rezwana Nasreen
Head of Research
rezwana@ilslbd.com

Concluding Remark

6-yr Earnings Per Share (BDT)

8.0

5.6

6.0
4.0

2.8

2.7

2.9

2010

2011

2012

1.7

2.0
0.0
-2.0
-4.0
-6.0
-8.0

-5.6
2008

2009

2013 (Ann)

Price Performance Since Listing (BDT)

BSRM is operating in a high cost- low margin steel industry. Since it

imports a significant part of its required raw material, violent
fluctuation of the billet price in the international market
significantly increases the cost of rod production and squeezes the
profit. Recent decline of billet price enable the company to achieve
improved profit and enhanced margin in 1st two quarters of 2013.
This profit growth of 2013 will sustain if the billet price follows the
declining trend. Nonetheless, the up-coming in-house raw material
plant of the company is expected to reduce the per ton cost of rod
production by BDT 4,000 BDT 5,000, which will provide the
market leader a competitive edge over its existing competitors.

300
250
200
150
100
50
0
Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

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September 15, 2013