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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. page: 1
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 page: 2
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 page: 3
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.
Range of Products and Services Special Gases & Gas mixtures Gas Welding Rod & Flux Gas Welding and Cutting Equipment Any other gas on request Refrigerant Gases (Freon & Suva) Medical Gases Cylinders Anaesthesia Ventilators Anaesthesia Machines ICU/CCU Monitoring System ICU/CCU Ventilators Infusion/Syringe Pump Physiotherapy equipment Autoclave/Sterilizer Gynaecological Tables Medical Disposables Medical Equipment on request Compressed Oxygen Liquid Nitrogen Dissolved Acetylene Carbon dioxide Compressed Helium Sulphurhexafluoride Sulphurdioxide Medical Oxygen Liquid Oxygen Compressed Nitrogen Sterilizing Gases Pulse Oximeter Nerve Stimulator Blood Gas Analyser
Infant Warmer Infant Incubators Dry Ice Argon Lamp gases LPG Liquid Helium Hydrogen Entonox Nitrous Oxide OT Table OT Light Humidifier Nebulizer Resuscitators Hemodialysis Photo therapy Other Products (Materials) Mild Steel & Cast Iron Electrodes Low Hydrogen/Low Alloy Electrodes Stainless Steel & Bronze Electrodes Arc Welding Equipment & Accessories Spot Welding Machines MIG Welding Equipment & Accessories TIG Welding Equipment & Accessories Plasma Cutting Equipment & Accessories Welding Services & Training Welding Equipment Repair
Origin of the Report page: 5
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
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.
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.
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:
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$1311.38 million) on 31 December 2007.
Stock Market Operation:
During January-March 2008 Quarter the total turnover in Dhaka Stock Exchange was 891.54 million securities while the total amount traded on Dhaka Stock Exchange during the same period was TK. 130,020.53 million(US$ 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).
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)
Bangladesh Stock Market Summary
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 shipbreaking 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
market cap and there are only 5 companies. This position also indicates the positive sign for investment in fuel & power sector.
FUEL & Price POWER SECTOR
Price/ NAV per share (mln) 68.84 13.87 (425.02) 13.44 .12 (525.02) 20 10.64 45.14 EPS Div per share P/E NAV per share (mln) 2.12 .40 6.84 1.60 Yield Market Cap Tk (mln) 3463.82 53.04 3.75
No. of share Face value
Share Capital (mln)
profit after Tax (mln) 209.05 1.27 (73.50)
BOC Bd. Ltd. Bd. Welding National Ox.
146.20 5.50 21
15218280 10400000 140000
10 10 100
152 104 14
(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, Rp= f+β(Rm- f) =.08+1(0.2888-0.08) =0.2888 page: 13
=28.88% Estimated return 25.75%
E(R) 28.8 SML
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 page: 14
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. page: 15
Last but not the least; our estimated market value is more than of its current market price.