Soaring raw materials, finance costs bite into BSRM profits

Following record sales and profits in many of the recent quarters, the escalating costs of raw materials and working capital finance have now begun to bite into the profits of BSRM companies.

Both the listed companies of the top steel group of the country – BSRM Limited and BSRM Steels – posted year-on-year declines in the profits for the January-March quarter, despite the fact both the firms secured their significant topline growths.

Since the end of 2020, when raw material costs were soaring and the steel mills, especially the big brands like BSRM, were able to transfer it all to constructors amid good demand for MS rods, BSRM companies had been posting high growths in both their revenue and profits.

A decline in net finance cost and the corporate tax rate was also contributing to the improving net profits.

Nothing remained the same anymore.

However, in the January-March quarter this year, MS rod prices skyrocketed beyond the reach of building constructors following the Russian invasion of Ukraine in late February, while many large real estate firms halted their construction work in response to their abnormal cost hike.

"Steel industry behaved responsibly and kept serving the market, sacrificing some profit margins for the sake of the economy," said BSRM Managing Director Aameir Alihussain.

The latest financial statements published on Monday reveal that BSRM managed to keep selling enough for a higher revenue but at the expense of profits to some extent.

BSRM Steels' sales grew to Tk2,153 crore in the January-March quarter from Tk1,663 crore in the same three months a year ago.

But its gross profit margin – how much of the revenue a company saves after the factory level costs of the goods sold – squeezed to 8.82% from 15.94% a year ago.

Aameir Alihussain said this (the current level) is the usual average gross profit margin for the steel industry and the previous year's high margin was more a one-off outcome for companies which had used previously procured low-cost raw material.   

Earnings per share (EPS) for the three months dropped to Tk2.74 from Tk3.68 a year ago.

Thanks to the high profits in the first six months of the fiscal year that still shows year-on-year growth in the company's nine-month EPS, Tk12.01 from Tk10.93.  

Meanwhile, BSRM Ltd posted revenue of Tk2,371 crore for the third quarter, up from Tk1,872 crore a year ago, and managed to retain its gross profit margin and the net profit after taxes.

The merger with the subsidiary helped BSRM Ltd retain better profitability this year, said the managing director.

However, the EPS for the three months declined to Tk3.9 from Tk6.26 a year ago.

Finance costs are soaring, especially the ones related to working capital, Aameir Alihussain said.

Letter of credits opened earlier at Tk85-86 for each US dollar were settled at Tk92 per US dollar on Monday and it all drastically added to finance costs on top of the fact that import bills are much bigger now for the same raw material, he told The Business Standard.

MS rod price soared by around 50% since the first wave of the pandemic, while the cost of raw material and sea freight soared even more.  

"It's high time the government steps in to keep our finance and some other controllable costs, such as taxes and duties on imports, within a tolerable range," he said.

BSRM Steels' shares closed at Tk78 and BSRM Ltd's at Tk111.2 on the Dhaka Stock Exchange on Monday.