IPO Note: Bangladesh Steel Re-Rolling Mills Ltd (BSRMLTD)

IPO Note: Bangladesh Steel Re-Rolling Mills Ltd (BSRMLTD)
IPO Information
Face Value
Offer Price
Authorized Capital (BDT mn)
Pre IPO Paid up Capital (BDT mn)
Retained Earnings (BDT mn)
Post IPO Paid up Capital (BDT mn)
IPO Issue size ( No. of Shares) (mn)
IPO Issue Size (BDT mn)
Issue managers
Auditor
Credit Rating (CRISL)
Income Data BDT mn
Net Sales
Revenue Growth
COGS
Gross Profit
Gross Margin
Operating Profit
Operating Profit Growth
Operating Margin
Financial Expenses
PAT
Net Profit Growth
Net profit Margin
Operating Activities mn
Inventories
Account Receivables
Account Payables
Working Capital
Balance sheet BDT mn
Asset
Cash
Inventory
A/R
Liabilities
A/P
Equity
Paid up
Retained Earnings
Other Info
EPS (Post IPO)
ROE
ROA
NAV(with Revaluation)
NAV(without Revaluation)
NOCF (Diluted)
Debt/Equity×
Times Interest Earned
10
35
5000
1559
2399
1734
17.5
613
Alliance Financial Services Ltd
Rahman Rahman Huq
AA- (LT), ST-2 (ST)
2011
12664
66%
11588
1077
9%
861
179%
7%
410
1151
341%
9%
2011
5143
443
2565
(458)
2011
14855
95
5143
443
10450
2565
4405
643
1841
2011
6.64
26%
8%
68.46
43.29
14.11
0.9
5.5
2012
14043
11%
13346
698
5%
486
-44%
3%
279
454
-61%
3%
2012
4766
543
2782
467
2012
16840
78
4766
543
9314
2782
7526
1559
1747
2012
2.62
6%
3%
48.29
21.41
3.42
0.7
3.4
2013
8602
-39%
8102
500
6%
278
-43%
3%
264
789
74%
9%
2013
5890
405
3563
(122)
2013
21144
99
5890
405
13025
3563
8119
1559
2399
2013
4.55
10%
4%
52.09
25.60
0.53
0.7
5.3
BDT Mn
Mn
BDT
BDT
BDT
BDT
276
173
1.59
39.75
47.70
63.60
Earning Based Valuation
NPAT (FY 2014A ):
No of Shares
EPS
Price @25x P/E
Price @30x P/E
Price @40x P/E
Date: April 26, 2015
Company Profile:

First fully automatic re-rolling mill producing MS Billet, MS
Rod, and other MS products & also the market leader in
the Steel Sector.

Incorporation: December 28, 1960; Commercial Operation:
1960; Converted into a Public limited company: November
3, 2009

Factory: Re-rolling mills: Baizid Bostami Road, Nasirabad,
Chittagong. Steel Melting Works: Baizid Bostami Road,
Nasirabad, Chittagong.
Employees: 718

Associates: 3 (1 indirectly)- (i) BSRM Steels Ltd, (ii) BSRM
Steel Mills Ltd & (iii) BSRM Iron & Steel Company Ltd (BISCO)
(BISCO is a Subsidiary of BSRM Steels, so BSRM indirectly
holds 29.63% shares in BISCO).

Management: Mr. Alihussain Akberali (Chairman &
Managing Director, 12.67%)
Business Profile:

Produces 60 grade and 40 grade MS bars, angles, channels,
I-beam, great-beam etc.
Installed Capacity: 120,000 MT, Utilization: 106, 810 MT
(89.01%). After Expansion, capacity will be 450,000 MT.

Product Contribution to Revenue: Angles: 30%, Deformed
Bar: 22%, XTREME 500W: 30% & Others: 18%.
Revenue Generation: Local Sales: 97.0%, Exports: 1.0%, Sale
of Scrap: 1.3%, Sale of By-products: 1.1%

Raw materials sources (Scrap & Billets): Apart from local
sources, scrap is also imported from Hong Kong, Germany,
USA, Netherlands, UK, Singapore, Korea & India. Billets are
imported from India, Korea & Singapore.

Bond: On January 09, 2014 BSRM issued 20,000 convertible
(12%) bonds of BDT 100,000 each for equity investment in
BSRM Steel Mills Ltd (BDT 1323 mn) & also for retirement
of expensive loan. Coupon rate: 13%. Repayment will
commence from 2nd Year & 88% will be redeemed over 4
years except SABINCO portion.
Amalgamation: In 2011, Bangladesh Steel Re-Rolling Mills
Limited amalgamated with “Meghna Engineering Works
Limited (MEW)” another concern of BSRM Group engaged
in billet making. Currently, it operates as two separate units
(BSRM Ltd as “Re-rolling mills” and MEW Ltd as “Steel
Melting Works” (SMW) for administrative purpose only.
BSRM Steel uses the billet form SMW to produce bars,
angels, etc.
Backward Linkage: BISCO, Steel Melting Works & BSRM
Steel Mills Limited (not started yet) works as a backward
linkage for BSRM Limited to reduce the dependency on
imports for Billet, one of the main raw materials for steel
making & also to reduce the cost of production.

Associates:
Details
Operation
Production
BSRM’s Ownership
BSRM Steels
April-08
MS Rod
31.19%
Post IPO Securities holding:
Shareholder Type
No. of Shares(mn)
NAV Based Valuation
NAV (2014Q3)
Avg. P/NAV Multiplier
Value
BDT
x
BDT
25.60
2.05
52.48
BSRM Steel Mills
Yet to start
MS Billets
21.76%
IPO offering
Directors/Sponsors
Pre IPO Placement
Total
18
55
100
173
%
Holding
10%
32%
58%
100%
Disclaimer: This document has been prepared by EBL Securities Ltd. (EBLSL) for information only of its clients on the basis of the publicly available information in the market and own research. This document
has been prepared for information purpose only and does not solicit any action based on the material contained herein and should not be construed as an offer or solicitation to buy or sell or subscribe to
any security. Neither EBLSL nor any of its directors, shareholders, member of the management or employee represents or warrants expressly or impliedly that the information or data of the sources used in
the documents are genuine, accurate, complete, authentic and correct. However all reasonable care has been taken to ensure the accuracy of the contents of this document. EBLSL will not take any
responsibility for any decisions made by investors based on the information herein.
IPO Note: Bangladesh Steel Re-Rolling Mills Ltd (BSRMLTD)
Date: April 26, 2015

IPO Fund Utilization Plan:
Particulars
Expansion Project**
Settlement of Loan
IPO Expenses
TOTAL
Amount
388 mn
204 mn
21 mn
613 mn
%
63
33
3
100
*Total Project Cost: BDT 5864 mn, out of which BDT 3,386 mn is from Term Loan,
BDT 1,886 mn from own sources and remaining BDT 592 mn will be from IPO
proceeds.
**For Machinery: BDT 220.20 mn, Finished Goods Storage Shed: BDT 167.31 mn
A comparison between some listed companies in the
Engineering Sector are shown below:
Rev
(mn)
NPAT
(mn)
EPS
RSRMSTEEL
SALAMCRST
Paid
up Cap
(mn)
655
984
5178
2914
248
205
4.16 4 43.36
2.08
22.10
GPHISPAT
1247
5132
315
2.52
17.58
BSRMLTD
BSRMSTEEL
1559
3418
8602
38440
789
1331
4.55
3.88
52.09
23.46
Companies
NAV
Bangladesh Steel Industry Overview:



Demand depends on economic growth, government
investment in infrastructure, factories, demand in the real
estate sector etc. Annual Demand: 3.5-4 mn MT, 70% of it
is in the peak season. Growth rate of the market: 10%
Industry: BDT 300 billion; Total number of factories: 400+;
Re-rolling mills: 200; Employment: 2 million
Except for a few, most of them uses crude technology
resulting in low-quality steel and mostly based on ship
plates derived from ship breaking.
Major competitors:
Established Re-Rolling Mills
Company
BSRM Ltd
BSRM Steels Ltd.
AKS
XYZ Company Ltd.
Rahim Steel Mills Ltd.
Kabir Steel Mills Ltd.
Bashundara Steel Mills Ltd.
Seema Steel Mills Ltd.
ABC Group ( Biazid Steel)
Vikrampur Steel Mills Ltd.
Hoque Steel Complex
Dianimic Steel Mills Ltd.
Anwar Ispat Ltd
RSRM
Others Appx 285 mills
Total

Annual
Capacity
(MT)
120,000
600,000
750,000
120,000
200,000
300,000
50,000
50,000
80,000
45,000
40,000
40,000
50,000
40,000
1,415,000
3,900,000
Actual
Production
(MT)
100,000
630,305
150,000
90,000
120,000
180,000
30,000
35,000
40,000
30,000
25,000
25,000
40,000
30,000
1,200,000
2,725,000 (70%)
Upcoming Projects:
Name of the
Projects
Owner of the Project
Dhaka Elevated
Express
Padma
Multipurpose
Bridge
Saidabad Water
Treatment Plant
2nd Phase
Two to three
Coal Based
Power Project
are in Pipe Line
Total
Ital – Thai Consortium
Limited
Bangladesh Bridge
Authority
Dhaka WASA
Total
requirement of
Re-bars
100,000 MT
170,000 MT
10,000 MT
200,000 MT
4,80,000 MT
Investment Positives:

BSRM’s Expansion of capacity (120,000 MT to 450,000 MT)
is likely to result in higher production and hence higher
turnover & profitability (Expected Revenue: BDT 32,258
mn, Expected NPAT: 2903 mn).

Highest Market Share & Strong Brand Image

As BSRM can procure raw material (Billets) from its
associate companies & sister concerns (BISCO & Steel
Melting Works), it has a cost advantage over other
competitors that have to import billets. Moreover, its
dependency on imports will also be reduced if it can
procure this raw material from its local associates.

In 2013, Share of Profit from Associates was BDT 934 mn
(118% of NPAT). Therefore, BSRM’s performance is mostly
dependent on its associate’s performance.

BSRM decided to partially liquidate its present Term
Loan, with the IPO proceeds; this will reduce its cost of
capital.

5 year CAGR- Sales: 9%, NPAT: 75%.

The ongoing major projects like 'Padma Bridge', 'DhakaChittagong Access Control Highway' and the upcoming
major projects like 'Dhaka Elevated Expressway' and the
'Deep Sea Port' would require huge quantity of quality
construction materials. Successful implementation of these
projects holds a very good potential for the profitability of
the steel producing companies including BSRM.
Investment Negatives:

BSRM is a highly leveraged company. It has outstanding
loans of BDT 5530 mn & Financial Expenses stood at BDT
264 mn in 2013 which was almost 95% of EBIT & 33% of
NPAT.

BSRM is exposed to raw material supply risk as the
company imports Scrap & Billets from international
market. BSRM is exposed to Exchange Rate Risk as the
company imports machineries, raw materials and other
spares against payment of foreign currency.

Economic Slowdown, Shortage of Gas & Power Supply,
political unrest and any change in global or national policies
may affect its productivity/ performance significantly.

Cash Flow appears to be volatile throughout last five years.
Working Capital has been negative from 2009 to 2013
except in 2012.
Financial Review: (2013)

Turnover decreased by 39%. Cost of Goods sold was 94% of
sales compared to 95% in previous year. Operating
expenses were 3% of Sales compared to 2% in the previous
year

Investment in PPE was BDT 96 mn, 45% less than previous
year’s investment (BDT 176 mn)
Disclaimer: This document has been prepared by EBL Securities Ltd. (EBLSL) for information only of its clients on the basis of the publicly available information in the market and own research. This document
has been prepared for information purpose only and does not solicit any action based on the material contained herein and should not be construed as an offer or solicitation to buy or sell or subscribe to
any security. Neither EBLSL nor any of its directors, shareholders, member of the management or employee represents or warrants expressly or impliedly that the information or data of the sources used in
the documents are genuine, accurate, complete, authentic and correct. However all reasonable care has been taken to ensure the accuracy of the contents of this document. EBLSL will not take any
responsibility for any decisions made by investors based on the information herein.
IPO Note: Bangladesh Steel Re-Rolling Mills Ltd (BSRMLTD)


NPAT stands at BDT 789 mn, a 74% increase from previous
year. ROA & ROE both increased compared to previous
year. This increase in NPAT was contributed by NonOperating Income (2% of Revenue compared to 1% in
2012), Share of profit from Associate (11% of Revenue
compared to 2% in 2012) & Other Income (0.08% of
Revenue compared to 0.001% in 2012).
EPS (Post IPO) stands at BDT 4.55 which was BDT 2.62 in the
previous year.
Financial Review: (2014A)

Annualized NPAT stands at BDT 276 mn, 65% less than
2013’s NPAT (BDT 789 mn).

Post IPO EPS stands at BDT 1.59 which was BDT 4.55 in
2013.
Concluding Remarks:

Dividend for 2014 is still pending.

Once BSRM Steel Mills Ltd. start its operation (expected in
2015), cost of production of BSRM Limited is expected to
decline. As a result, profitability is expected to increase.

The earnings of the Company fell drastically in Q3 2014;
however details could not be obtained immediately. The
declining trend in the earning of BSRM might be a major
concern for the investors.
Date: April 26, 2015
Revenue Trend- last 5 years (BDT mn):
NPAT & EPS (Post IPO) Trend- last 5 years (BDT mn):
ROE and ROA Trend- last 5 years:
EBL Securities Ltd. Research Team:
M. Shahryar
Faiz
Farah Tasneem
Shahriar Azad
Shashi
Head of
Research
Research
Associate
Research
Associate
shahryar@eblsecurities.com
farah@eblsecurities.com
shashi@eblsecurities.com
Disclaimer: This document has been prepared by EBL Securities Ltd. (EBLSL) for information only of its clients on the basis of the publicly available information in the market and own research. This document
has been prepared for information purpose only and does not solicit any action based on the material contained herein and should not be construed as an offer or solicitation to buy or sell or subscribe to
any security. Neither EBLSL nor any of its directors, shareholders, member of the management or employee represents or warrants expressly or impliedly that the information or data of the sources used in
the documents are genuine, accurate, complete, authentic and correct. However all reasonable care has been taken to ensure the accuracy of the contents of this document. EBLSL will not take any
responsibility for any decisions made by investors based on the information herein.