Chattogram-based business group BSRM, which has maintained its dominant position in Bangladesh's steel sector for years, has witnessed a big decline in sales in recent months due to a stiff competition plus a low demand for rods in the market.
"The company's profits have dropped drastically in the first three quarters of the current financial year due to a hike in the minimum tax rate and a drop in sales due to low demand for steel rods in both the public and private sectors," said an official of the company on condition of anonymity.
He also said competition is increasing day by day in this sector – pushing up the cost of sales and distribution gradually. It has put a tremendous pressure on business as well.
The official said the situation has now worsened due to the novel coronavirus pandemic.
"Sales dropped more than 60 percent and there was no profit gain in this tough time. Still the company is on the side of employees and workers with no job and salary cut," he added.
The information was revealed after two of its companies – Bangladesh Steel Re-rolling Mills Limited and BSRM Steel Mills Limited – published their unaudited financial reports of the last nine months in the financial year 2019-20 on Thursday.
The steel sector has been going through a difficult time after the new tax measures came into effect in the current fiscal year.
In the 2019-20 fiscal year budget, VAT and tax were increased from Tk200 to Tk3,300 on per tonne of steel rod at the retail level. Later, the government reduced it by Tk500 in the light of businessmen's demands. This amount was fixed as the minimum tax.
Earlier, there had been a provision to make adjustments to such taxes based on profits and losses.
The imposition of Tk2,800 on the sale of per tonne of rods is totally illogical when a retailer gets only Tk200-Tk300 in profit, said the company official.
Production surpasses demand
The steel companies have increased their production capacity over the last decade, keeping various government megaprojects and the massive industrialisation in the country in focus.
Thus, the companies have witnessed almost continuous business growth.
According to the Bangladesh Steel Manufacturers Association, the country is now self-sufficient in steel production.
In 2019, the combined annual capacity of producing steel was nine million tonnes and the country consumed seven million tonnes. Just a decade ago, the annual consumption was only 1.6 million tonnes.
The BSRM Group holds 25 percent of the market share.
The consolidated sales of BSRM declined 36 percent in the first three quarters of the current financial year, and the company reported a 42 percent drop in net profit.
The company sold rods of around Tk4,040.58 crore in the first nine months of FY2019-20 in contrast to Tk6,336.05 crore in the same period a year before.
It posted a net profit of Tk91.77 crore while the earnings per share was Tk3.14.
The company's sales have gone up by 1,258 percent to Tk8,311 crore over a decade. It has been providing rods to various government megaprojects. Its production capacity has reached seven lakh tonnes annually.
BSRM Steel Mills was set up to produce billets to averse the risk of potential loss from volatile billet prices on international market.
Currently, BSRM holds a 44.97 percent equity share of the company.
The annual production capacity of this plant is 8.62 lakh tonnes. Most billets produced by it has been consumed by BSRM Steels Limited.
The company's sales fell by 28 percent in the first nine months of the 2019-20 financial year, and its profits dropped by 39 percent.
Its sales in the first three quarters of the current financial year was Tk3,292.59 crore, down from Tk4,598.89 crore over the same period of the 2018-19 financial year.
BSRM Steels registered a net profit of Tk71.81 crore in the first nine months of FY20 while its EPS stood at Tk1.91.
The company's sales have increased by 285 percent to Tk6,106 crore over a decade.