Escalating costs eat into top-listed steel, cement makers' profits
Factors such as increased raw material prices, energy expenses, higher taxes, and sluggish demand have contributed to the financial strain, impacting their bottom line in the October-December quarter of the current fiscal year, according to industry insiders
Leading companies in the rod and cement sectors have reported a decline in profits due to rising production costs.
Factors such as increased raw material prices, energy expenses, higher taxes, and sluggish demand have contributed to the financial strain, impacting their bottom line in the October-December quarter of the current fiscal year, according to industry insiders.
Although most of these companies experienced higher sales revenue – primarily driven by product price hikes in response to rising production costs – the increase was insufficient to boost profits due to weak demand in the construction sector, insiders added.
Among the top-listed steel manufacturers, BSRM Limited recorded an 8% increase in revenue during the second quarter of FY25. However, its net profit declined by 33% year-on-year.
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Similarly, BSRM Steels, an associate firm of the leading steelmaker, saw an 18% jump in revenue, but its profit fell by 17%.
Another major player, GPH Ispat, reported a slight increase in revenue, yet experienced a 23% drop in profit when the cement sector faced significant challenges.
Crown Cement reported a revenue growth of around 13%, but its net profit plummeted by 50%. Meanwhile, Premier Cement experienced a sharp decline in both revenue and profit.
Meanwhile, investors observed a downward trend in these stocks, with share prices nearing their lowest levels in a year on the Dhaka Stock Exchange.
Market analysts attribute this decline to uncertainty in the construction sector, as government projects have slowed following the recent political transition.
Additionally, ongoing energy supply shortages and high debt costs have further strained the industry. As a result, investors are hesitant to hold these shares amid the current challenges, they added.
Steel manufacturers said despite raising product prices, the selling prices of steel rods remain insufficient to drive profit growth, leading to a shrinking profit margin.
According to them, government construction projects account for 70% of the country's total steel demand, while individual consumers make up the remaining 30%. However, the slowdown in government projects has prevented steelmakers from achieving their targeted growth.
Additionally, challenges in opening letters of credit and an inadequate energy supply have further pressured the industry, driving up production costs even more.
A senior officer at Premier Cement told The Business Standard the company's cement sales declined by 18%, while net profit plummeted by 89% year-on-year in the October-December quarter.
According to him, the drop in sales was driven by two key factors: the stalling of several major infrastructure projects and a leadership vacuum from the city corporation to the union level, which has disrupted various construction activities. As a result, instead of achieving growth, the cement business has faced a downturn.
Meanwhile, Crown Cement, in its financial statement, attributed its profit decline to higher depreciation and finance costs related to its newly installed production unit, as well as a high effective tax rate due to the minimum tax regulation.
The company further stated that it raised the price of cement per bag by 0.63%. Additionally, several strategic initiatives helped boost sales revenue despite the ongoing challenges in the country's construction sector.
