National Feed plunges into losses after persistent business decline

Infographic: TBS

While most listed feed makers are posting profits and paying dividends to shareholders, National Feed Mills Limited stands as an exception, having incurred losses in the fiscal 2023-24, leaving its shareholders deprived.

This marks the company's first annual loss since its listing on the stock exchanges after raising funds in 2015 for loan repayment and business expansion.

National Feed Mills incurred a loss of Tk6.62 crore in the fiscal 2023-24.

The company, which produces and sells feed for poultry, fish, and cattle, has also failed to pay dividends to shareholders for the past two fiscal years. This has led to its relegation to the Z-category, commonly referred to as the "junk stocks" category.

Amid the continuing business decline, National Feed Mill's share price has plummeted below its face value of Tk10, closing at Tk8.10. This is a dramatic drop from its all-time high of Tk49 in 2015.

The company had raised Tk18 crore through its initial public offering (IPO) in 2015 by issuing 1.8 crore shares at a face value of Tk10 each. The funds were primarily intended to repay loans and support business expansion.

According to the IPO fund utilisation plan, 40% of the proceeds were allocated to loan repayment, 45% for business expansion, and 5% for working capital. The remainder was used to cover IPO-related expenses.

The IPO was managed by ICB Capital and PLFS Investments, with the latter being a subsidiary of People's leasing, a non-bank financial institution currently facing severe financial irregularities and operational struggles.

National Feed Mill Limited experienced strong growth in its first year after listing, reporting a revenue of Tk225 crore and a net profit of Tk11.44 crore in FY16. Riding on this success, the company disbursed a 15% stock dividend – the highest payout in its history. However, since then, its business has steadily declined.

By FY24, the company's revenue had plummeted to approximately Tk30 crore, while it posted a net loss of Tk6.62 crore.

Akhter Hossain Babul, managing director of National Feed Mill, told The Business Standard, "We are suffering from a severe fund crisis, which has led to the decline in our business." He declined to provide further comments on the issue.

In a price-sensitive statement for FY24, the company attributed its profit decline to severe inflationary pressures, which have particularly impacted farmers and low- to middle-income consumers – its primary target market.

The statement further highlighted several challenges, including the continued devaluation of the local currency against the US dollar and a liquidity crisis in the local banking sector, both of which constrained the company's ability to meet additional working capital needs.

Also, an inadequate supply of gas and electricity, combined with an unstable political environment, disrupted production and drove up costs, the company noted.

According to the company's annual report for FY23, Akhter Hossain Babul founded National Feed Mill after returning to Bangladesh from the USA. He invested his savings, accumulated during his time in the USA, into the company after identifying promising opportunities in the untapped feed industry.

Meanwhile, its peer competitor, Index Agro Industries – also listed on the stock exchange – reported a revenue of Tk337 crore from the feed industry and a net profit of Tk21 crore.

Auditor flags over financials

In its opinion on National Feed Mill's FY24 financial report, the auditor highlighted several critical issues, raising concerns about the accuracy and reliability of the company's financial statements.

The auditor noted that the company reported a long-term loan of Tk63.51 crore at the end of FY24, while the auditor could confirm only Tk61.55 crore. To verify the discrepancy, the auditor contacted the respective banks, but none responded.

Additionally, the company reported interest expenses of Tk6.07 crore on its loans. However, the auditor found interest charges of only Tk4.11 crore in the loan statements, suggesting a potential overstatement of Tk1.95 crore in financial expenses. The auditor flagged this as a significant issue that could materially affect the company's profit.

The auditor also alleged that National Feed failed to provide source documents – such as invoices or receipts – for turnover and material purchases, relying only on ledger entries, which limits the transparency of its financial reporting.

Regarding accounts receivable, the company reported Tk87.10 crore but made no provision for or write-off of potentially uncollectible amounts. The auditor flagged this as a risk to the company's financial health.

Similarly, the auditor was unable to confirm accounts payable of Tk2.47 crore, further raising concerns about the accuracy of the company's financial records.

The audit report also revealed that the company had provided Tk2.50 crore to related parties – Karnopur Agro Industries and National Hatchery – without any clear business justification.