Why govt sugar mills' shares soar amid mounting losses 

Infographic: TBS

Although there is no sign of financial progress, profitability, or returns for shareholders in the near future, three state-owned firms have recently experienced an increase in their share prices.

According to audited data, the listed firms under the Bangladesh Sugar and Food Industries Corporation (BSFIC) have been counting losses in the past few years.

Zeal Bangla Sugar Mills and Shyampur Sugar Mills have been incurring losses for many years while Renwick Jajneswar & Co (BD) – an engineering firm that manufactures products for the sugar mills – has been incurring losses since fiscal 2018-19,

Despite consistently incurring losses, the share prices of government-owned sugar mills have been increasing. This begs the question: why are investors willing to invest in such companies with no signs of returns?

According to market insiders, there may be manipulation in these junk shares by spreading rumours.

Contacted, officials of the sugar mills said there is no progress in the financials at this time and they are not aware of any reason behind the jump in share prices.

When the stock market is passing through tough times brought on by a fund crunch and institutional investors are remaining mostly inactive, the price of junk shares is soaring unusually while the shares of fundamental companies are facing a buyer crisis.

In recent times, some junk stocks, including Zeal Bangla Sugar Mills and Shyampur Sugar Mills, Meghna Pet Industries, Usmania Glass Sheet Factory, and BD Welding's, have seen their shares soar at the Dhaka Stock Exchange (DSE).

How are govt sugar mills faring?

Day after day, the state-owned sugar mills have been losing market share to the private firms in the country.

Now, private sector firms are dominant in the sugar industry, while government-owned mills contribute around 5% of the total 18-20 tonnes demand annually.

So, all the state-owned sugar mills have been counting losses for many years except Carew and Company Limited, which is shining on its distillery earnings.

According to audited data, every year the losses of the sugar mills are mounting as they fail to meet break-even points owing to huge expenses compared to earnings.

For many years, the listed sugar mills have failed to pay any dividends to their shareholders.

According to the audited report, the total loss or retained earnings of the Zeal Bangla Sugar Mills up to fiscal 2020-21 was Tk568.09 crore. A year later, its losses soared to Tk594.61 crore.

According to DSE data, its share price was Tk118.1 on 28 February. Without any price-sensitive information, its shares soared to Tk147.6 each on 13 March. After the hike, its share price declined. But on Sunday, it soared to Tk139.30 each, a 2.8% increase from the previous trading session.

Md Rabbik Hassan, managing director of Zeal Bangla Sugar Mills, told The Business Standard, "The mills are running and sugarcane crushing is continuing."

He said this year's sugar production is not good, but he hopes that next year's production will be better because farmers have planted more sugarcane than in previous years.

"I am not aware of why its share prices are jumping amid incurring losses. But I think shareholders may feel that the government is taking initiative for the company. But I don't know anything in this regard," he added.

Shyampur Sugar Mills, whose production has been suspended since 2020, is incurring losses every year.

Up to fiscal 2021-22, its retained earnings were negative at Tk558.67 crore, compared with Tk505.71 crore in the previous fiscal year.

On 1 March, its shares price was Tk63.1 each at DSE, which rose to Tk90.8 each on 13 March.

After the hike, its share price closed at Tk88.3 on Sunday.

Md Masud Sadik, in-charge of Shyampur Sugar Mills, told TBS, "The sugar mill's operations are suspended to date; there is no update on its resumption. We sent some proposals to the BSFIC but did not know any updates."

Shares in Renwick Jajneswar & Co (BD) also soared in recent times.

On 1 March, its share price was Tk743, which rose to Tk783.1 on 13 March. On Sunday, after the hike, its shares closed at Tk750.1.

Up to fiscal 2021-22, its retained earnings were negative of Tk25.38cr, compared to Tk16.73cr in the previous fiscal year.