Reasons include higher raw material costs, lower govt spending
Major listed construction-related firms witnessed a massive year-on-year drop in profits during the October-December period of the current fiscal year of 2024-25.
This was mainly due to a rise in raw material costs and a drop in government spending on infrastructure projects amid macroeconomic challenges.
Among the eight major listed steel rod, cement, and ceramic producers, only Berger Paints Bangladesh Limited saw a rise in profits.
BSRM Steels Limited, BSRM Ltd, and GPH Ispat Limited—all rod producers—experienced a drop in profit.
Among the cement producers, the profits of Crown Cement PLC and Premier Cement Mills PLC also declined, while Meghna Cement Mills PLC sank into losses.
RAK Ceramics registered lower profits during the same three-month period.
Despite higher sales, these companies saw a decline in profits mainly due to lower margins, said Kamrul Islam, executive director of GPH Ispat Limited.
In particular, finance costs soared as the banking sector raised interest rates, leading to lower profits. On top of that, labour costs also increased, he said.
Although sales returned to their previous level in the second quarter of this fiscal year, they were impacted in the first quarter due to nationwide political movements and sluggish government expenditure, he added.
GPH Ispat Limited’s profits dropped 29 percent to Tk 24 crore in the second quarter, while its sales grew slightly to Tk 1,678 crore.
BSRM Ltd and BSRM Steels Limited saw their profits drop by 40 percent and 16 percent, respectively, over the three-month period.
Since construction-related companies require huge investments, they have high leverage with banks. As a result, their profits are affected when interest rates rise, said a researcher at a leading brokerage house.
The three steel rod companies’ combined bank loans exceed Tk 10,000 crore. Consequently, their net finance costs rose by around 8 percent to Tk 302 crore.
Meanwhile, Crown Cement PLC’s profits halved to Tk 18 crore in the second quarter, even as its sales rose by 12 percent to Tk 920 crore.
Due to high inflationary pressure, people’s spending on construction declined, which impacted the high growth of sales for construction-related goods producers, according to a stockbroker.
Crown Cement PLC stated in its disclosure that its profit dropped due to additional depreciation resulting from an expansion of its capacity and the impact of interest charged on long-term loans taken for the expansion.
A hike in electricity prices and an increase in investment in advertising and manpower in efforts to expand its market share also raised costs, it added.
Premier Cement Mills PLC’s profits also fell by 90 percent to Tk 2 crore, while Meghna Cement Mills PLC sank into losses of Tk 29 crore, despite logging a profit of Tk 94 lakh in the same quarter of the previous year.
According to Meghna Cement Mills PLC, it was unable to open a letter of credit (LC) on time due to a significant US dollar crisis and several days of general holidays caused by political unrest.
When it attempted to open an LC, banks demanded a 120 percent margin, meaning the company had to pay a high amount upfront for importing raw materials, it said.
At the same time, the interest rate increased from 9 percent to 14.50 percent, and the price of raw materials rose significantly, resulting in decreased profits, it said.
During the period, sales collections declined amid high inflation and a challenging economic situation, impacting the company’s cash flow, it added.
In the second quarter, only Berger Paints Bangladesh Limited’s profits rose slightly to Tk 88 crore, compared to Tk 79 crore in the same period of the previous year.
Meanwhile, RAK Ceramics saw a drop in profits to Tk 9 crore from Tk 21 crore in the same quarter of the previous year. https://www.thedailystar.net/business/news/steel-cement-makers-witness-drop-q2-profits-3816421
