Sonali Paper’s Covid-resilient business strategy boomerangs

The loss of Sonali Paper & Board Mills escalated by 4.8 times year-on-year to Tk 118 million in January-March this year, thanks to unrealised losses from stock market investments.
As a result, the company reported a loss of Tk 3.6 per share for the third quarter through March this year, up from Tk 0.75 per share for the same quarter last year, according to its un-audited financial statements published on Wednesday.
The company’s paper sales grew 2 per cent year-on-year to Tk 700 million in the January-March quarter this year but the higher revenue could not be translated into a higher income because of heavy unpredictable equity investments.
Sonali Paper diverted a significant amount of funds to the stock market from its core business. Earlier, it witnessed higher profits from equity investments compared to its core business.
Company secretary Md Rashedul Hossain said income from stocks had fallen drastically due to the bearish market, which impacted the overall earnings.
The broad index of the Dhaka Stock Exchange (DSE) shed 414 points or 7 per cent in the January-March quarter this year, with well-performing stocks facing price erosion after the withdrawal of floor prices.
“This is an unrealised loss,” said Mr Hossain.
A decrease in the value of an investment, such as a stock or a security, which the investor has not yet sold off, is usually termed as an unrealised loss.
“We will be able to recover the losses when the stock prices go up,” said Mr Hossain , adding that their core business was doing well.
Sonali Paper is maintaining three portfolio accounts in SBL Capital Management, EBL Securities, and ABACI Investment with a total fund size of Tk 318.68 million as of March this year.
The company’s financial statement shows that unrealized losses amounted to nearly Tk 130 million in the nine months through March this year, as against a profit of more than Tk 90 million from stocks during the same time a year before.
However, the company realized gains worth Tk 50 million in the nine months through March this year, up from Tk 47 million from equity investments in the same period last year.
On the back of the negative return [unrealized] from the stock market investments, the paper manufacturer’s profit plunged 67 per cent year-on-year to Tk 59.16 million in the nine months to March this year, despite a 20 per cent higher sales revenue year-on-year to Tk 2.21 billion.
Following the earnings disclosure, Sonali Paper’s stock fell 3 per cent to Tk 183.4 per share on the DSE on Wednesday. The stock plunged 34 per cent in a month since July 29.
Sonali Paper started investing in the stock market in 2021 when educational institutions had been shut down, squeezing the paper business, due to the coronavirus pandemic.
There was no stock market investment until March 2021. Between April and December 2021, the company’s stock investments reached Tk 450 million.
Sonali Paper earned Tk 177.5 million from its core business, while making a capital gain of Tk 178.4 million in July-December 2021. Subsequently, its profit surged more than 574 per cent year-on-year to Tk 256 million in July-December 2021.
Listed companies should focus on core business rather than the risky stock market, said Prof Abu Ahmed, former chairman of the economics department of the University of Dhaka.
“Making money is not a bad thing, but the stock market is relatively a risky place to keep funds,” Prof Ahmed said, adding that, “profit may turn into losses overnight, as we can see now”.
Sonali Paper, a concern of Younus Group, produces white and printing papers, simplex papers and duplex papers. In August last year, it started producing aluminium foil paper boxes from a new product line.
Aluminium foil containers are used in family banquets and in the packaging of food items, such as airline snacks and western-style pastry baking, in shapes and sizes preferred by customers.
In January this year, the company decided to add a new product line — Aluminum House foil. A machine has already been imported and installed on the factory premises.
The company said it believes utilisation of full capacity of the new machine would have a significant impact on its competitive position in the market in addition to an increase in revenue.
In June 2022, the company raised Tk 109.82 million through issuance of rights shares to purchase brand new caterpillar gas generator sets with complete standard accessories.
Under the previous management, the company had incurred huge losses and failed to hold general meetings and make public financial statements between 1998 and 2006.
The prime bourse then transferred the company to the over-the-counter (OTC) market in October 2009. Sonali Paper returned to the main market of the stock exchanges and started trading on July 1, 2020, after remaining 10 years in the OTC market. The financial express