GPH ISPAT LIMITED

Company Overview
GPH Ispat Limited is an integrated steel manufacturing
company in Bangladesh that engaged in manufacturing of M.S.
Billet from Steel Scrap & M.S. Rod from M.S. Billet and
marketing of the same. It was incorporated in Bangladesh as a
Private Limited Company on May 17, 2006, commenced its
commercial production on 21 August 2008 and got listed to DSE
and CSE in 2012.
The principal activities of the company are manufacturing and
trading of structural bar of iron products and steel materials of
all kinds (60 grade, TMT 500W etc.) as well as other metallic or
allied materials of low & medium carbon and low alloy steel
billets (main ingredient of manufacturing graded steel bar) and
marketing thereof. Major clienteles are the Contractors,
Property Developers, Export Processing Zone, Road and Bridge
Construction Company etc. After nourishing internal demand,
GPH steel billets and Bars are exported to other countries.
Domestic market remained as the core revenue source
spawning about 100% of the companys revenue in year 201314 although the company earned 1.91% of its revenue from
export of billet in year 2012-13.
Currently, annual installed capacity of MS Rod and MS Billet is
120,000 MT and 168,000 MT respectively. In the year 2013-14
capacity utilization was 64.44% for MS Rod and 49.72% for MS
Billet.
The Companys main raw material is various steel scrap. The
second largest raw material is Sponge Iron. These two items
cover more than 96% of raw-material consumption. These raw
materials are sourced from local market through ship breaking
yard as well as from foreign market. The company has 27 MW
power connections. 15 MW load connection though 132/33 KV
substation and 33 KV H.T line from PDB and 12 MW gas fired
captive power plant named GPH Power Generation Limited.
Currently, as per the DSE website, 76.09% of the shares of the
company are held by its sponsor/ directors, 12.21% by
institutions and rest 11.7% by general public.
Industry Overview
Bangladesh has more than 400 steel, re-rolling and auto-rerolling mills with a combined annual production capacity of 80
lakh tones, against the total demand of only 40 lakh tones
(market value of BDT 200 billion). The government projects
account for nearly 40% of total steel consumption.
Bangladesh is one of the lowest consumers of steel products in
the world. Per capita steel consumption in Bangladesh now
stands at only 25 kilograms, while it is 55 Kilograms in India,
324 kilograms in developed nations. A number of companies of
the sector, including BSRM, GPH, RSRM, Rahim Steel and
Bashundhara Steel, are producing the raw material billet
locally. The local demand for billet is 4.0 million metric tonnes
annually while 1.5 million MT billet are imported to meet the
country's demand. At present, three big steelmakers -- BSRM,
Abul Khair Steel and KSRM -- supply more than 50% of the
country's annual need for 35-40 lakh tonnes of steel. The
smaller mills in Bangladesh are facing challenges such as price
1

DSE: GPHISPAT
BLOOMBERG: GPH:BD
fall in international steel market and a decline in domestic
demand for construction materials, which are forcing them out
of the market. Over capacity of the steel industry also indicates
enormous export potential, though the option is yet to explore
following some bottlenecks in the export process.
Since steel demand is derived from other sectors like
construction buildings, roads, consumer durables and
infrastructure, its fortune is dependent on the growth of these
user industries. However, Initiation of Padma Bridge
construction, acceleration of Governments big infrastructure
projects under Annual Development Program (ADP) and revival
of the local real-estate industry will undoubtedly boost-up the
steel consumption locally.
Company Fundamentals
Market Cap (BDT mn)

5,688.1

Market weight

0.18%

Free-float (Public +Inst.)

23.91%

Paid-up Capital (BDT mn)

1,247

3 Months Average Turnover (BDT mn)

15.22

3 Months Return

-14%

Current Price (BDT)

45.6

52-week price range (BDT)

44.1 - 59.4

Sector Forward P/E

22.18
2011-12

Financial Information (BDT mn):

Sales
4,386.3
PAT
672.4
Assets
254.2
LT Debt
5,199.6
Equity
352.6
Div. % (C/B)
10/20
Margin:
Gross Profit
18.5%
Operating Profit
15.3%
Pretax Profit
6.8%
Net Profit
5.8%
Growth:
Sales
18.9%
Gross Profit
26.4%
Operating Profit
27.7%
Net Profit
54.3%
Profitability:
ROA
9.8%
ROE
30.7%
Leverage:
62.8
Debt Ratio
%
197.5
Debt-Equity Ratio
%
Interest Coverage
1.77
Ratio
Valuation:
Price/Earnings
28.66
Price/BV
3.44
Restated EPS
1.59
(BDT) (BDT)
NAVPS
13.26

2012-13

2013-14

2014-15

5,387.4
718.6
250.1
4,865.0
249.9
15/10

4,687.2
711.7
278.9
5,846.5
280.1
15/5

5,132.0
734.0
281.4
6,260.6
242.0
-/-

16.3%
13.3%
6.3%
4.6%

18.5%
15.2%
8.7%
5.9%

17.5%
14.3%
8.3%
5.5%

22.8%
7.7%
6.9%
4.4%

-13.0%
-1.0%
-1.0%
30.1%

9.5%
3.5%
3.1%
4.4%

5.0%
14.4%

5.2%
14.9%

4.6%
14.0%

58.4%
156.6%
1.87

56.1%
169.9%
2.16

58.8%
176.3%
2.34

27.45
3.14
1.66
14.54

21.09
2.95
2.16
15.48

20.21
2.72
2.26
16.74

(Q2 Ann)

*As per latest corporate declaration for the year ended 2014-15

December 18, 2014

Investment Positives

5 year Restated EPS (BDT) & EPS Growth

As per the company annual report 2013-14, the company

has renovated their Continuous Casting Machine for
Billet Plant to increase the capacity utilization of the
plant. Moreover, as the price of billet fluctuates fiercely in
the international market which increases cost of steel
production, the company increased its billet production
capacity from 98,000 MT/annum to 168,000 MT/annum in
year 2013. This plant eradicated its dependency on
imported billet, reduced cost of production as well as
exposure to foreign exchange risk.
The company has subscribed 10% equity shares of GPH
steel Ltd, a newly established public limited company to be
engaged in manufacturing of MS Billet and MS Rod. The
paid up capital of the company is 10 mn. The company has
not started its commercial production yet.
Increased import duty on Bar and Rods from 10% to 25%
will increase the price of imported steels and also make
local manufacturers like GPH Ispat more competitive in the
indigenous market.

Investment Negatives

GPH Ispat Ltd. is heavily exposed to leverage. In 2013-14,

debt to total asset ratio stood at 56.1% High interest eatsup a significant portion of its profit. In addition, financial
expenses have accounted for 54% of operating profit in
year 2013-14.
The company is exposed to foreign exchange risk in certain
purchase of raw materials from abroad. Majority of the
foreign currency transactions are denominated in USD and
relate to procurement of raw-materials from abroad.

EPS

EPS Growth
2.16

2.50
2.00
1.50

1.59

2.26

100%
80%

1.66

60%

1.03

1.00

40%

0.50

20%

0%
2010

2011

2012

2013

2014 (Q2, Ann)

Source: Annual Report & ILSL Research

Pricing Based on Relative Valuation:

Sector Forward P/E
Sector Trailing P/E
Market Forward P/E

Multiple

Value (BDT)

22.18
23.06
17.67

50.03
49.85
39.87
Source: ILSL Research

Concluding Remark
GPH Ispat is operating in a high cost- low margin steel industry.
In 2013-14, revenues decreased by 13% mainly because of the
political instability coupled with no export earnings as well as
the average market price of the finished products declined.
Despite negative growth in revenue, net profit amplified up by
30%, riding on the reduction in cost of sales and reduced
financial expenses in year 2013-14. Half yearly annualized
revenue for the year 2014-15 witnessed 9.5% growth but net
profit grew only by 4% due to increased cost of sales and higher
tax expenses as the companys tax holiday period expired in July
2013.
Source: Annual Reports, DSE news, Company website, the Financial Express, the Daily Star, ILSL Research

Price Movement Since Listing (BDT)

100
80
60
40
20
0

Source: DSE & ILSL Research

ILSL Research Team:

Disclaimer: This document has been prepared by International Leasing Securities

Name

Designation

Rezwana Nasreen

Head of Research

Towhidul Islam

Research Analyst

Md. Tanvir Islam

Research Analyst

Md. Asrarul Haque

Jr. Research Analyst

Md. Imtiaz Uddin Khan

Jr. Research Analyst

Limited (ILSL) for information only of its clients on the basis of the publicly available
information in the market and own research. This document has been prepared for
information purpose only and does not solicit any action based on the material
contained herein and should not be construed as an offer or solicitation to buy or sell or
subscribe to any security. Neither ILSL nor any of its directors, shareholders, member of
the management or employee represents or warrants expressly or impliedly that the
information or data of the sources used in the documents are genuine, accurate,
complete, authentic and correct. However all reasonable care has been taken to ensure
the accuracy of the contents of this document. ILSL will not take any responsibility for
any decisions made by investors based on the information herein.

For any Queries: research@ilslbd.com

December 18, 2014