Newness

Customization

Design

OS updates

Brand status

Price

Risk reduction

Accessibility

BSRM Company Overview &

Business Model Analysis MuntasirMamun 25.01.2015

Acquisition of Particular

Resource & Economic of

Scales

BSRM Iron & Steel Co

Ltd. (BISCO)(Proposed

Manufacturer of M.S.

Billet Steel)

BSRM Steel Limited

(MS Rod Manufacturer)

Alliance for

TechnologicalOptimizati

on

Badische Stahl

Engineering (BSE),

Germany

Danieli Group, Italy

Supply Partners

Scrap Supplier

Billets Suppliers

Power Suppliers

Financial Partners

Different Banks (for

Mortgage Assets)

Value Driven:Property Developer & Road &

Bridge Constructor

Exporting Fee

R&D Expenditure

Production Cost

Internal & External Source of Fund

Personal Assistance in

Stores.

Repair and Return

Center

Email Support

Telephones Support

Communities:

Facebook

Construction

Business

Property

Developer

Road &

Bridge

Construction

Company

Export

Processing

Zone

People Aged

Over 35

Steel Production o XTREME 500 W

o GRADE 60

o STRUCTURAL

SECTION

o SPRING STEEL

Market Need

Analysis

Supply According to

Needs

Export Products

Scrap Metals

Technological

Equipment

Market

Reputation

Skilled

Human

Resource

R&D

Newness

Customization

Strength

Brand status

Price

Risk reduction

Quality Control

Technological

Advancement

Scrap Suppliers

Billet Suppliers

Own Distribution

540 Outside Dealers

Credit Term Dealers

Product sales o XTREME 500 W

o GRADE 60

o STRUCTURAL SECTION

o SPRING STEEL

Asset sales& Services

High end market

and low end

market.

Historical Business Performance, Future Projection and Major Future Variables

Historical analysis is based on ratio analysis. It was not possible to compare with industry analysis as

most other major companies are not enlisted in stock exchange.

Liquidity Asset Management Debt Management Profitability Stock Market

Increasing but bellow

the benchmark (1).

Problematic cash

conversion cycle.

Problem in working

Capital.

Efficient in inventory

Handling.

Inefficient in asset

management and cash

collection.

Exposed to change in

interest rate as highly

financed by debt but

their operating income

is enough to cover

interest expenses.

Showing a

decreasing trend in

profit margins and

ROA & ROE.

Decreasing trend in

P/E ratio shows that

share price has fallen

in past years and may

continue to fall in

coming years.

Future Projection and Variables: Their liquidity condition seems bad as they have made investments in long term asset and

their liabilities have increased. Though their condition is bad now; this company can be profitable in the long run as they have

made the investment. But their major concern for future should be the loosing efficiency in asset management. Efficient asset

management can result in higher revenue and lower cost which will result in higher profitability. In order to save the falling

share price they may ask their institutional investor and directors to buy share from public which will save them from falling

price. So, falling P/E should not be a major concern as most of the shares are held by institutional investors and directors. So

The most important variables for future are to using asset efficiently and making intuitional and directors to buy the shares.

Recommendation: Buy, Hold or Sale

This analysis is done based in three kind of valuation model: (31st December, 2013)

Constant Growth Model Corporate Valuation Model P/E Multiple approach

Intrinsic Price 86.33 21,314,575,311.37 (total value of the company) 75.77

Market Price 68.70 6,518,754,281.00 (total market value of all common

stock)

68.70

Recommendation: Shareholders should hold it as in 2013 it showed little upward trend after market

crash.

Investment thesis

Financial statement of BSRM does not provide uniform information as their dividend and many other

information of financial statement of 2013 do not math with previous year’s information. So,

corporate valuation model suits best for its valuation which shows currently BSRM shares are under

priced. In 2o13 it showed little upward trend and BSRM has made huge investment in PPE recently.

This indicates that their share price may rise in future. At the same time, most of BSRM shares are

held by directors and intuitional investor which means this share is less risky. It is kind of share which

is underpriced, less risky and it has potential to rise share price in the long run. Risk adverse investor

may invest in BSRM share.

Investment risks

BSRM has shown historical standard deviation (2013 – 2015) of 2.5124%. Besides, their publicly

held share amount is only around 13%. Both the data shows that it is a less risky investment.

BSRM is exposed to risk of:

BSRM Steel’s gross and net margin squeezed to 4.96% and 2.26% respectively in 2012, due

to rise in the costs of raw materials, gas & electricity, bank borrowing and BDT depreciation.

BSRM Steel Ltd. is heavily exposed to leverage. It has two syndicated term loan at 6-month t-

bill rate+6%. This high interest eats-up a significant portion of its profit.

Their Financial statements do not provide uniform information. For example, dividend and

much other information of 2013 do not match with information of previous years.

Improvement in efficient utilization of asset in the short run is not guaranteed. Whereas weak

asset management is one of their main drawback.

Since it imports a significant part of its required raw material, violent fluctuation of the billet price in

the international market significantly increases the cost of rod production and squeezes the profit.

Nonetheless, the up-coming in-house raw material plant of the company is expected to reduce the per

ton cost of rod production by BDT 4000 – BDT 5000.