LC issues, interest expense drag Lub-rref sales, profits down 

Being unable to open letters of credit (LCs) with banks for raw material imports, lubricant recycler and blender Lub-rref Bangladesh depended on locally procured, costlier raw materials, resulting in the company losing its competitive edge.

As a consequence, the company posted a drastic drop in sales and profits for the first half of the ongoing fiscal year.

Sales for the July-December period dropped by 57% to Tk38.4 crore, down from Tk92.3 crore for the same period of the previous year.

Despite maintaining an equal gross profit margin at the factory level and minimising operating expenses, the firm suffered a blow to profitability as its interest expense doubled to Tk7.3 crore for the six months compared to that for the same period of the previous year, despite the fact that the company's total bank liabilities were only slightly higher.

At the end, its half-yearly net profit dropped by 76% to Tk3.6 crore from that of more than Tk15 crore a year ago. Earnings per share tumbled to Tk0.25 from Tk1.05.

"The current economic crisis has had a profound impact on businesses on both the supply and demand sides, and Lub-rref was no exception," the company explained its deteriorated performance in the public disclosure.

Access to foreign currency proved to be a major constriction, it said, blaming banks' non-cooperation in opening LCs to import raw materials.

The company had to procure raw materials from local sources at exorbitantly high prices, which made its products uncompetitive and caused an unsold stock problem for finished goods.

The continuous fall of the transportation business also caused a decline in sales of lubricants, the company added.

The overall lubricant market also experienced a sales slowdown, according to the company.

"Nevertheless, we are expecting the company to move positively in the upcoming quarter," the company added.

At the end of December, Lub-rref's net asset value per share stood at Tk34.41, while its shares, which had a face value of Tk10, closed 3.7% lower at Tk26.1 on the Dhaka Stock Exchange on Sunday.

The company raised Tk150 crore through an initial public offering in the fiscal 2020-21, and eyed a huge expansion through new projects in Chattogram. 

However, the plan slowed down due to the macroeconomic adversities and the company's underperformance, which made banks cautious about financing.

Some 35.7% of the shares of the company are held by sponsor-directors, 8.35% are owned by institutions, and over 55% are in the hands of the general public.