Recovery outcome not so bright

The pandemic-induced shutdown has cut deep scars through companies with their profits having shrunk largely.

Only manufacturers of essential products such as food, drugs and hygiene products suffered less as they were allowed to continue their operations during the 66-day nationwide shutdown that lasted until the end of May.

On 1 November, a review of the listed companies' updated earnings by the EBL Securities Research reveals that of 227 companies that already posted their April-June results, only 67 saw their profits increasing compared to those a year ago.

Most companies' sponsors directors did not take dividends. Instead, they proposed cash dividends for their general shareholders. But, the amount ranged from 1% to 10% whereas at normal times they offer a lot more dividends.

Most of the companies in April-June experienced degrowth due to shutdown, however, the July-September period witnessed moderate recoveries with increased economic activities, said Mohmmad Asrarul Haque, a research analyst at the brokerage firm.

Following the economic reopening after the shutdown, companies have gradually gained pace in recovery, which was reflected in the July-September reports of more than 120 companies – most of them are either from the financial services sector or multinational manufacturers.

Of them, banks, insurance companies and non-banking financial institutions mostly posted growth in profits compared to the same quarter a year ago, while some manufacturers, especially the multinational ones, also did well.

Banks enjoyed the regulatory relief in terms of addressing nonperforming loans amid the pandemic, also their investments in the capital market are generating better returns following the stock market recovery, said Mohammad Rehan Kabir, senior research associate at EBL Securities covering financial sectors.

The non-bank financial institutions (NBFIs) are in a good position where they do not have to comply with the lending rate ceiling of 9% and they are now getting deposits at a lower rate as the market average rate came way down, he said, adding that capital market return is also helping some NBFIs.

Insurers are posting higher profits as they are compelled to minimise costs under the newly-effective regulatory instructions and industry consensus.

As usual, multinational companies are successfully coping with the adverse time and are the ones to arrest financial impacts of the shutdown best – recovering faster.

Bangladesh Merchant Bankers' Association Vice-President Md Moniruzzaman told The Business Standard, "Increased sales coupled with control of expenses like the ones for promotion helped multinational companies improve profitability."

On the other hand, local manufacturers of textile and apparel products and construction material, and some engineering companies are still facing hurdles in business.

Hotel operators such as Unique Hotel, Bangladesh Services Ltd, Sea Pearl Beach Resorts incurred losses in the last quarter (see our separate story in Stock Page).  

However, the overall pace of recovery has made many companies and analysts cautiously hopeful for a better quarter ahead although challenges are still there.

"We are focusing on quarter-on-quarter growth instead of comparison with the same period a year ago because the recovery from the shutdown effects is not so easy for a large number of companies," said Riad Mahmud, vice-president at the Bangladesh Association of Publicly Listed Companies (BAPLC).

His company, National Polymer Industries is now doing better than in the shutdown quarter, but the business is yet to regain the momentum it had a year ago.

"I feel that is the reality for majority businesses," added Mahmud. "If there comes any quarter-on-quarter slack, we may end the fiscal 2020-21 without a satisfactory financial performance."

He is looking at manufacturing companies in three categories – essential product makers, manufacturers of export goods, and the ones who cater to the local market's demand.

Producers of essential fast-moving consumer goods, pharmaceuticals, and hygiene products suffered in the shutdown the least as they were allowed to run business, Mahmud said, adding, exporters suffered and a large number of them are still reeling due to a broken supply chain and an unstable market.

Companies like Reckitt and Benckiser Bangladesh and ACI witnessed a jump in sales and profits thanks to their hygiene products as the market was hungry for those amid the pandemic.

With the help of government support to pay wages and the concessional low-cost loans, they should have recovered better but their success depends on demand and economic stability in major markets abroad.

For textile and apparel exporters, the gradually narrowing gap between pricing and costing is emerging as a challenge, according to Kutub Uddin Ahmed, chairman of Envoy Textiles Ltd, a leading green apparel exporter listed with both the bourses.

Manufacturers focusing on the local market only received concessional loans, no wage support during the shutdown days. At least half of them are struggling in terms of recovery, as the latest quarterly results are unfolding.

Walton Hitech Industries Ltd, following losses in the April-June quarter, yesterday posted a 12% year-on-year decline in profits for the July-September period.

Singer Bangladesh Ltd, a competitor of Walton in the growing home appliances and consumer electronics market of the country, registered higher profits over the same period following a near 80% drop in profits during the shutdown.

Recovery has its own dependencies, but the potential second wave of Covid-19 is also appearing as a concern, though Bangladesh has passed the first wave comparatively better, opined Rehan Kabir.

He is also cautiously analysing possible consequences of temporary regulatory relief to the financial sector onwards.