Shares take nosedive as Heidelberg Cement suffers losses

The Heidelberg Cement Bangladesh Ltd has suffered significant losses in the third quarter of the current calendar year (July-September), after failing to compete with local competitors.

Following the disclosure of its losses, the German multinational company's share prices dropped by 8.57 percent. The closing price of the Heidelberg Cement shares was Tk176.50 on Thursday.

Responding to a query, a sales official of the company said, "Local companies are selling cement at a lower price, forcing us to drop prices as well.

"Each sack of Fresh and Premier Cement costs the customer Tk385, while Shah Cement sells for Tk400 per sack. Heidelberg used to sell cement for Tk485 per sack, but dropped its price to Tk425 because of the competition," added the official, preferring to remain anonymous.

The Heidelberg Cement suffered Tk14 crore in losses after dropping its prices. The multinational company also lost Tk2.53 per share. In the same period last year, the company had made a profit of Tk12 crore and its earnings per share (EPS) had been Tk2.14.

However, Heidelberg's cement sales increased by 10 percent in the third quarter, with total sales reaching Tk252 crore, compared to Tk230 crore in the same period last year. 

A senior official of the company, preferring not to be named, said, "An unhealthy competition regarding cement prices is prevalent in the Bangladeshi market. This issue is causing a lot of pressure on multinational companies and smaller companies are shutting down their businesses.

"This unhealthy competition is a threat to the cement industry of the country."

In the budget for 2019-20 fiscal, the 5 percent advance tax on raw material import for cement production remained imposed. 

Earlier, there was also a provision that gave companies suffering a poor accounting year some leeway, by allowing them to pay less advance tax the next year through adjustment.

The current budget has no such provision for the cement sector, causing the production cost to increase significantly.

"The production cost of Heidelberg Cement has increased by 20 percent. In the third quarter of the current year, cement production cost reached Tk233 crore, compared to Tk194 crore in the same period last year," an accounting official of the company said.

Necessary material needed for cement production is heavily dependent on the import sector. The price of clinker – the primary raw material for cement production – continues to go up in the international market.

All these factors, coupled with the increasing price of US dollars in Bangladesh, has caused the production cost of cement to skyrocket. 

"The Heidelberg Cement Bangladesh Ltd paid Tk8 crore in taxes from the profit made in the third quarter of 2018. Despite suffering losses, the company paid Tk14 crore in taxes in the current year due to the lack of policy support," said the accounting official on condition of anonymity.

The company made a net profit of Tk1 crore during the first nine months of the current year and its earnings per share stood at Tk0.17. In the same period last year, the net profit was Tk66 crore and earnings per share was Tk11.69.

The cement company currently has Tk2.01 in net operating cash per share, which was Tk9.29 last year. 

Another official of Heidelberg Cement said, "The company is facing a shortage of liquidity as a new unit is being constructed at our Kanchpur factory. Dealers also owe a lot of money to the company."

The Heidelberg Cement Bangladesh Ltd, which listed in the stock market in 1989, presently has a paid-up capital of Tk57 crore. The company made a profit of Tk150 crore and paid its shareholders 300 percent cash dividends in 2016.

The profits have taken a nosedive since. In 2018, Heidelberg Cement Bangladesh Ltd paid its shareholders 75 percent cash dividend.