How dearer dollar hurt Lub-rref's business, expansion

The depreciation of the taka, caused by the ongoing dollar crisis in Bangladesh, has forced Lub-rref (Bangladesh) Ltd, a lubricant producer under the BNO brand, to accept a drop in annual revenue and further defer its ambitious expansion project.

Officials say the cost of the project, which includes a base oil refinery, hydrogen and bitumen production, and a tank terminal with a jetty at its 34-acre plot at Julda Industrial Park in Chattogram, has already surged to Tk2,200 crore from Tk1,500 crore.

The company has also had to extend the project deadline by 18 months after its bank retreated from financing 70% of the project after wasting two years, Lub-rref CFO Mofijur Rahaman told The Business Standard.

The surging dollar also hurt the lubricant blenders business in the 2022-23 fiscal year, as the company posted a 20% drop in its annual revenue that came down to Tk144 crore, he added.

Nearly two-thirds of its revenue came from recycled lubricants, mainly used in diversified engines and the business was less impacted by the macroeconomic issues, according to the CFO.

The superior multi-grade engine oil, which requires imported virgin base oil and other chemicals, was severely affected by the dollar scarcity, making it the company's biggest challenge to open a letter of credit (LC) to import raw materials, he said.

Following the board meeting on Thursday, the publicly traded company informed shareholders that its net profit per share dropped to Tk1.41 from Tk2.13.

Both the production and production cost was affected by the dollar crisis, the company told shareholders.

The cash-strapped company reduced its cash dividends from 10% to 2%, down from the previous two years since going public in 2021.

Of the Tk150 crore equity collected from investors through the initial public offering (IPO), it initially planned to use most of the funds for a balancing, modernisation, renovation, and expansion (BMRE) project at its existing facility in the BSCIC Industrial Estate in Chattogram City.

However, based on the recommendation of its American and German technical know-how suppliers and the energy authority's recommendation it opted for the different site.

The pandemic initially disrupted project work in 2021, as foreign experts were unable to reach the site. Financial hurdles later emerged due to the Ukraine war.

Of the Tk150 crore IPO funds, the company repaid Tk46 crore in bank loans and invested nearly the same amount in expansion. The remaining Tk53 crore will be used to complete the expansion project within the extended deadline.

Mofijur Rahman said Lub-rref is in talks with both local and foreign lenders to finance its integrated project, which would create a robust backward linkage for the lubricant industry.

For example, most of the planned 1,000 cubic metres/hour of hydrogen would be consumed by the base oil refinery unit, which would have a capacity of 70,000 tonnes per annum. Its byproduct would be used by the bitumen plant. The jetty and tank terminal would also help save costs on the transportation and storage of bulk raw materials, while generating revenue from other users.

Despite the frustrating developments for shareholders, Mofijur Rahman highlighted two good pieces of news – Lub-rref's pioneering lubricant testing facility is now generating Tk6-7 lakh in revenue per day, as it is being used by both the standards authority and industry players.

The company's initial plot for the new plants was 16 acres, but it has since expanded to 34 acres. The company has completed land development on the entire plot.

"Given the changed financial landscape, we will try to stick to our original project size in terms of the capacity of the units to ensure efficient large-scale production in the future," said the CFO. He added that the company was prepared to downsize the planned projects if it received less financial support from lenders or investors.

"Downsizing is not our preferred option, but it is not an ideal time for a capital expenditure, as importing raw materials has become difficult," the CFO said.

Local lenders went conservative, foreign loans have exchange rate risks, he added.

The company will have to utilise the entire IPO fund by September 2024.

Shares of Lub-rref, which have a face value of Tk10, closed at the floor price of Tk35.1 apiece on the Dhaka Stock Exchange on Thursday.