Equity Note - GPH Ispat Limited

GPH ISPAT LIMITED
Company Overview
GPH Ispat Limited is an integrated steel manufacturing
company in Bangladesh that engaged in manufacturing of M.S.
Billet from Steel Scrap & M.S. Rod from M.S. Billet and
marketing of the same. It was incorporated in Bangladesh as a
Private Limited Company on May 17, 2006, commenced its
commercial production on 21 August 2008 and got listed to DSE
and CSE in 2012.
The principal activities of the company are manufacturing and
trading of structural bar of iron products and steel materials of
all kinds (60 grade, TMT 500W etc.) as well as other metallic or
allied materials of low & medium carbon and low alloy steel
billets (main ingredient of manufacturing graded steel bar) and
marketing thereof. Major clienteles are the Contractors,
Property Developers, Export Processing Zone, Road and Bridge
Construction Company etc. After nourishing internal demand,
GPH steel billets and Bars are exported to other countries.
Domestic market remained as the core revenue source
spawning about 99.3% of the companys revenue in year 201415. Currently, annual installed capacity of MS Rod and MS Billet
is 120,000 MT and 168,000 MT respectively. In the year 201415 capacity utilization was 66.6% for MS Rod and 81.2% for MS
Billet compared to 64.44% and 49.72% respectively in the year
2013-14.
The Companys main raw material is various steel scrap. The
second largest raw material is Sponge Iron. These two items
cover more than 96% of raw-material consumption. These raw
materials are sourced from local market through ship breaking
yard as well as from foreign market. The group has a 12 MW
gas fired captive power plant named GPH Power Generation
Limited.
Currently, as per the CSE website, 56.36% of the shares of the
company are held by its sponsor/ directors, 15.02% by
institutions and rest 28.62% by general public.
Industry Overview
Bangladesh has more than 400 steel, re-rolling and auto-rerolling mills with a combined annual production capacity of 0.8
mn tones, against the total demand of only 0.4 mn tones
(market value of BDT 300 bn). The government projects
account for nearly 40% of total steel consumption.
Bangladesh is one of the lowest consumers of steel products in
the world. Per capita steel consumption in Bangladesh now
stands at only 25 kilograms, while it is 55 Kilograms in India,
324 kilograms in developed nations.
Although a number of companies of the sector, including BSRM,
GPH, RSRM, Rahim Steel and Bashundhara Steel, are producing
the raw material, billet, locally, around 1.5 mn tones are still
imported every year. At present, three big steelmakers - BSRM,
Abul Khair Steel and KSRM -- supply more than 50% of the
country's annual need for 3.5- 4.0 mn tonnes of steel. Besides
the competition from big players, the smaller mills are also
facing challenges such as price fall in international steel market
and a decline in domestic demand for construction materials,
which are forcing them out of the market. Over capacity of the
DSE: GPHISPAT
BLOOMBERG: GPH:BD
steel industry also indicates enormous export potential, though
the option is yet to explore.
Since steel demand is derived from other sectors like
construction buildings, roads, consumer durables and
infrastructure, its fortune is dependent on the growth of these
user industries. However, Initiation of Padma Bridge
construction, acceleration of Governments big infrastructure
projects under Annual Development Program (ADP) and revival
of the local real-estate industry will undoubtedly boost-up the
steel consumption locally.
Company Fundamentals
Market Cap (BDT mn)
5,126.8
Market weight
0.16%
Free-float (Public +Inst.)
43.6%
Paid-up Capital (BDT mn)
1,247.4
3 Months Average Turnover (BDT mn)
3.2
3 Months Return
-9.8%
Current Price (BDT)
41.1
52-week price range (BDT)
32.3 - 52.9
Sector Forward P/E
19.0
2012-13
Financial Information (BDT mn):

5,387.4
Sales
718.6
PAT
Assets
250.1
LT Debt
4,865.0
Equity
249.9
Div. % (C/B)
15/10
Margin:
16.3%
Gross Profit
Operating Profit
13.3%
Pretax Profit
6.3%
Net Profit
4.6%
Growth:
22.8%
Sales
7.7%
Gross Profit
Operating Profit
6.9%
Net Profit
4.4%
Profitability:
5.0%
ROA
14.4%
ROE
Leverage:
Debt Ratio
58.4
%
Debt-Equity Ratio
156.6
%
Interest Coverage
1.87
Ratio
Valuation:
24.14
Price/Earnings
2.76
Price/BV
Restated EPS
1.66
(BDT)
DPS
1.5
NAVPS (BDT)
14.54
2013-14
2014-15
2015-16
4,687.2
711.7
278.9
5,846.5
280.1
15/5
5,988.4
731.7
335.2
6,003.9
634.4
17/0
5,812.3
720.8
340.4
7,538.3
799.9
-/-
18.5%
15.2%
8.7%
5.9%
15.1%
12.2%
7.1%
5.6%
16.2%
12.4%
7.7%
5.9%
-13.0%
-1.0%
-1.0%
30.1%
27.8%
3.9%
2.8%
24.3%
-2.9%
4.3%
-1.5%
1.6%
5.2%
14.9%
5.7%
16.9%
5.0%
16.0%
56.1%
169.9%
2.16
58.1%
170.6%
2.19
61.8%
210.3%
2.24
18.55
2.59
2.16
1.5
15.48
14.92
2.45
2.69
1.7
16.40
15.11
2.26
2.73
-/17.76
(Q2 Ann)
*As per latest corporate declaration for the year ended 2014-15
December 31, 2015
Investment Positives
The Company has decided to enhance the production

capacity of MS Billet by 840,000 M. Ton (per annum) and
MS Rod/Medium Section product by 640,000 M. Ton (per
annum) which will be added to the existing annual
capacity of 168,000 M. Ton MS Billet and 120,000 M. Ton
MS Rod. The project will be funded by issuing Right Share
and borrowing from Financial Institutions. The Company
will raise a total fund of BDT 2,619.54 mn only through
Right Issue at the ratio of 3R:2 (three rights share for every
two ordinary share held) at an issue price of Tk. 14.00
(including share premium of Tk.4.00 each) on paid up
capital subject to approval of the regulatory authorities.
The company has subscribed 10% equity shares of GPH
Steels Ltd, a newly established public limited company to
be engaged in manufacturing of MS Billet and MS Rod.
The installed capacity of the new unit will be 600,000
tonnes a year. The present paid up capital of the company
is BDT 10 mn. The company has not started its commercial
operation yet.
Increased import duty from BDT 5,000 to BDT 7,000 per
ton billet will make the company more competitive as
import of billet for other steel manufacturers in the local
market will be costlier.
Investment Negatives
Last Three Years' Price Movement
70
GPH Ispat Ltd. is heavily exposed to leverage. In 2014-15,

debt to total asset ratio stood at 58.1% High interest eatsup a significant portion of its profit. In addition, financial
expenses have accounted for 45.7% of operating profit in
year 2014-15.
The company is exposed to foreign exchange risk in certain
purchase of raw materials from abroad. Majority of the
foreign currency transactions are denominated in USD and
relate to procurement of raw-materials from abroad.
60
50
40
30
20
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Source: DSE & ILSL Research
Five Year's Restated EPS (BDT) Trend

EPS
3.00
2.50
2.00
1.50
1.00
0.50
2010-11
2011-12
2012-13
EPS Growth
2013-14
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2014-15 2015-16 (HY,

an)
Source: Annual Report & ILSL Research
Pricing Based on Relative Valuation:

Multiple
Peer Forward P/E
Peer Trailing P/E
Market Forward P/E
Market Trailing P/E
11.9
20.2
15.3
15.
Value (BDT)
32.6
54.3
41.7
41.4
Source: ILSL Research
Concluding Remark
GPH Ispat is operating in a high cost- low margin steel industry.
In 2014-15, revenues grew by 27.8% than that of the previous
year. The companys production as well sales increased during
the year 2014-15, as it has increased its production capacity
and renovated their Continuous Casting Machine for Billet
Plant, which helped to increase capacity utilization. Latest Half
yearly financial result shows that revenue witnessed 13.26%
YoY growth while net profit grew by 8.15% on YoY basis.
Source: Annual Reports, DSE news, Company website, the Financial Express, the Daily Star, ILSL Research
ILSL Research Team:

Name
Designation
Rezwana Nasreen
Head of Research
Towhidul Islam
Research Analyst
Mohammd Asrarul Haque
Jr. Research Analyst
For any Queries: [email protected]

To access research through Bloomberg use <ILSL>
ILSL research is also available on Thomson Reuters products.
Disclaimer: This document has been prepared by International Leasing Securities Limited (ILSL) for information only of its clients on the basis of the publicly
available information in the market and own research. This document has been prepared for information purpose only and does not solicit any action based
on the material contained herein and should not be construed as an offer or solicitation to buy or sell or subscribe to any security. Neither ILSL nor any of its
directors, shareholders, member of the management or employee represents or warrants expressly or impliedly that the information or data of the sources
used in the documents are genuine, accurate, complete, authentic and correct. However all reasonable care has been taken to ensure the accuracy of the
contents of this document. ILSL will not take any responsibility for any decisions made by investors based on the information herein.
December 31, 2015

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GPH ISPAT LIMITED

Free-float (Public +Inst.)

Paid-up Capital (BDT mn)

3 Months Average Turnover (BDT mn)

Current Price (BDT)

52-week price range (BDT)

Sector Forward P/E

Financial Information (BDT mn):

December 31, 2015

The Company has decided to enhance the production

Last Three Years' Price Movement

GPH Ispat Ltd. is heavily exposed to leverage. In 2014-15,

Five Year's Restated EPS (BDT) Trend

2014-15 2015-16 (HY,

Source: Annual Report & ILSL Research

Pricing Based on Relative Valuation:

ILSL Research Team:

Mohammd Asrarul Haque

Jr. Research Analyst

For any Queries: [email protected]

December 31, 2015

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