Home ›› 17 Oct 2022 ›› Stock
Mir Akhter Hossain Limited, a publicly traded construction and engineering company, logged a slump in net profit margin in the third quarter of the fiscal year 2021-22 mainly due to its inflated financial expenses.
Besides, the government’s austerity measures regarding its annual development programme (ADP) expenditures, also added a blow to it as the company is heavily involved in government construction projects.
Due to the company’s business nature and its revenue generation policy, its earnings from quarter to quarter see volatility owing to the country’s macroeconomic movements.
Besides, the sluggish construction operations in the monsoon season dated from June to mid-October may add additional woes to the fluctuation in its earnings, according to an equity note prepared by EBL Securities Ltd.
As per the study, Mir Akhter’s net profit margin plummeted from 5.8 per cent in FY18 to 2.8 per cent in the Q3 of FY22 primarily owing to the inflated financial expenses.
During that time, its interest expense surged at a compound annual growth rate (CAGR) of 14 per cent.
The company gets involved in financing heavily through debt capital.
Mir Akhter incline to debt capital in recent years has pushed up its long-term and short-term loans at a CAGR of 17% and 13% respectively between FY18 and September of FY22.
The company registered a 27 per cent year-on-year decline in revenue and a 40 per cent year-on-year shrink in net profit for the first nine months of FY22.
The decline was intensified by the dismal performance logged in the Q3 of FY22 as its revenue dropped to Tk 29 crore in the first nine months of the fiscal from Tk 99 crore in the previous year.
Meanwhile, its earnings per share (EPS) fell to Tk 0.27 from Tk 1.28 on a year-on-year basis in Q3 of FY22.
Furthermore, the company’s performance in the third quarter might have been affected by the government’s austerity policies that were prioritising only a few annual development programme (ADP) projects with limiting the amount of funding for the ‘B’ and ‘C’ categories projects, the EBL Securities’ equity note read.
Incorporated in 1968, Mir Akhter has seat among the top three players in the country’s infrastructure development sector in terms of capacity.
It is involved in the construction of roads, bridges, highways, railway tracks, airports, discharge channels, 5-star luxury hotels, and the constriction of power plants, functional buildings, factory buildings, and complex infrastructural projects.
It has also been engaging itself in gas-pad drilling using its high-savvy utility rigs, river dredging, manufacturing of sleepers, and soil stabilisation.
The landmark projects the company completed so far include the Radisson Blu Water Garden hotel in Dhaka, Mirpur Flyover, Mugda General Hospital, Hatirjheel bridge, Liberation War Museum, Ashuganj 450MW power plant, the 22-kilometre-long Tangail four-lane highway, the 810 metre-long Gaforgaon bridge, Cox’s Bazar airport runway, the 54-km Pabna railway track, and Bakhakhali river dredging.
Currently, Mir Akhter Hossain is working on 29 projects involving an aggregate cost of around Tk 60.9 billion. So, the company would likely generate a significant amount of revenue in the upcoming financial years, EBL Securities commented.
According to the EBL equity note, the company has to import a lion part of the raw materials it is using for implementing the projects; so price fluctuations in the global markets might have adversely affected its business.
The company’s substantial exposure to debt financing also exposes it to a high-interest risk.
Mir Akhter’s business growth is connected with the country’s macroeconomic condition.
In face of the global economic slowdowns triggered by the Russia-Ukraine war, the government recently tightened its development project spending policies and directed the planning commission to revise the ADP by 7.8 per cent. Consequently, the company’s revenue and profit growth are facing volatility, said EBL Securities.
In 2020, the company raised Tk125 from the capital market through an initial public offering (IPO).
Even though the initial planned completion was due within 18 months of acquiring the IPO proceeds, the company only spent only Tk 59 crore or 48 per cent of the proceeds.
The remaining funds slated for the acquisition of heavy machinery and an aggregate processing plant, totaling Tk 65 crore were reallocated by the company for the purchase of dump trucks, excavators, cranes, and other non-heavy machinery.
As per the unaudited financial statement for Q3 of FY22, a total of Tk 21.94 crore in net profit was recorded in the first nine months of the fiscal wish was 41 per cent lower than the figure of Tk 37 crore in the same period of the previous fiscal.
When talking to The Business Post, Mir Akhter’s Managing Director, Mir Nasir Hossain said, “The biggest challenge for us is that our contracts regarding the government projects are fixed in nature. Even if the prices of raw materials increase during the implementation periods of projects, we are not allowed any additional funds to meet the expenses. We are suffering very much from this.”
The country’s construction sector contributes over 10 per cent to the country’s gross domestic product (GDP) while it generates employment for millions of people.
Along with the progress of the country’s economy, the sector is also undergoing major changes, said Mir Nasir Hossain, adding that the construction sector was now shifting from a labour dependence to equipment dependence.
The company reported an EPS of Tk 4.21 and a consolidated NAV per share of Tk 50.86 in FY21.
The company’s stock was traded at Tk 54.2 per share on the DSE trading floor on Thursday.
With a market capitalisation of Tk 669 crore, it has a paid-up capital base of Tk 120 crore and a surplus reserve of Tk 434 crore.
