Introduction

In financial markets, stock valuation is the method of calculating theoretical

values of companies and their stocks. It is one of the things that should be
done before one invests in a particular stock. Adequate research should be
done before investing in any stock and stock valuation is one of the basics.
In this assignment we have performed the stock valuation exercise for BSRM
LTD. We have done the fundamental and technical analyses. We have
described our methods in the appropriate sections. We have also performed
an industry analysis of BSRM LTD. using Porters five forces model.

Business Description
BSRM LTD. is a leading steel manufacturing company in Bangladesh. It mainly
supplies to the construction industry and it is also the exclusive supplier of steel for
the construction of major national infrastructure projects.

Industry Analysis
Industry Overview
Steel is a basic raw material for infrastructural development and multiple other
uses. The demand for steel will inevitably grow in line with the countrys economic
and infrastructural development. Major buyers of mild steel and re-rolled products
include individuals, government and institutional buyers (developers). The
governments infrastructure building activities is an important source of demand.
The demand of MS rod in Bangladesh has been increasing day by day and expected
to increase at the rate by 8% due to the economic and infrastructural development
of the country, expansion of urbanization and booming construction of shopping
mall, market, real estate and other construction for industrial purposes.
Construction of bridge as well as public awareness and preference is increasing for
quality building materials to ensuring safety and better building construction; more
particularly, in recent time to save from earthquake. Due to growing consciousness
among buyers and the generic nature of the products; new manufactures with
efficient and high quality technology will dominate over the existing players using
old technology, because of their quality and price advantage.
There are approximately 300 re-rolling mills in Bangladesh. Except some, most of
the projects use crude technology resulting in production of low quality steel bar.
The domestic consumption of rods/ bars as a whole is met through local production
fully. This steel re-rolling sector continues to be a predominantly fragmented one,
with a few well-known established mills controlling about one third of the entire
market and many more small scale manual operators controls the rest. As the larger
producers expanding their capabilities and take advantage of economies of scale-

smaller mills will find it harder to compete with the larger firms. Under the above
scenario, smaller mills will have have to face serious market competition in future.
Currently, they are questioned in terms of quality. As the larger mills consolidating
their positions, the smaller companies which are already high-cost players, will find
it increasingly difficult to complete. Most steel re-rolling mills in Bangladesh depend
on scrap, leading to lower quality rods used in the market. Very few re-rolling mills
use billets as raw materials. The reasons for this is generally available regularly
locally.
However, the price of scrap and billets during FY 2008 broke the record of the past.
Leaders of the steel and re-rolling industry urged the government to free the import
of old scrap ships and vessels from the control of certain vested groups to reduce
the cost of scraps and building materials. In comparison to the previous records of
import, one must say that the steel industry of the country is passing through one of
its worst times in history. Steel is a basic sector of any industrial economy. Except
re-rolling of the scrap steel, Bangladesh lacks this very basic ingredient of heavy
industry. And without heavy industry, the slogan of industrialization sounds hollow.
The idea of developing a viable steel sector appears implausible seeing that
Bangladesh has no iron ore as one of its mineral resources. But absence of ore does
not disqualify a country from becoming a producer of steel and steel-based
commodities.

Market Share
Bangladesh Steel Re-rolling Mills BSRM

35%

Kabir Steel Re-rolling Mills KSRM

16%

Rahim Steel

10%

Ratanpur Steel Re-rolling Mills RSRM

12%

GPH Ispat

5%

Anwar Ispat

15%

Others

7%

Porters Five Forces Analysis

Threats of New Entrants
Capital Requirement: Steel manufacturing is a high investment sector. BSRM Ltd.
has already invested a large amount of capital and it would be difficult for a new
company to match them.

Government Policy: Steel Industry is one of the key industries of a nation; as such
government policy regarding entry to this industry is usually stringent.
Product Differentiation: Steel manufacturing has very few barriers in terms of
product differentiation does not have any significant price variation. However, BSRM
still enjoy a premium for their products because of its quality and their brand image.
BSRM has introduced brands like BSRM Xtreme 500W, BSRM Grade-75 Wires, BSRM
Angles, BSRM Spring Steel Flats.
Threat of Competitors
Competitors in the industry include KSRM, Rahim Steel, RSRM, GPH Ispat, Anwar
Ispat, etc. Despite healthy competition BSRM Ltd. is by far the market leader.
Bargaining Power of Suppliers
Globally, the top three mining giants BHP Billiton, CVRD and Rio Tinto supply nearly
two-thirds of the processed iron ore to steel mills and command very high
bargaining power. In order to safeguard itself from the high bargaining power of the
suppliers, BSRM has forayed much earlier into the strategy of 'Backward
Integration'.
Threat of Substitutes:
Plastics and composites create a threat to BSRM in one of its biggest market which
is pipes. Steel has already been replaced in some huge number applications: large
diameter water pipes (RCC pipes), railway sleepers (RCC sleepers), small diameter
pipes (PVC pipes), and domestic water tanks (PVC tanks).
Bargaining Power of Buyers:
Some of the major steel consumption fields like construction, ship building, and
power have the advantage of high bargaining power and get great deals.

Valuation Analysis
We have done the valuation of BSRM LTD. stock using both fundamental and
technical analysis. The dividend discount model, and price-to-earnings, and price-to
book value multiples have been used in the fundamental analysis. And the technical
analysis has been done by finding trends and patterns among the historical prices
to relate them with changes in real-life events.
Fundamental Analysis
For the fundamental analysis we have investigated the intrinsic value of stock based
on the dividend discount model and the comparison of multiples.

Dividend Discount Model

We will be using the Gordon Growth Model. For this we are assuming constant
growth till perpetuity. To do this calculation we need to find the required rate of
return and the sustainable growth rate.

Beta
BSRMSTEEL
BSRMLTD
Index Return
10 year Treasrury Bond
Rate
Market Premium
Return on Equity
Tax rate

1.02187
32
2.42995
56
17.6%
10.7%
6.9%
17.7%
25.0%

We calculated the required rate of return using the Capital Asset Pricing Model
(CAPM). = + ( )
The cost of equity was found to 17.7%
We have taken the beta of BSRMSTEEL. This exception is made because BSRMLTD
has been listed for only six month and we assume that the long-term beta of
BSRMLTD will be similar to BSRMSTEEL.
We calculated the sustainable growth rate, g to be 8% using the formula:
= (1 )
Using the dividend discount model formula:
= (1 + )
We get the value of the stock = 33.4
Discounted Cash Flow Model
NPV

Net Debt
Shareholder's

$
25,231,645,231.
3
$
9,886,735,246.0
$

Value

15,344,909,985.
3
195097717

Total No. of
Shares
Value per
Share

78.65

Using the Discounted Cash Flow Model,

PV = CF1 / (1+k) + CF2 / (1+k)2 + [TCF / (k - g)] / (1+k)n-1

Where:
PV = present value
CFi = cash flow in year i
k = discount rate
TCF = the terminal year cash flow
g = growth rate assumption in perpetuity beyond terminal year
n = the number of periods in the valuation model including the terminal year
We get the value of the stock at 78.65.
Valuation Using Multiples
Using the share price that we have received using the Dividend Discount Model, we
compute the multiple Price/Earnings Ratio and Price/Book Value Ratio.

2013
Price/Earnings 22.8
Price/BV
EPS(BDT)
DPS(BDT)

2014

2015

25.7

15.2

4.3

3.7

3.1

4.1

3.6

6.1

1.5

1.5

3.0

2016E
8.4
3.1
11.0
N/A

Comparing it to the actual multiple Price/Earnings Ratio and Price/Book Value Ratio
we see that the stock is overvalued.
Peer Group Comparison
We have compared BSRM LTD. to its peers on a certain number of criteria.

Market Capitalization

Particulars
BSRMSTEE
L
BSRMLTD
GPHISPAT
RSRMSTEE
L

MCAP
31,785,075,000.
0
27,469,758,553.
6
9,043,650,000.
0
3,341,520,000.
0

Market Price

Particulars
BSRMSTEE
L
BSRMLTD
GPHISPAT
RSRMSTEE
L

Market
price
93.
0
140.
8
42.
5
29.
0

P/E Ratio

Particulars
BSRMSTEE
L
BSRMLTD
GPHISPAT
RSRMSTEE
L

P/E
25.
5
28.
2
32.
4
21.
6

P/B ratio

Particulars
BSRMSTEE
L
BSRMLTD
GPHISPAT
RSRMSTEE
L

P/B
3.
3
2.
0
3.
3
2.
2

Technical Analysis

We gauge the performance of BSRM LTD. shares from June 2016- October 2016, by
conducting a trend line analysis on the adjusted closing price of the stock. We see
that it was experiencing steady increase in price but that fell drastically in October.
Recommendation
The stock is currently overvalued and the decision should be to sell.

9. REFERENCES

http://lankabd.com/dse/stock-market/BSRMLTD/bangladesh-steel-re-rolling-millslimited/stock-price?stockId=632
http://bsrm.com/wp-content/uploads/2016/03/1.-Annual-Report-2015.pdf
http://asifkhan.info/2014/02/05/aswath-damodaran-on-cost-of-equity-in-frontiermarkets/

Appendix

DATE

OPENP*

CLOSEP*

TRADE

VALUE (mn)

VOLUME

5/24/2016

136.00

134.90

1,788.00

67

495825

5/22/2016

139.00

135.80

2,179.00

83

602541

5/19/2016

137.00

138.70

2,865.00

111

797417

5/18/2016

131.70

136.50

2,784.00

121

897762

5/17/2016

134.00

131.70

2,844.00

97

735817

5/16/2016

133.60

133.30

2,422.00

77

574552

5/15/2016

138.40

133.30

1,967.00

68

503728

5/12/2016

138.00

137.40

2,735.00

112

806581

5/11/2016

140.70

135.80

3,428.00

142

1030582

5/10/2016

143.70

140.40

3,339.00

137

967053

5/9/2016

161.70

142.60

6,831.00

398

2671374

5/8/2016

149.50

147.00

3,880.00

275

1883476

5/5/2016

153.80

149.60

5,750.00

318

2070069

5/4/2016

144.40

150.90

4,643.00

380

2562911

5/3/2016

141.00

142.90

2,250.00

115

804790

5/2/2016

142.10

139.80

1,626.00

61

439339

4/28/2016

133.00

142.00

3,829.00

212

1539747

4/27/2016

141.00

132.20

2,223.00

128

935263

4/26/2016

149.30

141.20

3,673.00

406

2900047

4/25/2016

167.50

151.90

1,928.00

108

686104

4/24/2016

176.00

166.90

1,214.00

49

291119

4/21/2016

171.00

176.70

1,813.00

86

492239

4/20/2016

178.70

171.90

1,791.00

100

572878

4/19/2016

183.70

178.10

1,608.00

63

346955

4/18/2016

178.90

183.50

1,592.00

77

423634

4/17/2016

183.40

178.70

1,704.00

80

445955

4/13/2016

191.80

183.40

1,808.00

98

526081

4/12/2016

186.70

189.90

1,812.00

125

666250

4/11/2016

189.20

186.40

2,176.00

112

592115

4/10/2016

192.00

189.10

2,555.00

229

1199822

4/7/2016

191.00

193.30

2,381.00

141

734909

4/6/2016

181.00

189.50

2,441.00

185

1008799

4/5/2016

185.00

182.20

1,653.00

133

729819

4/4/2016

191.50

186.60

1,581.00

89

470644

4/3/2016

194.70

190.90

1,571.00

92

481718

3/31/2016

192.00

194.70

2,168.00

138

698333

3/30/2016

184.00

191.10

2,372.00

151

808375

3/29/2016

178.00

181.80

1,531.00

127

706828

3/28/2016

182.50

177.00

1,585.00

91

511063

3/27/2016

180.40

181.80

2,349.00

113

621832

3/24/2016

179.00

181.30

2,942.00

213

1153176

3/23/2016

175.20

181.30

2,305.00

137

765222

3/22/2016

173.90

176.90

2,018.00

105

604284

3/21/2016

163.00

173.80

2,332.00

132

775172

3/20/2016

160.00

162.50

1,334.00

52

328627

3/16/2016

162.00

156.40

1,635.00

69

438735

3/15/2016

165.80

162.50

1,168.00

55

332632

3/14/2016

164.00

165.50

1,023.00

43

259793

3/13/2016

172.90

161.20

1,664.00

81

493149

3/10/2016

175.80

172.20

1,673.00

104

598119

3/9/2016

180.00

175.80

1,357.00

65

369366

3/8/2016

178.50

178.00

2,194.00

165

928462

3/7/2016

169.00

178.50

2,459.00

186

1059357

3/6/2016

187.30

167.40

3,590.00

320

1844601

3/3/2016

204.00

3/2/2016

204.80

204.00

1,591.00

90

444632

3/1/2016

204.50

201.70

1,539.00

85

422498

2/29/2016

197.90

204.30

2,012.00

127

633176

2/28/2016

180.30

195.20

3,063.00

264

1405093

2/25/2016

187.80

178.30

1,831.00

135

745023

2/24/2016

184.80

183.40

2,896.00

280

1503004

2/23/2016

178.40

182.30

3,657.00

377

2035067

2/22/2016

177.00

177.30

3,750.00

387

2178026

2/18/2016

170.00

176.50

3,045.00

207

1193870

2/17/2016

162.60

167.60

3,237.00

220

1328963

2/16/2016

168.70

162.60

3,939.00

357

2142809

2/15/2016

153.00

168.70

3,861.00

430

2658649

2/14/2016

150.00

154.50

2,587.00

334

2096712

2/11/2016

125.00

146.30

6,384.00

566

4056453

2/10/2016

116.30

116.40

406.00

15

132057

2/9/2016

118.70

117.60

534.00

15

129487

2/8/2016

116.00

116.80

634.00

19

164124

2/7/2016

118.90

113.80

668.00

22

194765

2/4/2016

118.00

117.00

752.00

20

167382

2/3/2016

121.90

117.80

576.00

21

172299

2/2/2016

121.90

120.50

1,106.00

28

228397

2/1/2016

117.90

120.10

430.00

14

114370

1/31/2016

119.10

116.90

370.00

13

112285

1/28/2016

122.60

119.10

474.00

13

106959

1/27/2016

123.00

120.50

602.00

21

168072

1/26/2016

121.70

122.00

460.00

14

117427

1/25/2016

124.00

121.30

791.00

26

211371

1/24/2016

124.50

123.70

515.00

18

143343

1/21/2016

124.40

124.10

257.00

1/20/2016

125.80

124.40

473.00

18

140240

1/19/2016

125.20

124.60

424.00

17

132926

1/18/2016

124.60

124.60

779.00

36

289339

1/17/2016

125.70

123.80

636.00

31

243683

1/14/2016

126.60

125.20

657.00

28

222785

1/13/2016

129.00

125.30

746.00

29

227727

1/12/2016

129.70

126.60

801.00

31

244327

1/11/2016

129.20

129.00

582.00

30

229966

1/10/2016

137.50

129.70

1,154.00

50

380230

1/7/2016

138.00

134.80

974.00

45

327070

67417

1/6/2016

135.50

137.20

1,808.00

86

629147

1/5/2016

130.70

133.80

1,880.00

81

613540

1/4/2016

132.90

128.20

1,085.00

52

402504