SS Steel to enter ceramics market

SS Steel yesterday announced that it would spend about Tk 200 crore to buy a 75 per cent stake in Southeast Union Ceramic Industries in an effort to expand its product base in the construction sector.

"Ceramic is a construction related product and since we already provide steel, buying a stake in the ceramic tiles producer will strengthen our foothold," said Javed Opgenhaffen, chairman of SS Steel.

Southeast Union Ceramic sells its products under the brand name of SEUCL and FONDI.

SS Steel, which was listed with the country's bourses back in 2019, saw its stock price to rise 3.84 per cent to Tk 22.80 yesterday.

Located on the outskirts of Dhaka in Tongi, the company manufactures mild steel (MS) deformed bars of various grades comprising MS billets and ingots. It also produces MS billets from scrap.

In August last year, SS Steel announced that it would invest roughly Tk 160 crore in Saleh Steel, a maker of MS rods.

Of the total amount, Tk 24.75 crore would be equity investment for a 99 per cent stake.

"We already have a consumer base so catering to ceramic needs will be easy for us," Opgenhaffen said.

Besides, the demand for ceramic products in construction is on the rise, especially in the rural areas, he added.

According to the Bangladesh Ceramic Manufacturers and Exporters Association (BCMEA), the market for ceramic products was valued at around Tk 35,000 crore in 2019.

The industry's production capacity has grown by about 200 per cent in the last 11 years and Bangladesh currently holds 0.14 per cent of the global market for ceramic products.

Local suppliers cater to around 80 per cent of the domestic demand.

"You could ask why we chose Southeast Union Ceramic, but the answer is that the company is run by Chinese management who are sound and efficient in the sector," the SS Steel chairman said.

Southeast Union Ceramic has huge potential in the market since it uses state-of-the-art technology at its factory, which is a China-Bangladesh venture company located in Bagerhat, Khulna.

The company's historical profitability, asset valuation and potential will be considered in an extra general meeting (EGM) of SS Steel, where the company will seek approval from its shareholders to complete the purchase.

Southeast Union Ceramic has a production capacity of around 9.6 crore square feet of tiles per annum, according to data published on the Dhaka Stock Exchange website yesterday.

However, SS Steel is not alone in its foray into the ceramic market as more than a dozen other companies are preparing to do the same.

For example, Meghna Group of Industries (MGI) is investing Tk 400 crore to set up a ceramics factory at the Meghna Economic Zone in Narayanganj.

Of the 68 ceramic manufacturers currently operating in Bangladesh, 20 produce tableware, 32 make tiles and the remaining 16 produce sanitary ware.

So far, around Tk 9,000 crore has been invested in the sector which employs about five lakh workers, including two lakh women.

More than 25 crore pieces of tableware, 20 crore square metres of tiles and 83 lakh pieces of sanitaryware were produced in Bangladesh in fiscal 2017-18, BCMEA data shows.

"Once the shareholders approve our proposal, we will finance the Tk 200 crore cost from the bank and company fund," Opgenhaffen said.

SS Steel has retained earnings and share money deposit of Tk 118 crore and Tk 40.30 crore respectively, according to its first quarterly financial report of fiscal 2020-21.

In regards to their takeover of Saleh Steel, the chairman said that SS Steel has already completed the acquisition.

Established in 1995, Saleh Steel has the capacity to produce about 84,000 tonnes of MS rods and coils annually.

The new investment alone is expected to increase SS Steel's turnover by about Tk 500 crore a year.

Regarding the company's current business situation, its chairman said their business has been relatively stable so far thanks to the government's ongoing infrastructure projects.

"However, the price of raw materials has risen while container handling is tight so the transit time has increased, which has had a bad impact on us," he added.

The company's profits dropped 3.68 per cent to Tk 18.56 crore in the July-September period of 2020-21 according to its quarterly financial report.