Final Accounting Term Paper

Analysis on Shinepukur Ceramics LTD

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Submitted to:Mr. Mohammad A. MomenProfessor

Prepared by:Group 6

Section A

BBA 20th

Institute of Business

Administration (IBA)

Date of Submission: 15th


Group Profile

Group 6, Section A

BBA 20th

Names ID number

1.Bushra Ahmed RH-21

2.Rehanul Islam ZR- 27

3.Kashfia Tabassum Ahmed RH- 42

4.Sadia Samira RH- 48

5.Siam Haque ZR- 51

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Professor Mr. Mohammad A. Momen

Course Instructor

Financial Accounting II

Institute of Business Administration

University of Dhaka

Sir

We are pleased to submit an analysis on Shinepukur Ceramics Ltd.

We have completed the report through utilizing the accounting

theories and financial statements we learnt throughout Financial

Accounting Course.

We have included the company’s past successes and their future

prospects. We have concluded by giving Shinepukur’s standing

among its potential competitors in the industry and by evaluating

its performance when compared to international standards. We have

tried our very best to tailor the Report according to your

guidelines.

Therefore, we request you to accept our report. We believe that

you will find it in order. We are eagerly expecting your feedback

on the overall report.

Yours sincerely

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http://iba-du.edu/index.php/page/all_faculty/16


Group 6, Section A, BBA 20th

Bushra Ahmed, RH- 21 Rehanul Islam, ZR-

27

Kashfia Tabassum Ahmed, RH-42 Sadia Samira, RH- 48

Siam Haque, ZR- 51

AcknowledgementWe would like to show our sincere gratitude to Professor Mr.

Mohammad A. Momen,

our Financial Accounting Course Instructor, Institute of Business

Administration, University Of Dhaka who set us with this report

and shown us the proper methods for preparing an financial

statement analysis.

We are have made this report with the help of annual reports of

Shinepukur Ceramics Ltd for the year ended 2007, 2008, 2009, 2010

and 2011. In addition we used statements of market experts to

support our evaluation.

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Last, we extend our gratitude to all those who helped us in the

process of completing this report either by providing us with

valuable data and information or merely by their enormous support

and encouragement.

Executive SummaryShinepukur Ceramics LTD is a company engaged in production and

marketing of high quality porcelain and bone china tableware in

the local and international markets. Currently, SCL has more than5 | P a g e


3,000 highly skilled & motivated employees, cutting-edge

technology, world class product quality and its blue chip

overseas customers. The Bone China Unit has in fact been set up

with technology transfer from NIKKO Japan, coupled with extensive

training facilities.

In 2008 SCL received “National Export Trophy” as recognition for

highest export. Also, Shinepukur was listed in the Dhaka Stock

Exchange (DSE) and Chittagong Stock Exchange (CSE) as a Public

Limited Company.

In 2009 a major expansion moves, Shinepukur signed MOU with a

renowned German company to expand its Bone China unit, at worth

of Tk. 80 crore.

In 2011, Shinepukur received ‘National Export Trophy (SILVER)’

for FY 2009-2010 by the Govt. of Bangladesh as recognition for

highest export. Also, Shinepukur was awarded ‘Dun & Bradstreet

Corporate Award’ – first and only listed Ceramic Tableware

Manufacturer of Bangladesh to receive such an honor and

recognition.

In addition with this achievement throughout the past few years

Shinepukur has continuously reinforced their good performance by

providing stockholders with regular cash or stock dividend. They

have also been successful in maintaining a moderate balance of

liquidity and profitability.6 | P a g e


Table of ContentsParticulars Page

1.Introduction 07

2.Entry in Share Market 09

3.Problems Encountered by SCL 09

4.Historical Performance Analysis

10

5.Evaluation from perspective of financers

13

6.Industry Analysis 15

7.World Economy Analysis 22

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8.Financial Statements 26

9.Prospect Analysis 38

10. Recommendation 39

IntroductionCompany OverviewShinepukur Ceramics Limited (SCL) was incorporated in Bangladesh

on 26th January 1997 under the Companies Act, 1994 as a private

Company and commenced its manufacturing operation in 1999. It was

converted into a public Company on 7 May 2008. The registered

office of the Company is located in Dhanmondi R/A, Dhaka. The

industrial units are located at Beximco Industrial Park, Sarabo,

Kashimpur, and Gazipur. It is engaged in manufacturing and

marketing of high quality Porcelain and high value added Bone

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China Table wares, which it sells in the local as well as

international markets. SCL has no subsidiary or associate-

Company. Bangladesh Export Import Company (Beximco) Ltd owns its

100% shares, thereby becoming its holding Company

Products OfferedShinepukur presently manufactures Shinepukur produces World Class

Bone China. Complementing its superb range of Bone China,

Shinepukur also offers Porcelain, Ivory China and High Alumina

tableware for all different market segments. The following are

the products:

BONE CHINA UNIT:

Bone China Tableware;

New Bone China Tableware;

Ivory China Table ware.

PORCELAIN UNIT:

High Alumina Porcelain;

Imperial Porcelain.

These products are supplied in White, Gold Line, Platinum Line,

Color Line, General Decoration, Border Decoration, and Full Rim

Decoration with both options for On-glaze and In-glaze.

Product DistributionSCL distributes its products in the following manner:-

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LOCAL MARKET:

- Through Own Showroom and Franchise Showroom;

- Through Local Distributors/Wholesalers;

- Through Local Retailers/Chain Stores; and

- Direct Sales and Delivery to

Institutions/Organizations/Corporate Houses.

INTERNATIONAL MARKET:

- Through Own Showroom (Wholesale) in the USA.

- Through Yellow Showroom (Retail) in Pakistan (Yellow Brand)

- Through Reputed Importers in Europe, North America and Middle-

East (Customer Brand).

- Through Reputed Retailers in Europe and North America (Customer

Brand).

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Entry into the Share Market

During the two-hour trade to 12 at noon, 71,500 Shinepukur

Ceramic’s shares worth BDT 67.43 lakh were sold. On Chittagong

Stock Exchange, a total of 8,200 Shinepukur Ceramic’s shares

worth BDT 7.76 lakh were sold. The fund raised from the stock

market will be utilized for investment in Beximco's subsidiary

companies (including Shinepukur Ceramics Limited) for expansion

of their capacities, repayment of their debts, diversification of

their businesses and providing working capital, according to

sources in the Beximco.

Problems Encountered by SCL

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The problems that the ceramic sector is facing in Bangladesh are

as follows:

The firm suffers due to irregular power and gas supply. According

to the industry sources, to harness power during the shortfall

period they used diesel-run generators, but due to high oil

prices it was very expensive.

Ceramic manufacturers pay high tariff on gas compared to other

sectors.

The industry faces high import duty on certain ceramic raw

materials from 7.5 percent to 15 percent. Besides, this sector

pays high Value Added Tax (VAT) of 15 percent on produced goods.

The firm also faces difficulty in getting health certificate from

Bangladesh Standard Testing Institution (BSTI), which is required

by many international buyers, especially in European market. The

existing complex pre-shipment procedure delays the process of

export and involves additional expenditure to increase production

cost.

In Bangladesh there is shortage of raw materials for ceramic

goods and the manufacturers are 100% dependent on import of raw

materials from overseas. Besides, close competitors like China

and India have their own raw materials. Hence, the government

should take steps to find deposits of superior quality clay for

ceramic.

This company lacks high level manufacturing and industrial

engineering techniques, required machinery and equipment and

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international standard laboratory for testing and quality

control.

Historical PerformanceAnalysis

There was only a 1.08% increase in current assets in 2008. In

2009 current assets increased by 54.46%. However, it declined

36.01% in 2010 and increased by only 5.5% in 2011. The cash

equivalent increased 24.65% in 2008 and 73.62% in 2009. But in

2010 cash decreased by 2.58% only to increase by 12.55% in 2011.

The current assets were 22.61% of total assets in 2011 down from

41.30% of total assets in 2007.

The current liabilities increased 17.37% in 2008, 12.19% in 2009

and decreased 2.58% in 2010. Current liabilities again increased

12.55% in 2011.

Total assets grew by 45.46% in 2008. Total assets again grew by

33.67% in 2009 but decreased by 13.82% in 2010. Finally, in 2011

total assets rose 39.57%.

Increase in share trade:The EPS of Shinepukur Ceramics (face value BDT 10.00) in 2007 was

BDT 1.86(adjusted). In 2008, 2009 and 2010 the EPS was BDT 2.57,

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BDT 2.05 and BDT 2.62 respectively. In 2011 the EPS went down to

BDT 1.52.

The share capital was BDT 660,600,000.00 in2007 which increased

6.00% to BDT 700,236,000.00 in 2008. In 2009 it grow to BDT

840,283,200.00(20.00% increase). In the following years the share

capital increased by 15.00% to BDT 966,325,680.00 in 2010 and to

BDT 1,111,274,530.00 in 2011.

Profitability

NET PROFIT

In 2007 the net profit was BDT 130,231,324.00 (75.34% of net

sales). This has increased to BDT 1,767,801,569.00 in 2011(92.97%

% of net sales). But the growth was inconsistent. The net profit

rose by 27.62% in 2008, fell 4.38% in 2009, again rose 31.94% in

2010 and finally increased 85.67% in 2011 to reach its current

level.

GROSS PROFIT

The gross profit of Shinepukur Ceramics increased through 2007

to 2010, increasing 8.76%, 10.70% and 15.06% in 2008, 2009 and

2010 respectively. But the gross profit dropped by 0.87% in 2011.

But compared to the 32.87% of the revenue from net sales, the

gross profit increased to 34.36% of net sales in 2011.

RETURN ON ASSETS

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The return on assets was little over 4% in 2007 and 2008(4.26%

and 4.04% respectively). It fell to 2.90% in 2009, but recovered

to 4.94% in 2010. And finally took a massive leap to 24.71% in

2011.

RETURN ON EQUITY

Keeping on the same track as return on assets, the return on

equity decreased from 12.59% in 2007 to 7.57% in 2008 and then to

its lowest of 6.95% in 2009. However, it increased to 9.27% in

2010 and peaked at 39.29% in 2011.

EARNINGS PER SHARE

The most widely used and important measure of profitability is

the earnings per share (EPS).The EPS for the company is alright

at Tk.1.52 in 2011 though it was Tk. 2.62 in 2010.

LIQUIDITY

CURRENT RATIO

The current ratio of Shinepukur Ceramics has gone down from 1.82

in 2007 to .98 in 2011, decreasing 46% in 5 years. Their debt

paying ability has decreased significantly. In 2011 they did not

have adequate current assets relative to their current

liabilities.

INVENTORY TURNOVER

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The inventory turnover ratio has changed sporadically. It was

1.1 in 2007. It reached its lowest point in 2009 to 0.86

indicating the lowest efficiency in five years. From there

inventory turnover and efficiency increased to 1.5 in 2010 and to

1.4 in 2011.

ACID TEST RATIO

The ideal acid test ratio is considered 1:1, but the acid test

ratio for the company is quite alarming. In 2011 the acid test

ratio has been calculated as 0.44 which is very low. Even in 2007

the acid test ratio was 0.60 (highest in the 5-year period) which

is very worrying. The decline in acid test ratio in the recent

years was because the company was stockpiling on imported raw

materials for fear of further devaluation of taka against euro,

as most of the raw materials are imported for European countries.

ACCOUNTS RECEIVABLE TURNOVER

The accounts receivable turnover is to some extent acceptable for

this industry. In 2011 the accounts receivable turnover was 3.23

although the figure drooped to an alarming 1.97 in 2009 the rate

has since then improved.

EQUITY/ SOLVENCY RATIOS

STOCKHOLDERS’ EQUITY RATIO

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The stockholders’ equity ratio was 33.83% in 2007. It increased

to 53.41% in 2008 and did not change significantly in the next 2

years. But in 2011 it rose to 62.90%. But the stockholders equity

increased 129.68% in 2008 indicating a large amount of additional

investments by the shareholders. The next major increase was in

2011(64.71%).

DEBT TO STOCKHOLDERS’ EQUITY RATIO

The debt to stockholders’ equity ratio was 132.75 in 2007, 103.03

in 2008, 56.77 in 2009, 44.41 in 2010 and 35.69 in 2011

reflecting the gradual increase in shareholders’ investments.

NET ASSETS VALUE PER SHARE

The net assets per value per share in 2011 were Tk. 40.49 which

is quite a gain in wealth for the shareholders, as the figure was

only Tk. 28.27 in 2009.

NET OPERATING CASH-FLOW PER SHARE

Due to improved control in the flow of cash, net operating cash-

flow per share has improved from Tk.-0.11 in 2007 to Tk.3.93 in

2011.

Evaluation as a financer

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A financial statement is a document that reveals to the public a

company's operating accomplishments and financial performance.

Investors and shareholders review this document to evaluate how

management runs corporate affairs. Shareholders, also known as

stockholders or buyers of equity, own the company and hold voting

rights.

BALANCE SHEET

A balance sheet provides insight into a company's assets, debts

and equity capital. A shareholder reviews a statement of

financial position to gauge a company's solvency in the short and

long terms. Specifically, the shareholder analyzes the company's

working capital and debt levels to identify potential liquidity

issues in the short term. Working capital is a measure of short-

term cash availability and equals current assets minus current

debts.

To start with, Shinepukur’s working capital has been enough in

the five years starting from 2007. It is supported by decent

current ratio and quick ratio. However, neither of these ratios

seemed to match or exceed the standard ratio of 2:1 and 1:1

respectively. This makes it evident that Shinepukur has been

lagging behind. In fact in 2011 the liquid assets has declined in

amount immensely compared to initial year. Consequently, the

shareholders may be discouraged to invest in the company as they

may not get adequate profits.

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On the contrary the amount of debts has been falling as relevant

from debt equity ratio of 135.75 in 2007 to just 35.69 in 2011.

It means that cost of debt financing will not use up too much

profit thus leaving a more handsome amount for dividend payments.

It will act as a motivation for shareholders to invest.

STATEMENT OF SHAREHOLDERS' EQUITY

Shareholders review a company's statement of retained earnings to

find out who else owns the company. Knowing other shareholders is

important, strategic exercise in the modern-day business

environment. An in-depth review of a company's stockholders tell

investors who may gain a majority ownership stake in a firm in

the future, depending on share purchase activities in the short

term.

INCOME STATEMENT

A stockholder sifts through a firm's P&L to identify factors that

impact revenue levels and sales growth, with a special emphasis

on areas that show weak sales. Clearly, lethargic sales harm a

company in the long term, as they make the company lose market

share and experience financial distress that may result from

operating losses.

The amount generated form sales revenue has increased drastically

by almost around 25% in 2010, 2011 compared to that of the

previous three years. Nevertheless, the profit did not increase

according in fact fell down in comparison to the sales and share

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issuance. The EPS thus fell to 1.52 in 2011 from 2.57 and 2.62 in

2008 and 2010 respectively.

Overall, it would not positively influence investors as no one

wants to invest in a low profit making venture.

STATEMENT OF CASH FLOWS

A statement of cash flows tells a shareholder how a company

manages its cash. The statement provides insight into a company's

liquidity levels, indicating whether these levels are adequate to

finance operating activities. Stockholders keep a close eye on

cash disbursements (outflows) and receipts (inflows). A liquidity

report indicates (in this order) cash flows from operating

activities, cash flows from investing activities and cash flows

from financing activities.

In 2007 there was a decrease in cash and Shinepukur revived

business in the very next year and kept the performance in the

following two years as well. Unfortunately, in 2011 there was

again a decrease in cash and by a larger amount. In spite of the

fact that in 2011 Shinepukur was utilizing a larger amount of

cash that it received from issuance of more shares. Over all

negative balance may make shareholders reluctant to put more

money into the shares of this company.

Industry Analysis20 | P a g e


HISTORY OF THE INDUSTRYTraditionally known for jute and tea exports, Bangladesh entry

into ceramic export market is not that old. But the industry has

witnessed a rapid growth since 1991. This sector has already

earned a good name in the global market for its quality products

with elegant getup and design. Bangladesh exported only US$1

million worth of ceramic wares in 1991 before recording a

staggering 695% growth in about a decade. Though the export

earnings from ceramic sector are growing rapidly, it is no match

in comparison to the readymade garment or leather sectors.

Ceramic products have a $20 billion global market, of which

Bangladesh’s share is only 0.17%. However, a silent revolution

has been taking shape in the country’s ceramic sector for the

last few years. This industry contributes a lot to the country’s

overall development by generating direct and indirect employment,

attracting foreign investment and exploring new markets in

Europe, the USA, the UAE and the Middle East.

PRESENT SCENARIO OF CERAMIC INDUSTRY

The global ceramic industry is worth of US$20 billion. Bangladesh

is perfectly positioned to expand rapidly in this sector with its

high quality, cost ratio and creative human resource base.

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Traditionally, ceramic industry is a labor-intensive sector and

companies in developed countries experience difficulties in

remaining competitive due to rising labor cost and recent global

financial crisis. Bangladesh, being a gas rich, low-labor cost

economy and having advanced ‘bone china’ technology, is perfectly

positioned to be a strategic partner in production and supply

of ceramic goods (Board of Investment, Bangladesh). The ceramic

industry is surprisingly not quite a new one in Bangladesh. It

dates back to 1962. People Ceramic Industries Ltd (PCI) pioneered

the manufacture of porcelain tableware in Bangladesh. According

to Bangladesh Ceramic Ware Manufacturers Association (BCWMA),

there are approximately 40 ceramic manufacturers operating in

this industry producing tableware, sanitary ware and tiles. A

medium scale ceramic plant needs around Taka 10 crore (Taka 100

million) in initial investment and the BCWMA sources say the

present investment in the country’s ceramic industry is roughly

about Taka 2,000 crore (Taka 20 billion) and this sector employs

some one lakh (0.1 million) workers. Shinepukur, Monno, Bengal

Fine, Standard, Peoples and National Ceramic are considered as

major players in ceramic tableware market. RAK, Fu Wang, China-

Bangla, FARR, Modhumoti, ATI, Sunflower, Great Wall, Dhaka-

Sanghai and Mir are considered as major manufacturers of tiles

and sanitary wares. The total capacity of ceramic tableware

manufacturing companies is nearly 24,000 ton a year as of 2008,

of which an average of 48 percent is exported and the remaining

52 percent is used in the domestic market. Monno and Shinepukur

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have the highest production capacity of nearly 60,000 pieces a

day, followed by Standard ceramics with 40,000 pieces a day.

According to a market study, the existing tiles factories

produced 374 million square feet of tiles in 2008 and the output

is estimated to grow at the rate of 17 percent in 2009 and 2010.

Of the total production of 322 million square feet of tiles in

2007, RAK ceramics alone made 74 million square feet followed by

China- Bangla, Fu-wang an Mir, each produced slightly over 30

million square feet of tiles. Over the years, the ceramic

industry in Bangladesh has flourished immensely and has gained

recognition throughout the world. Local ceramic ware

manufacturing industry is expecting a steady growth with a US

$100 million return from exports by 2015 as the global market

favors more shipment from Bangladesh. The Export Promotion Bureau

(EPB) and Bangladesh Bank statistics put the total value of

export earnings from ceramic were at $38.33 million in the FY

2007-08, up by 28% from the previous year and in the last fiscal

year, the earnings stood at $31.70 million. After a consistent

growth in last 15 years, this sector is now in a good position to

achieve the target of $100 million export earnings. Quality of

products has helped Bangladesh to carve a niche in the global

market; the manufacturers in this sector are taking risks while

diversifying their designs into world-class standards.

Furthermore, the natural gas that is used in the kilns of the

Bangladesh's ceramic industry does not contain any sulphur and

that is why the country's ceramic products look brighter and

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shiny. The close competitors of Bangladesh are China and India,

but they mostly produce traditional items. Moreover, due to

recent global financial crisis and rising labor cost, the

developed countries are placing more orders to low-cost countries

like Bangladesh. The trend of growth rate of this sector since

1991 show that the export market will grow further. To cope with

the increased export demand, all major exporters, such as Monno

Ceramic, Shinepukur Ceramic, and Bengal fine ceramic, have been

expanding their plant. Though export market of Bangladeshi

ceramic industry is growing, the domestic market share of local

ceramic wares is shrinking due to widespread import of low-priced

foreign goods, mainly from China. As overseas demand is going up,

country’s major manufacturers are now pumping 80 percent of the

production into the international market. Moreover, the local

companies export much of the products to the international

market, thus creating a demand-supply gap in Bangladesh. Due to

this, imports of ceramic products in Bangladesh are increasing

very fast parallel to the growth in export. In the year 2008-09,

for instance, the country imported finished ceramic products,

glass and glass ware products worth of approximately US$75

million and exported ceramic products worth of US$31.70 million.

COMPETITIVE RIVALRY WITHIN THE INDUSTRY

The ceramic industry of Bangladesh faces stiff competition from

foreign sources like Sri Lanka, China and Thailand but the

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domestic marketplace is yet weakly competitive. Ceramic

manufacturers like Monno Ceramic, Shinepukur Ceramic, Standard

Ceramic, FARR Ceramic and Bengal Fine ceramic are still leading,

especially in the export market, and have been recently expanding

their plant to further improve their share of export market. All

other ceramic manufacturers are also increasing their production

capacity following robust growth in demand for ceramic wares. Due

to the global recessionary impact and rising labor cost, the


for quality ceramic wares; hence, the export demand for

Bangladeshi ceramic ware is growing rapidly. Addressing this

strong growth, the numbers of competitors, roughly of equal size

and competitive capability, are increasing in this industry day

by day.

The competing local manufacturers are also active in making fresh

moves to improve their market standing and business performance.

For instance, X Ceramics produces ceramic tiles for both interior

and exterior usage. According to the management of this company,

they are the first to manufacture tiles made of ceramics intended

for external use that would be manufactured within the country.

Besides, X ceramics is also increasing its production capacity to

manufacture 20% more output than their nearest competitors to

gain 25% of the market share. This company is also coming up with

powerful strategies like teaming up with overseas entity to share

its technological knowhow and to turn its concern into the “first

ever European Standard multinational joint venture ceramics

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manufacturing facility.” The strongest competitive pressures come

not from outsiders, but also from current industry participants.

Great Wall Ceramic Industries Ltd. has announced to produce a

high-end product, fine-cut tiles with decorated borders to meet

local demand since demand for costly tiles is high. FARR Ceramics

Ltd., which went into commercial production in February 2007,

already bagged 10% market share in Bangladeshi ceramics exports

and is among the few now showing resilience against global

recession. Moreover, the management of FARR Ceramic claims, it is

the first Bangladeshi company to enter the export market of

Argentina after shoring up its foothold in Europe.

However, increment in the number of new plants, capacity

development, product development and market expansion by ceramic

ware manufacturers of Bangladesh are still low compared to the

robust growth in demand both in export and local market. As there

still exit ample growth opportunities in this industry, the

rivalry among the existing companies are still weak, thus making

this sector more attractive for the potential entrants.

STRENGTHS AND WEAKNESSES OF SHINEPUKUR CERAMIC LIMITED

BARGAINING POWER OF BUYERS

Individual consumers of ceramic products in this industry have

much bargaining power in negotiating price concession or other

favorable terms with seller, hence, the individual buyers mostly

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pay the seller’s posted price. However, it is relatively easy for

buyers to switch to comparatively low-priced imported ceramic

goods; keeping this in mind, the local manufacturers are aiming

for competitive pricing to attract and retain customers.

Ceramic ware manufacturers of Bangladesh have managed to create a

solid stand in the international market. So, most ceramic

manufacturers, keeping this foreign market success in mind, have

turned more towards exports. Bangladesh has got a huge

opportunity in ceramic tableware market because of increasing

demand from the developed countries where the production cost of

ceramic tableware has increased significantly due to an enormous

rise in labor cost. Bangladesh’s export markets include the UK,

the USA, Canada, Spain, Italy, Australia, New Zealand, Norway,

Germany, Sweden, Russia, the UAE, Denmark, France, Mexico,

Argentina, Turkey, India, Nepal, Bhutan and many other European

and Middle East countries.

The bargaining power of these international buyers is reasonably

strong enough to negotiate for price concession and favorable

terms since they can always switch to low-priced suppliers of

ceramic wares from China, Sri Lanka, Thailand and Malaysia. But

due to increased production cost, these countries are also

failing to offer competitive prices and losing their share in the

international market. Thus, more international buyers are moving

towards Bangladesh as it has cost competitiveness in terms of gas

supply, cheap labor cost, skilled labor and also has competitive

advantage of possessing “bone china” technology. As the number of

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buyers, both in local and international market, is growing, the

bargaining power of buyers is weakening.

BARGAINING POWER OF SUPPLIERS

Bangladesh needs to import 100% raw materials for producing

ceramic wares. The raw materials account for 35-40 percent of the

total production cost of the ceramic products. The raw materials

of ceramic wares include China clay, ball clay, fire clay,

feldspar, quarter’s plaster of Paris, aluminum oxide, aluminum

hydro oxide, zinc oxide, coloring items and liquid gold. These

raw materials and machineries are imported from mainly India,

China, Rumania, Indonesia, Italy and Germany. The Mymensingh clay

could be used for producing tiles, but in 2007 the government put

an embargo on cutting hills which stopped the ceramic

manufacturers from procuring raw materials from the Mymensingh

hills. Since in Bangladesh, there is a shortage of raw materials,

equipment and machineries for ceramic industry, it gives the

supplier more leverage in bargaining the price. But the supplier

base of ceramic sector is moderately large enough to weaken the

supplier power. However, some of the suppliers like India are

also showing interest to integrate into the ceramic industry of

Bangladesh and perhaps could become a powerful rival

THREAT OF NEW ENTRANTS

Bangladesh has certain competitive advantages in the

international market in terms of availability of gas, cheap labor

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and the generalized system of preferences (GSP) that allows

Bangladesh to have duty-free exports to Europe and there is no

quota restriction either on the export. Considering this sector’s

potentiality for investment, ceramic industry has always allured

both local and foreign investors.

Since domestic and export demand for ceramic products are rising

rapidly, widening the gap between demand and supply, the new

entrants can easily expect to earn attractive profit by capturing

the untapped demand. As the construction industry including

residences, shopping malls and others is growing so fast, the

ceramic tiles business is becoming one of the booming and

prospective sectors with a staggering annual growth rate of 20

percent.

Demand for ceramic tableware has also increased significantly in

Bangladesh with a continuous rise in use among middle income

groups in the past decade. Another reason for this increased

demand can be attributed to the sky-rocketing of the price of

gold. Due to this may people have turned away from the

traditional practice of presenting jewelry at wedding ceremonies

and have resorted to the next best option, ceramic tableware.

The export of ceramic products registered an average growth of 20

percent during the last one decade and the domestic sales of

ceramic products account for approximately Taka 1,000 crore (Taka

10 billion) annually. Hence, more players are joining this

business like Dulal Brothers Ltd, X ceramics and Paragon Ceramic

Industries Ltd, etc. Several other ceramic ware manufacturing

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companies including Akij Group, Padma Ceramics Khaled

corporations and Tamanna are in the pipeline to enter this sector

by 2011. According to Bangladesh Ceramic Wares Manufactures

Association (BCWMA), a medium scale ceramic plant needs around

Taka 10 crore (Taka 100 million) in initial investment and in

addition to the existing factories, five or six new ceramic

factories would be set up in the country with an investment of

around Taka 3,000 crore (Taka 30 billion), which will generate

employment for around 500,000 (0.5 million) workers. Besides, the

importers who used to import low-cost Chinese goods are now

coming up to set up manufacturing units of their own. According

to BCWMA, this transformation has resulted as the government

increased the supplementary duty on imports of tiles and sanitary

ware to 45 percent.

The pool of new entry into the ceramic industry of Bangladesh

indicates this sector has low entry barriers as the government

regulations are supportive for new entrants. However, the number

of new entrants and their capacity development is low compared to

the growth in domestic and export demand. Hence, the competitive

threat of potential entry is not strong enough to place

significant competitive pressure on the existing manufacturers.

THREAT OF SUBSTITUTE PRODUCTS

The ceramic industry is already in fierce competition with low-

priced sanitary ware, tiles and table wares, mostly imported from

China. Besides, this sector is also facing strong competitive

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pressure from firms in other industries offering substitute

products. The demand for low-priced, attractive and convenient

substitutes of ceramic tableware such as melamine wares, aluminum

wares, steel kitchen wares, glass wares and plastic wares are

raising and the local manufacturer of these products are also

drawing significant profits from the thriving domestic market for

crockery. In recent years, large scale manufacturers have entered

the crockery market, with their brands competing strongly with

both local ceramics products and foreign products of their same

kind. Some local manufacturers are even producing world-class

plastic goods, spending a large amount on TV commercials and

selling thousands of pieces every month. Companies like

Bangladesh Melamine, Sharif Melamine, RFL, BRB, and GAZI are

contributing greatly to this thriving crockery market by creating

demand for new products. As the import of crockery has increased

fourfold in the past decade, the local large manufacturers of

these substitute products are also expanding their existing

capacities with concentration on new product lines to attract

more customers. Moreover, the history of tiles business is not

very old in Bangladesh; still mosaic is popularly used in many

urban and sub-urban households. Other substitutes of tiles

include wooden flooring or tiles, bamboo flooring, ply board,

marble stones and other artificial stones for both interior and

exterior usage. Hence, the availability and low cost of

substitutes is exerting moderately competitive pressure on the

existing companies of ceramic industry.

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World Economy AnalysisWORLD CERAMIC INDUSTRYIndia exports almost 70% of its product of technical ceramics to

52 global countries including USA, Europe, Japan, China, South

Korea, Taiwan, Australia and some South Asian countries as well.

China exports almost 85% of porcelain, bone china, etc to Europe,

USA, Middle East, India, Macao, and Hong Kong, Taiwan.

Italy exports 15% of its ceramics which accounts for 400 000

tones of tableware that is imported by European Union. Among

which 10% is then resold to US.

BANGLADESH CERAMIC INDUSTRY COMPARISON

MANUFACTURING PROCESS

Ceramic industry of Bangladesh is a booming sector and the growth

potential of both domestic and foreign market indicates that the

potential for our industry has the potential to become one of the

big currency corners of the country. Some facts about the

industry are given below:

The ceramic industry has a $100 million exports in 2012.

Among the various products, ceramics table wares are being

exported to about 50 countries including the USA and Canada,

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tiles to India, Nepal and Bhutan, and sanitary wares to the

Middle East, especially the UAE, The industry sells ceramic

products worth about BDT 8 billion in the domestic market and pay

tax close to BDT 3 billion.

The local tableware industry has the capacity to feed BDT 3

billion domestic market but local manufacturers now account for

less than BDT 500 million markets. Monno, Shinepukur, Bengal Fine

and Peoples Ceramic are the major players in local ceramic

tableware market. Bangladesh ceramic industry which exports the

products mainly to the European Union countries and the USA,

imports raw materials from China, Rumania, Indonesia and Germany.

The export of tableware products has been registering more than

60% yearly growth for the last ten years making a substantial

dent in the USA and European markets. Bangladesh Ceramic ware

manufacturers Association (BCMA) sources say that the present

investment in the country’s ceramic industry is roughly about BDT

8 billion. The ceramic industry marked an 800% export growth

during the last one decade. The quality of products such as

dinner sets, tea and coffee sets are much better than that of

India and China.

Shinepukur Ceramic LTD is the leading tableware exporter in the

industry having two state of the art units for producing

porcelain, bone china, and tableware at Savar. It is a 100%

export oriented company and has exported its products to USA, UK,

Spain, Italy, Australia, Norway and even India.

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Like Shinepukur Ceramics LTD, the country’s all other leading

ceramic units are having robust growth performance belying all

earlier speculations. Monno has managed to earn a very good

reputation in a very short span of time by doing good business

overseas and Bengal Fine Ceramics also is gaining higher market

share.

The natural gas that is used in the manufacture of Bangladesh’s

Ceramic product contains high amount of sulphur which results in

brighter final good.

PERFORMANCE COMPARISON

The sector’s contribution to the Bangladesh’s macroeconomic

indicators as regards the total turnover about $300 million in

2012 which accounts for 0.8% of country’s GDP, $100 million of

export turnover, 20% of the total sector turnover and 0.45 % of

total Bangladesh Export.

Concerning the labor force, the sector directly employs around

25000 people distributed around 17 companies. This accounts for

about 1.5% of total industrial manpower in Bangladesh.

The Bangladesh Ceramic industry appears very concentrated when

compared to other countries which only 10-12 firms control each

sub sector. The corresponding average production per company is

only lower to UAE. On the other r hand Brazil and Turkey present

a more differentiated structure with companies only focused on

the internal market and others deeply export oriented.

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Concerning the integration in the global supply chain and

international flows; Turkey has well established links with

foreign producers and distributors that enable it to focus on

installing production capacities in the target market in order to

better control them. The collaboration of Bangladesh

manufacturers with international groups is limited to the

tableware sector where barriers to entry are very high and

networks are essential for sales thus becoming a serious issue

preventing the growth of the industry.

The low level of automation makes the Bangladesh Industrial

productivity for ceramics the lowest among the benchmark

countries. The productivity gap between Bangladesh and other

countries in ceramics is lower due to the labor intensive nature

of the industry. The global per capita productivity which

includes all the companies’ employee reflects a poor performance

in areas other than production.

In comparison to other countries Bangladesh’s production of

ceramics shows a good technological endowment even though the

dominant technology in the Bangladeshi Ceramic factories seems

not to be fully focused on cost reduction. Countries like Turkey,

Brazil, UAE has a higher share of export on the output priced

lower being exported.

COMPETITIVENESSThe ceramic industry of Bangladesh faces stiff competition from

foreign sources like Sri Lanka, China and Thailand but the

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domestic marketplace is yet weakly competitive. Ceramic

manufacturers like Monno Ceramic, Shinepukur Ceramic, Standard

Ceramic, FARR Ceramic and Bengal Fine ceramic are still leading,

especially in the export market, and have been recently expanding

their plant to further improve their share of export market. All

other ceramic manufacturers are also increasing their production

capacity following robust growth in demand for ceramic wares. Due

to the global recessionary impact and rising labor cost, the


for quality ceramic wares; hence, the export demand for

Bangladeshi ceramic ware is growing rapidly.

The competing local manufacturers are also active in making fresh

moves to improve their market standing and business performance.

The strongest competitive pressures come not from outsiders, but

also from current industry participants. Great Wall Ceramic

Industries Ltd. has announced to produce a high-end product,

fine-cut tiles with decorated borders to meet local demand since

demand for costly tiles is high.

SCOPE OF INDUSTRY DEVELOPMENTAccording to leading ceramic manufacturers execution of the anti

dumping duties will fuel strong demand of local ceramic table

wares in the 27 member European Union where production of such

item is expensive. China is the EU’s second biggest trading

partner after the USA and the bloc is the biggest consumer of

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China’s tableware. In fact most of the ceramic firms are in the

expansion phase to meet the increased foreign and domestic

demand. The country’s ceramic tableware sector has been clocking

a robust growth of 12-15% each year since the past 5-7 years.

However the growth came to a halt due to economic turmoil in the

Euro zone.

The local ceramic manufacturers supply 30% of total production to

the domestic market and for the rest their market is the EU

nations and 47 other giants of the world. Moreover, Bangladesh

has cheap labor force which is enabling to manufacture tableware

at a lower price thus capturing more market.

Financial Statements

In the pages below the financial statements of Shinepukur

Ceramics from the year 2007 to 2011 has been given to support our

evaluation and elaboration. Also, we have projected the

statements of the next five years from 2012 to 2016 to assess the

improvement or deterioration in performance. All the relevant

comprehensive statements are hence given as following.

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RATIO ANALYSIS

Details 2007 2008 2009 2010 2011

Liquidity RatiosCurrent Ratio 1.82 1.38 1.74 1.12 0.98Acid test Ratio 0.60 0.39 0.87 0.54 0.44Accounts Receivable Turnover Ra 4.71 6.17 1.97 4.04 3.23Inventory Turnover Ratio 1.10 1.21 0.86 1.50 1.40

Profitability RatiosProfit margin 9.40% 11.76% 10.17% 13.14% 92.97%Gross Profit Rate 32.87% 32.64% 32.98% 34.21% 34.36%Assets Turnover Ratio 45.32% 34.39% 28.51% 37.59% 26.58%Return on Assets 4.26% 4.04% 2.90% 4.94% 24.71%Return on Equity 12.59% 7.57% 6.95% 9.27% 39.29%Earnings per share 1.86 2.57 2.05 2.62 1.52

Solvency RatiosDebt to Equity Ratio 85.25% 30.82% 26.73% 33.99% 22.34%Equity to Assets Ratio 33.83% 53.41% 41.68% 53.30% 62.90%Net Assets Value Per Share - 33.94 29.50 28.27 40.49

-0.11 5.56 2.40 1.33 3.93share

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Cash and Cash Equivalents BDT 15,707,921.00 BDT 5,983,062.00 BDT (3,741,797.00) BDT (13,466,656.00)Total Assets ### ### ### ###FINANCED BY:Shareholders’ Equity ### ### BDT 9,803,165,130.00 ###Share Capital ### ### BDT 1,546,121,080.00 BDT 1,691,069,930.00 Fixed Assets Revaluation Surpl ### ### BDT 7,750,418,821.00 BDT 9,349,452,288.00

BDT 458,986,725.00 BDT 482,805,977.00 BDT 506,625,229.00 BDT 530,444,481.00 Non-Current Liabilities ### ### BDT 1,235,356,884.00 BDT 1,312,015,012.00

BDT 364,015,415.00 BDT 331,451,558.00 BDT 298,887,701.00 BDT 266,323,844.00 Long Term Loan BDT 711,986,373.00 BDT 825,134,967.00 BDT 938,283,561.00 BDT 1,051,432,155.00 Deferred Tax Liability BDT 6,038,840.00 BDT 2,112,231.00 BDT (1,814,378.00) BDT (5,740,987.00)

### ### BDT 2,200,496,499.00 BDT 2,384,359,681.00

### ### BDT 1,723,268,600.00 BDT 1,915,133,564.00

BDT (60,081,557.00) BDT (211,981,806.00) BDT (363,882,055.00) BDT (515,782,304.00)

BDT 417,230,090.00 BDT 542,637,115.00 BDT 668,044,140.00 BDT 793,451,165.00 Dividend Payable - - - - Income Tax Payable BDT 136,082,930.00 BDT 154,574,372.00 BDT 173,065,814.00 BDT 191,557,256.00

### ### ### ###

Statement of Changes in Equity

Long Term Loan Secured (Net-off Current Matuirity)

Current Liabilities and Provisions Short Term Loan from Banks (Secured) Long Term Loan-Current Matuirity (Secured) Creditors, Accruals and other Payables

Total Liabiities and Shareholder's Equity

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In the graph given beside the trend of

sales and level of expenses are

highlighted. As seen the revenue from

sales had increased a lot in 2010 when

compared to 2007. However the profit

did not increase proportionately but by

a smaller amount. It is most likely

because operating expensed formed a

huge part of the expense. Because gross

profit was up to the mark but net


2007 2008 2009 2010 20110

200000000400000000600000000800000000

100000000012000000001400000000160000000018000000002000000000

RevenueGross ProfitNet Profit

Graphical representation of revenue and profit

2007 2008 2009 2010 2011

012345

Level of Assets

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The chart beside shows the level of

assets employed in different years to

generate the profit. Although the

profits increased and revenue increased

the fixed assets employed did not very

much other than in 2010 when it was

significantly higher than previous

years.


Prospect AnalysisMr. Rizviul Kabir, Chief Operating Officer of Shinepukur Ceramics

LTD, Bangladesh’s largest tableware producer said that they are

expecting to capture the lion’s share of the global ceramic

market after implementation of the EU’s decision. Currently

Shinepukur sends 50% of the country’s tableware shipment and they

are also expanding plants to cope with the increasing demand.

PROJECTED INCOME STATEMENT

We expect the revenue to rise in a steady rate in the next five

years, as the company has been receiving positive feedback from

its international buyers for increased supply commitments.

Moreover taking the rate of inflation and increasing demand in to

we expect the turnover to rise to Tk. 268.72 million in 2016 from

Tk. 211.62 million in 2012. It will not be difficult to raise the

sales to meet the increased, since the company has already

invested in a 4.5 Metric Ton per day expansion unit which will

raise production capacity by 150%.

The cost of goods sold is expected to rise significantly between

2012 and 2016, mainly because the cost of acquiring raw materials

is likely to rise. The company imports most of the raw materials

from European countries, and further devaluation of Taka against

Euro and increased import tariffs are likely to increase the cost

of imported raw materials.

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The operating costs, the selling and distribution costs and the

administrative costs are expected to rise in line with the

prevailing rate of inflation.

After taking into the financial expenses the net profit has been

calculated. In the year 2016 there is expected to be a surplus

after a revaluation of fixed assets, a large portion of this

revaluation amount is expected to be from revaluation of land.

The earnings per share are calculated to be Tk. 1.68 in 2016

down from Tk.1.94 in 2012.

PROJECTED BALANCE SHEET

The value of non-current assets is expected to rise in the next

five years. The company has planned to invest in a new production

unit and invest long-term in shares. This will raise the total

amount of the non-current assets of the company.

Increases in Inventories and Trade debtors are expected to rise

due to increasing international demand. Cash and cash equivalents

are also expected to rise as the company is predicted to make

significant profit in the next five years and has planned to take

significant long-term loans.

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Long-term loan is going to rise as the company will need to

finance its expansion.

Non-current liabilities are likely to raise significantly s trade

creditors are expected to grow in amount in the future.

The share capital is likely to grow in the future as the company

plans to issue more ordinary share and pay higher bonus

dividends. The asset revaluation reserve is predicted to rise by

almost 14% between 2014 and 2016, mainly due to rising land

price.

RecommendationThe ceramic industry of Bangladesh is not yet saturated and

Shinepukur has every scope to improve its profitability and

liquidity and enhance its performance. For this purpose some of

the following may prove to be helpful in giving Shinepukur an

advantage over its competitors.

High level technological support, efficient plants as well as an

international standard laboratory may accelerate the further

growth of the ceramic industry.

Manufacturers may target new destinations for exporting the

ceramics as the quality is superior to that of any other

countries.

EU has tightened its barriers to import to reduce dumping of

Ceramics from China and this has opened a new dimension for

Bangladesh.

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BibliographyBOOKS

1. William Himstreet &Wayne Baty, Business Communications, 8

2. Lesikar & Flatley, Basic Business communication, 10th edition.

3. Peter Atril, Financial Accounting for Decision Makers, 5th edition.

ANNUAL REPORTShinepukur Ceramics Ltd, Annual Report for FY2007

Shinepukur Ceramics Ltd, Annual Report for FY 2008

Shinepukur Ceramics Ltd, Annual Report for FY2009

Shinepukur Ceramics Ltd, Annual Report for FY 2010.

Shinepukur Ceramics Ltd, Annual Report for FY 2011.

References

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WEB LINKS:http://www.shinepukur.com/inner.php?p=Share

http://www.beximco.com/investor-relation.php

http://www.dsebd.org/latest_share_price_scroll_g_a.php

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http://www.dsebd.org/latest_share_price_scroll_g_a.php

http://www.beximco.com/investor-relation.php

http://www.shinepukur.com/inner.php?p=Share


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