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Corporate Level Strategy: How diversified is Meghna Group?

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Editorial Board

Mr. Muza�ar Ahmed FCMA, FCS - ChairmanMs. Sarwat AminaMr. Asiful HuqMr. Tanzirul IslamMs. Nusrat AminaSyed A. Mamun, PhD, FCMA - Editor

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Corporate Level Strategy: How diversified is

Meghna Group?

By CRISL Research Team


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IntroductionTypically, a particular corporate adopts corporate level strategy by diversifying its business into di�erent industries or sectors to exploit competitive advantages. For last two decades, a good number of business groups have been emerged in the fastest growing economy of Bangladesh. These emerging corporate groups have been expanding their business operations into various sectors. As diversi�cation strategy has the possible impact on corporate perfor-mance and its sustainability, this is critical to understand how Bangladeshi corporates are adopting corporate level strategy by diversifying their business operation to achieve their sustainable business growth and performance. Therefore, the purpose of this paper is to focus on a fast growing corporate of Bangladesh namely “Megna Group of Industries” to explore its corporate diversi�cation strategy.

CRISL Business Review, April - June 2018Corporate Level Strategy: How diversified is Meghna Group?

At present, Megna Group is one of the fastest growing business conglomerates in Bangladesh. This business group started its journey back in 1976 by Mr. Mostafa Kamal, a successful entrepreneur. Though this group started its operation with trading business by incorporating Kamal Trading Company, it has expanded its business into di�erent manufacturing areas including consumer-goods, cement, chemical, poultry, ship building, shipping, energy & power, securities, insurance, aviation, media and economic zone.

Though this group started its operation with trading business by incorporating Kamal Trading Company, it has expanded its business into different manufac-turing areas including consumer-goods, cement, chemical, poultry, ship build-ing, shipping, energy & power, securities, insurance, aviation, media and eco-nomic zone.

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Over the period of more than 40 years of business, Megna Group has established the strong corporate brand in the emerging economy of Bangladesh. At the early stage, Megna group has set up Meghna Vegetable Oil Industries Ltd in 1989. Since then, this group has created the dominant position in the fast growing consumer-goods market in Bangla-desh. “Fresh”, “No 1” and “Pure” are three highly in�uential and established brand names of the Megna Group in the consumer-goods market of Bangladesh.Megna Group has 30 business operating units located in in its own industrial park of 2,000 bigha land at Narayanganj. Very recently, this group has established 8 more manufacturing plants in its two special economic zones such as Meghna Economic Zone (MEZ) on 245 acres and Meghna Industrial Economic Zone (MIEZ) on 80 acres both of which are situated at Sonargaonupazila in Narayanganj.In 1996, Megna group diversi-�ed its business into inestablishedBangladesh National Insurance Company Limited. Moreover, this group has estab-lished Dhaka Securities Limited in 2009 to extend its business in �nancial market of Bangladesh.

By establishing Meghna Properties Limited in 2007, Megan group has also expanded its business in the real estate industry.Megna Group enter into the Poultry and Fish Feed business by establishing United Feeds Limited and Unique Hatchery & Feeds Limited in 2001 and 2003 respectively. Tanveer Paper Mills Limited and Meghna Pulp & Paper Mills Limited were established in 2004 and 2012 respectively by Megan group to engage in the fast growing paper industry in Bangladesh. In addition, the group established Tasnim Chemical Complex Limited in 2009 with an intention to enter in Chemical Industry of Bangladesh. Megna group has diversi�ed its business into power generation sector by estab-lishing Unique Power Plant Limited comprising of of Unit 1 27.65 MW and Unit 2 of 6 MW in 2001. In 2008, the group has also established Everest power Generation Company Limited with capacity of 54 MW.

CRISL Business Review, April - June 2018Corporate Level Strategy: How diversified is Meghna Group?

In sum, Megna Group has diversi�ed its business mainly into consumer goods & food, engery& power, real estate & services, and other manufacturing sectors. This well reputed business conglomerate of Bangladesh, indeed, has expanded its business through diversifying its operation into di�erent related and unrelated sectors. Though Megna Group has been well known for its consumer-goods brand “Fresh”, total revenue of this group does not depend on a particular segment of business signi�cantly. Moreover, the group depends on its di�erent segments of business in a balanced way to generate its revenue which, in turn, suggests the moderate level of business diversi�cation of Megan Group.

Figure 1: Corporate Level Diversi�ication of Megna Group

Capital Market Movement in Bangladesh:

Quarterly Analysis of Dhaka Stock Exchange (DSE)

Abdullah Al Masud & Mohammad Azhar Hossain,

both are Lecturers of Southeast Business School, Southeast University

By Abdullah Al Masud & Mohammad Azhar Hossain


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CRISL Business Review, April - June 2018Capital Market Movement in Bangladesh: Quarterly Analysis of DSE

Market MovementStock exchanges in Bangladesh are passing testing times in recent times. In Dhaka Stock Exchange, the broad index (DSEX) shed around 849 points in the last 6 months reaching 5405 points in June 28, 2018 from 6254 points in January 1, 2018. The market is testing investor’s sentiment as market has been on a decline trend since reaching its 5-year peak back in November 2017. Similar movements have also been found in CASPI- the broad index in Chittagong Stock Exchange (CSE) (See Figure 1).

During the months from April to June of 2018, the index returns in the two markets have been mostly negative (See Figure 2)

Major BD Indices Movement

Figure 1 Broad Index of DSE and CSE

Index Returns DSE and CSE

Figure 2 Market Returns Movement in JApr’18 and Jun’18


From Apr 1, 2018 to Feb 28, 18, DSEX lost 5.9% where as CASPI lost 6.5%. Interestingly, DS30, CSE50, CSE30 Indices lost more points (see Table 1) than the overall market index both the markets. These indices normally include stocks with large market capitalizations, high liquidity with positive �nancial performance. This phenomena suggests investors’ disinclination towards such companies during the period.

The top 10 losing stocks were mostly from textile sector and �nancial institutions (popularly NBFIs) sector. The losing stocks mostly comprised of the ‘Z’ Category stocks.

Macro Economic ChangesDhaka Stock Exchange (DSE) has created the history by signing the share purchase agreement on Monday 14th of May 2018 with the Chinese consortium as the strategic partner of country’s premier stock exchange.

In the month of June, the Finance Minister of Bangladesh, Mr. Abul Maal Abdul Muhith announced National Budget of Bangladesh for Fiscal Year 2018-2019 amounted taka 464500 crore taka which is 16 percent higher than the previous �scal year. After the declaration of budget on 7th June 2018, DSEX index went down for consecutively two working days from 5366.66 to 5326.44 and CSCX index went down for consecutively two working days from 10012.22 to 9915.49.

Top 10 Gainers and Top 10 LosersDuring the second quarter of 2018, top 10 gaining stocks comprised mostly of the ‘A’ category stocks from di�erent sectors such as engineering, textile etc. (see Table 2).

Table 1 Index Performance from Apr 1, 18 to Jun 28, 18

Table 2 Top Gainers and Losers in Apr-Jun, 2018

Sector Price/Earnings (P/E) RatioSector P/E ratio data (see Figure 3) from DSE illustrate that travel & Leisure, tannery, and Food & Allied sector stocks on average had 3 highest P/E ratios where Bank, Fuel & Power, and Insurance sector stocks have the lowest P/E ratios.


Recent IPOs

N.B Views expressed are absolutely authors’ own and doesn’t re�ect the opinions of authors’ institution or of CRISL. Authors don’t take responsibility for investors’ decision making based on the expressed views.

Figure 3 Sector Median P/E [Based on audited �inancials’ basic EPS]

Figure 3 also shows the movement of the P/E ratio of various sectors from two points of time- April 5, 2018 and July 1, 2018. Most notable movements were in travel & leisure and food & allied sectors where P/E ratio declined; on the other hand, the ratio increased for cement sector. Overall Market P/E decreased slightly from 22.x to 20.9x.

Company Industry Offer Price (Tk)

Issue Size (Tk) Purpose of Fund

SK TRIMS & INDUSTRIES LTD.

Textile 10 300,000,000 Proceeds from Initial Public Offering (IPO) will be used for acquisition of Machinery & Equipment, Construction of building and other civil works and for IPO Expenses

VFS Thread Dyeing Limited

Textile

10 220000000 Proceeds from the IPO funds will be utilized in acquisition of capital machinery, repayment of partial long term loan and for IPO expenses.

Aman Cotton Fibrous Limited

Textile 36 800000000 Net proceeds from Initial Public Offering (IPO) will be used for acquisition & installation of brand new European machineries for expansion of existing project by increasing its capacity, repayment of existing long term loan and defraying the IPO expenses

Cross Border Acquisition by Akij: First ever Experience

by a Bangladeshi Firm

By CRISL Research Team


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CRISL Business Review, April - June 2018Cross Border Acquisition by Akij: First ever Experience by a Bangladeshi Firm

Akij Group, Bangladeshi corporate giant, acquired two Malaysian companies namely Robin Resources and its subsidi-ary Robina Flooring with USD 77 million. This is the �rst ever overseas acquisition-deal by a Bangladeshi company. Akij Group is one of the leading corporates in Bangladesh involves in diversi�ed business operation including tobacoo, jute, textile, steel, particle boards etc. In addition, Akij Particle Board Mills Limited is the subsidiary of Akij group manufactures and distributes the Plain Board, Melamine Board & Flush doorfor more than �fteen years. On the other hand, Robin Resources Malaysia and its subsidiary Robina Flooring both of which manufacture MDF board and wood �oor tiles and di�erent wood products and export to about 60 countries with annual revenue of USD 16 million. Indeed, as a pioneer, Akij group involves in cross broader acquisition in line with its prior business experience in the MDF board manufacturing sector.

This USD 77 million acquisition deal was �nanced by internal sources of Akij as well as external �nancings from international market. Akij provided USD 20 million from its ERQ (exporters' retention quota) account after taking special permission from Bangladesh Bank (BB) for the investment. In addition, the company borrowed USD 24.50 million from German development �nance institution DEG, which is a concern of Germany's kfw, a German government-owned development bank, USD 13.50 million from Standard Chartered Bank Malaysia Berhad and USD 10 million from a UK-based company. The remaining amount of the deal would be �nanced from the dividend of two acquired companies.

Though cross-broader acquisition is a common strategy can be seen in the developed economy, this acquisition is the �rst ever experience for any Bangladeshi company. Indeed, this is a great move for Akij Group to upholding its business image in the global business community. This �rst mover experience can help other local corporates to apply acquisition strategy in future for their business growth as well. However, the future success of this acquisition deal can sustain the credible image about the capability of Bangladeshi corporate to operate business in the interna-tional context.

This USD 77 million acquisition deal was financed by internal sources of Akij as well as external financings from international market. Akij provided USD 20 million from its ERQ (exporters' retention quota) account after taking special permission from Bangladesh Bank (BB) for the investment.

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