Berger Paints fell 0.22 per cent to Tk 1,845.6 per share on the Dhaka bourse on Sunday despite its disclosure of record annual profit for the year ended in March this year.
The market leader in the local paints industry reported a consolidated profit of Tk 3.24 billion in the year through March, up 7.64 per cent from the year before, according to Sunday's earnings disclosure. Bolstered by the high profit, the board of directors declared 500 per cent cash dividends for shareholders for the year, the highest in six years.
The company will distribute nearly 72 per cent of the profits earned as shareholders will get Tk 50 for each share of their holdings.
However, the record earnings and the large dividend payout failed to boost investors' confidence. On Sunday, investors exerted pressure to sell off their holdings in Berger from the very beginning of the trading session.
At one point, the stock was about to hit the lower circuit breaker, shedding 2.90 per cent to Tk 1,796.2 per share. Later, support from buyers offset most of the initial losses.
Berger's stock traded between Tk 1,796.l per share and 1,849.7 per share on Sunday, with 2486 shares worth Tk 4.55 million changing hands on the Dhaka Stock Exchange.
"Berger's share price had already soared before the annual earnings disclosure, and that might be the reason behind the price correction," said Md Sajedul Islam, managing director of Shyamol Equity Management.
The stock jumped more than 12 per cent in the six weeks since June 9 this year. It had never been stuck on the floor during the 18-month-long price restriction.
Berger is one of the well-performing stocks with a proven track record and a stable growth even in adverse business environments, Mr Islam said.
Despite the ongoing forex crisis and high inflation, the company maintained its growth through cost-cutting measures and by adjusting product prices, said company secretary Khandker Abu Jafar Sadique.
Moreover, cooling of raw materials' prices in the global market helped offset some of the costs, he said.
To overcome the forex crisis, Berger secured a $60 million loan from its parent company, J&N Investments (Asia) in June last year.
Berger, which follows the April-March financial year, is yet to disclose annual sales figures for 2024. However, its nine-month sales grew 1 per cent year-on-year to Tk 19.07 billion since April last year.
The cost of sales, which represents all associated costs to produce paints, stood at Tk 12.93 billion for the nine months through December last year. It was nearly 68 per cent of total sales revenue during the nine-month period to December, down from 71 per cent a year ago.
Berger to issue rights shares
Berger is in the process of issuing more than 2.72 million rights shares, aiming to increase its free float to at least 10 percent of the outstanding shares, to meet the regulatory requirement.
Currently, the company's publicly tradable shares constitute only 5 per cent of its total shares.
Berger had offered one rights share against 17 existing shares to all shareholders at Tk 1,376 each. Ideally, the owning company J&N Investments (Asia) should be getting 95 per cent of more than 2.72 million rights shares to be issued. But the owning company said it was in favour of distribution of the rights issues to Berger employees and general investors so that Berger could meet the regulatory requirement of at least 10 per cent free float.
So, now investors will ultimately be receiving 1 rights issue against each existing share.
In September 2021, the securities regulator asked Berger Paints to ensure at least 10 per cent of its shares as free float within three years.
Berger to set up third factory
Berger has been investing for capacity expansion as well as the diversification of products and businesses.
It announced in January this year that it will construct a third factory at Bangabandhu Sheikh Mujib Shilpa Nagar at an estimated cost of Tk 8.13 billion.
The construction of the plant, which is expected to start production in April 2026, will be partially funded by the rights proceeds, the company secretary said earlier. The money coming from rights shares will reduce the cost of investment, which in turn will boost profit, he said.
"Once the third factory goes into production, it will have a positive impact on both revenue and profit."
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