Financial performance analysis of the companies listed under the book-building method

Abstract

As part of the Internship Program arranged in the 8th Semester under the requirement of MBA curriculum of BRAC University, the author, a student of MBA Summer 2016, completed her internship at LankaBangla Investments Limited (LBIL), carried out a detailed study on the performance of the companies listed under book-building method in the primary market of Bangladesh and prepared a report titled “Financial Performance Analysis of the Companies Listed under the book-building method and the Aftermath”. The author has covered different aspects of book-building method in the six different chapters of the report. The first and second chapters of this report cover introduction, origin, background, objective, methodology, benefits, and limitations of the report, discussion about LankaBangla Investments Limited (LBIL), and the functions of its different departments. LankaBangla Investments Limited (LBIL), is currently operating as one of the top merchant banks in Bangladesh and is involved with primary and secondary market operations. It also offers corporate and financial advisories. In the third chapter, the author discussed the background of book-building method in the stock market of Bangladesh. Bangladesh Securities & Exchange Commission (BSEC) introduced the system in 2009. Five companies have successfully completed book-building so far. The method drew severe criticism from stakeholders at the later part of the recent market crash. As a result, the government suspended the method and afterwards, BSEC introduced the revised book-building method in 2013 with a whole new process of efficient price discovery. The fourth chapter illustrates the financial performance of the companies listed under the book-building method in two different section- horizontal and vertical financial performance analysis. Horizontal analysis indicated that sales of these companies got boosted in different times after getting listed in the stock market. It also indicated that the companies listed under book-building method historically attained operational efficiency in the listing year. In the vertical analysis, it is found that companies listed under book-building method outperformed its comparable companies in most of the cases in terms of revenue growth; profit after tax growth; equity growth; total assets growth and operating cash flows(OCF )growth. The last chapter includes a case study on STS Holdings (Apollo Hospitals),Dhaka Regency Hotel and Resort Ltd, Bashudhara Paper Mills Ltd, Aman Cotton Fibrous Ltd, the maiden company in the process of issuing share under the revised book-building method highlighting recent financial performance of their peer companies. In fine, the author concludes that though companies listed under book-building method outperformed its peers in terms of financial performance, these companies failed to continue their growth momentum afterward. So the above average financial performance of these companies throughout the listing year was unrealistic. So the criticism that higher financial performance of the companies listed under book-building method was partly responsible for the recent market crash was found realistic in large part and BSEC’s effort to refurnish the price discovery process in revised book-building method was the demand of time.