• Thursday, Jan 30, 2020
  • Last Update : 01:30 am

Leather companies' shares plunge

  • Published at 10:36 pm September 2nd, 2019
WEB_Tannery-Sector
Bigstock

Tannery non-compliance, crisis over rawhide of sacrificed animals blamed

Environmental non-compliance at Savar Leather Industrial Park and recent crisis over the rawhide of sacrificed animals have put an adverse impact on shares of leather and leather goods manufacturing companies listed with the country’s stock exchanges.

According to Dhaka Stock Exchange (DSE) data, share prices of five companies out of six listed companies involved in tannery industry witnessed decline after Eid-ul-Azha, when the biggest number of rawhide is collected.

About 50% demands of raw materials for the country’s $1 billion leather industry are met with the rawhide collected during the period.

On top of that, during the last two weeks' trading, market capitalization of the leather sector at the country’s premier bourse lost Tk31 crore.

As of August 29, leather sector market capitalization came down to Tk2,472crore, which was Tk2,504crore on August 8.

Currently, six companies  — Apex Footwear, Apex Tannery, Bata Shoe Company (Bangladesh), Fortune Shoes, Legacy Footwear and Samata Leather Complex Ltd — are listed with the Dhaka and Chittagong Stock Exchanges.

According to DSE data, 50% of the listed companies have reported higher earnings per share (EPS) for the first nine months (June-March) of the FY19, compared to the same period of previous year.

For the fall in share prices in the leather category, stock market analysts and stakeholders blamed the sorry state of the tannery industry, which drove away the buyers.

“Relocation of tanneries was aimed at making the industry environmentally compliant and to boost the global buyer's trust so that they would buy goods from here. But, the relocation did not translate the government vision into a reality,” Rajib Kumar Das, head of research of UCB Capital Management Limited, told Dhaka Tribune.

The global buyers were not placing work orders citing environmental non-compliance, which cast shadow on the business sending earnings down, Rajib explained.

Delayed and partial implementation of Central Effluent Treatment Plant (CETP), dumping solid wastes in the open and discharging untreated effluent into the nearby river are what one will observe at the industrial park.

During a recent visit, Dhaka Tribune found solid wastes being dumped in the open, spreading foul smells and polluting air in the surrounding areas.

“Since there is a down trend in earnings, the stock investors are unwilling to pour funds into stocks of leather and leather goods manufacturing companies,” Rajib said.

Moreover, availing the recent crisis centring the prices of rawhide, the Chinese importers started to offer lower prices on crushed leather, he added. 

Economists have also said that the fall in exports earnings from leather sector, the second largest export earner after the apparel sector, has dented the stock investors’ confidence.      

“Since tanneries, which supply raw materials for the leather and goods manufacturing, are going through a chaotic situation over the relocation and environmental compliance issues, leather goods manufacturing companies listed with the stock exchanges have seen the negative impact in earnings,” Abu Ahmed, honorary professor at Dhaka University’s economics department, told Dhaka Tribune.

According to Export Promotion Bureau (EPB), exports from the country's leather sector witnessed a 6.06% fall to $1.01 billion in the last fiscal year. 

Down trend in export earnings from the leather and goods in the last fiscal year was another reason for the fall in share prices as the listed companies were mostly export oriented, said the economist.