Shahriar Jahan Rahat, Deputy Managing Director of KSRM reveals that unwavering focus on quality and consistent delivery of customers’ needs have been the scaffolding for the company’s continued success.
At the onset of the coronavirus pandemic the import of raw materials and production was disrupted. What was the coping strategy that KSRM deployed in the first 3 months? How has KSRM adapted to the pandemic?
Whenever there is a dip in the raw material prices internationally, we try to buy in bulk and maintain a buffer stock which gives us a safety net in case there is a shortage of supply. During the pandemic slow down we were able to rely on this stock and continue production as much as possible. Our primary intention was to continue production even through the pandemic. A slowdown in production will mean a rise in overhead which in turn would increase our per-unit manufacturing cost. Even though it was challenging due to the restriction of movement of vehicles, we were still able to continue production as the government very prudently gave the decision to keep industries which are not human-intensive running.
The most challenging part of the pandemic was the drastic drop in sales. The first two months it was almost non-existent when the lockdown was put in place. Our inventories shot up to the extreme capacity and we had to utilize all the available storages we have around the country to its maximum capacity. We had to make sure the products which started to rust were delivered at the first opportunity, again, something extremely difficult for heavy products such as steel.
As the sales dropped and cash flow halted, we needed to focus on cutting any cost that we could do without. We undertook extensive deep dive into our expenses and singled out whatever we could do without. The positive side to this was the fact that the entire KSRM family as a whole got a renewed sense of the need for extracting ultimate efficiency in every avenue of our operations. This experience will help the entire team to approach any task in the future with the need for ultimate efficiency in mind.
The industry suffered an estimated loss of Tk3,000 crore in March and April, and it could rise to as much as Tk15,000 crore by December. What kind of policy support does the sector require to combat these dire projections?
The steel sector has been subjected to heavy tax burdens in recent years. At the import stage, we have to pay advance income tax at 5%. As the tax is deducted at the import stage as a percentage of the value of the raw material, the amount becomes almost 60-70% of the actual profit we make. There is VAT on top of this. Such taxation is unheard of anywhere in the world. The fundamental of income tax is that the tax is imposed on the profit made. Hence, any additional income tax that is taken at the import stage should be adjusted. The steel industry so far has not had any adjustments of AIT which is creating a serious impediment to the growth of this industry. Every single company is suffering from a liquidity crunch because of this capital tied up with NBR. Steel is an industry that operates at large volumes but with narrow margins. The price of steel internationally also fluctuates quite drastically and hence losses can be incurred quite heavily too. If the NBR does not take these things into consideration the growth of this sector will be hampered quite heavily. Actions must be taken as early as possible to ensure that capital is not tied up from the imposition of AIT.
The pandemic, it seems, was particularly harsh for steel makers, eviscerating demand for their products like never before and profits tumbling in the financial year that ended on June 30. How has KSRM managed to sustain its position as a lead contender in the sector?
An unwavering focus on quality and obsessing on user’s needs have propelled KSRM to the leading position in this fiercely competitive market. We make sure to attend to a customer with the utmost diligence in the case of a complaint in any aspect of the purchase. Even in extreme cases such as theft or loss of product during the shipment, we take the responsibility to resend the shipment and we deal with the issue ourselves. The idea is that once the customer has made a transaction with KSRM, he can sit back and have the peace of mind that his requirement will be executed by the company by any means. Such experiences keep them coming back to KSRM and thus the vast loyal customer base it has acquired over the years. We focus on the service and quality; the customers reward us with their trust. So even after the devastation of the pandemic when the market opened, the consumers turned to KSRM. We made sure our partners and dealers were not heavily affected by the losses by extending their credit lines and allowing more time to settle the dues.
BSMA sought Tk 30 billion as loan from the government’s COVID-19 stimulus package for steel manufacturers to help them continue their business. With the central bank providing 30% of a company’s existing working capital from the fund, was the stimulus package effective? Where were the shortcomings?
The stimulus package was a sigh of relief for this sector. The package was offered within the existing credit limit the company had and not as an additional limit. Even then the reduced rate of interest allowed breathing space for this capital-intensive sector. Almost all the banks extended this facility and it was a welcome move by the government.
Can you tell us what kind of initiatives will strengthen the sector to become business-friendly? What is the role that VAT and Supplementary Duty can play to allow the sector to remain sustainable?
It is of utmost importance that the stance of NBR towards the steel sector changes. The imposition of AIT should be withdrawn. It is now treated as a minimum tax for this sector. They have assumed that we make at least a 5 % profit of the value of the raw materials. This is far from reality. We pay AIT on the additional chemicals needed to manufacture steel. Then there are rising energy costs in this already energy-intensive industry. Gas and electricity prices are surging as we all know. Under such circumstances, income tax should be imposed on an actual basis, or over time the sector will recede to grow when the country needs this sector at this crucial stage of growth.
Please share some examples of CSR initiatives taken by KSRM recently?
KSRM stood by the needy in the time of lockdown in alliance with the administration and provided food support for the low-income segment that was affected the most. We provided food for over forty thousand families during the first three months of the pandemic in addition to a vast number of PPEs and oxygen concentrators to the hospitals and front liners. In addition to this, last year we provided all the steel necessary to build several schools, most notably the Zainul Abedin primary school in Satkania.