BAT to invest Tk 2.9b to boost capacity of Savar unit

British American Tobacco Bangladesh Company (BATBC) is going to invest Tk 2.97 billion to expand the capacity of its Savar factory following the closure of its factory in the capital.

In a stock exchange filing on Thursday, the tobacco manufacturer said its board approved the investment decision at a meeting the day before.

"The investment will be made through internal sources and bank financing based on the cash flow of the company," said the company.

Following the disclosure, the stock rose 2.82 per cent to Tk 280.3 per share on Thursday on the Dhaka Stock Exchange (DSE).

The capacity of the Savar factory will be enhanced to minimize production disruption after the shutdown of the factory in Dhaka next month, said an official of the company on condition of anonymity.

"The management is working to minimize the impact of temporary production disruption and protect the interest of shareholders," said the official.

BAT Bangladesh's board has recently decided to close the factory in the capital on July 1 following the Supreme Court's rejection of its appeal to extend the land lease agreement.

The cigarette manufacturer had been leasing the factory premises from the Dhaka Cantonment Board since 1964. Each lease term spans 30 years, with the renewal option for a maximum duration of 90 years.

The company applied for lease renewal for the remaining 30 years but the cantonment board declined to extend the time.

The company then initiated legal proceedings to enforce what it claimed was contractual rights.

The High Court dismissed the company's writ petition contesting the cantonment board's decision not to renew the lease agreement.

Later on, the Supreme Court in a verdict last month also rejected BAT Bangladesh's appeal to extend the lease agreement.

In the meantime, environment activists staged protests and formed human chains, demanding the relocation of BAT Bangladesh's factory from Mohakhali, citing concerns over pollution.

BAT Bangladesh's Savar factory, a green leaf threshing plant in Kushtia, and a green leaf re-drying plant in Manikganj will remain operational.

BAT Bangladesh did not provide details of the impact on revenue and profit due to temporary production disruption.

Akramul Alam, head of research at Royal Capital, said that although the company will face a temporary production disruption due to relocation, in the long-run expansion will help the company's business growth.

"BAT Bangladesh has a significant market share with a huge cash surplus and is capable of offsetting the potential production disruption," said Mr Alam.

Currently, BAT Bangladesh's market share is around 82 per cent with a cash reserve of more than 13.86 billion as of March this year, according to Royal Capital's latest data.

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