DSE SME index sees steep decline in one year

The SME board of the Dhaka Stock Exchange (DSE) has witnessed a steep fall in both its broad index and turnover value over the past year, driven by sharp corrections in the market prices of listed securities.

On July 16 last year, the broad DSMEX index stood at 1,540 points. Since then, the index has steadily declined, reaching 1,022 points on Tuesday, registering a drop of 33.63 per cent, or 518 points.

Investor participation also waned significantly over the period, with turnover on the SME board falling by 55 per cent year-on-year to Tk 56.44 million as of Tuesday.

The SME board, which was introduced to help small and medium enterprises raise capital, began experiencing increased volatility since August last year. The downturn deepened in the following months amid liquidity shortage in the equity market.

Of the 20 companies listed on the SME platform, 16 have suffered steep price corrections, contributing to the substantial erosion in the board's index and overall performance.

One of the biggest losses was recorded by Apex Weaving, whose share price dropped by 63 per cent -- from Tk 18.50 on April 3, 2024, to Tk 6.90 on Tuesday.

Himadri, another listed company, suffered an even sharper fall, with its share price plunging 86 per cent year-on-year to Tk 1,210.90.

Other companies that experienced significant value erosion include BD Paints, Krishibid Seed, Krishibid Feed, Master Feed Agrotec and Mostafa Metal Industries.

As a result of these sharp corrections, the SME board's total market capitalisation plunged 36 per cent to Tk 20.69 billion as of Tuesday, compared to its level on July 16, 2024.

Such a huge price correction pushed investors into the sidelines. As a result, turnover has taken a hit. Daily transaction volume has more than halved -- from over Tk 124 million in July last year to Tk 56.44 million on Tuesday.

Despite the steep price corrections, market analysts noted that the share prices of several SME-listed firms remain inflated relative to their earnings, further discouraging investor participation.

For example, the market price of Himadri closed at Tk 1210.90 on Tuesday while its P/E (price earnings) ratio stood at 354.06 on the day.

Insiders said the company's market value, which is Tk 3.52 billion, does not match with its paid-up capital of Tk 26.25 million and the profits reported in the last five years.

Before listing, the company reported a loss of Tk 4.16 million in FY20, followed by nominal profits in the following years: Tk 6.17 million in FY21, Tk 4 million in FY22, Tk 5.72 million in FY23, and Tk 8.99 million in FY24.

Himadri paid a 5 per cent cash dividend in FY24, down from 10 per cent disbursed in both FY22 and FY23.

Other companies whose profits do not justify their market prices include Yusuf Flour Mills and Wonderland Toys.

Yusuf Flour Mills posted a price-to-earnings (P/E) ratio of 144.37 as of Tuesday.

Meanwhile, Wonderland Toys showed no reported profits on the DSE SME board website since FY20.

The website shows the company reported a profit worth Tk 0.91 million in FY19. The company's P/E ratio was 263.33 on Tuesday.

The Dhaka Stock Exchange (DSE) launched its SME platform in September 2021, with trading in six companies, aiming to provide small and medium enterprises with access to capital markets.

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