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BW Businessworld

BW Real 500: Troubled Times

The public sector steel giant Steel authority of india (SAIL) faces multiple challenges as profitability remains elusive

Photo Credit : Ritesh Sharma

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Steel authority of india (SAIL), the country’s largest state-owned steel company, made it to the top 20 in BW Real 500, despite reporting a net loss of Rs 732 crore in the second quarter of FY17, against a loss of Rs 1,108 crore in Q2FY16. “Last December, the prices fell to one third; we were operating in a very difficult situation as the market had Chinese steel influx. But despite that we still managed to improve market share by 12.7 per cent in 2016,” says P. K. Singh, chairman of SAIL. Steel companies in India faced a crisis last year as there was an imminent danger of cheaper Chinese products being dumped and swamping the Indian market. Fortunately for companies like SAIL, the government stepped in with effective anti dumping measures that stopped a flood.

The company is geared up to ramp up its production capacity, following its Rs 70,000-crore modernisation. It is focusing on restructuring its business model and re-orienting its marketing strategy to make brand SAIL the number one stop for customers’ steel needs. Singh says it has roped in Boston Consulting Group for this.

Singh believes open communication and engagement with his 85,000 employees has helped to bring a multinational culture to an erstwhile sarkari set up. This has boosted the company’s productivity and performance. According to him, the financial health of the company has seen improvement over last year when SAIL’s inventory levels were high, production was sub-optimal and modernised units were not producing to the required levels. “The company reduced unit cost of production, became EBITDA positive for two consecutive quarters from April to September 2016, and increased production from new and modernised units. SAIL also achieved consistent sales of more than 1 million tonnes (mt) and cash collection of more than Rs 5,000 crore, he says.

The SAIL chief says thatwhile the company celebrates these achievements, several challenges still persist. “As we aim to enhance our saleable steel capacity to 20 mt, market competition too will escalate simultaneously as other producers are also increasing their capacities.” SAIL needs to embrace new-age marketing as it will soon be in a position to produce and supply 20 mt saleable steel in the market. “We have to take customers to that point where brand SAIL can become their one stop for all steel needs. Tools of mass communication like social media should be leveraged to create that connect with consumers,” adds Singh.

While agreeing that domestic steel industry is yet to entirely recover from the slowdown, he says World Steel Association, amid the forecast of tepid recovery in global steel industry for both 2016 and 2017, has predicted handsome growth prospects for India. This optimism stems from the massive investments planned by the government in infrastructure and other steel intensive sectors. Low domestic per capita consumption, at only 60 kg per annum compared to the world average of 208 kg, gives scope to increase consumption. Justifying capacity augmentation that rightly matches this opportunity, Singh says SAIL aims to produce around 15 mt in FY17 and 17 mt in FY18, adding that the company has to set its sights, among other goals, on becoming the lowest-cost producer world over.

He thinks that India is the only bright spot and the global market is eyeing us. “India should be able to produce 300 mt, and our share should be 50 mt by 2030. We should also touch the global capacity of 220 kg consumption soon, as the demand will rise,” says Singh. That has long been a dream at the state-owned steel behemoth.