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BW Businessworld

SAIL: Good Days Ahead

A spurt in steel prices brings cheer after a rather long gloomy spell

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The Steel Authority Of India (SAIL) clings to its rung on the BW Real 500 rankings — notwithstanding a year of low steel prices and high input costs, such as the price of metallurgical grade coal. In September chairman and managing director of the steel behemoth, Prakash Kumar Singh, told shareholders, “Your company’s intensive focus on improving operational parameters resulted in a positive EBITDA in all four quarters of FY 2016-17 and your company trimmed losses by 30 per cent by recording an overall improvement in production, sales and efficiency.”

The BW Businessworld and ACE Equity BW 500 research pegs SAIL’s net loss at Rs 2,950.09 crore on an operating profit of Rs 516.57 crore. The company’s annual report puts its 2016-17 turnover at Rs 49,180 crore, 14 per cent higher than what was in the previous year. The company’s sales volume shot up by 8 per cent, but its net sales realisation only increased by 6 per cent, aided partly by better prices and partly because of an improvement in its product mix.

Steel prices spurted briefly early in 2017, after the slump that had come in the wake of demonetisation and the ensuing lull in construction. Steel prices began to move up again after August. The company claims that its intensive focus on improving operational parameters had resulted in a positive EBITDA in all four quarters of FY2016-17. It achieved the highest ever hot metal production at 15.73 million tonnes (MT). The SAIL plants produced 14.50 million tonnes of crude steel and 13.87 million tonnes of saleable steel during the year.

“There were all round improvements in the major techno-economic parameters,” Singh told shareholders on September 22. “Notwithstanding the increase in coal prices, we could reduce the operational expenditure per tonne of saleable steel by 2 per cent during the fiscal. We have almost completed our modernisation and expansion programme (MEP). Our wider footprint in export markets have also contributed to the best ever numbers with export volumes tripling during the period,” he added.

An increase in prices of both imported coal and domestically available coal pushed down SAIL’s earnings by Rs 4,300 crore and so neutralised the significant improvement in net sales realisation in FY17 over FY16. Says senior journalist and analyst Kunal Bose, “Two years ago, SAIL was in a deep crisis.  But over the last six quarters, it has been able to become EBITDA positive. This was possible largely because of the Rs 72,000 crore modernisation and expansion programme that is virtually over.”

Bose felt that “corrective actions” taken by the new SAIL chief could make it a “sustainable, good-performing steel company. “SAIL now produces better quality and value-added steel and is getting good prices in the market. Hopefully, in a  few quarters, it will start earning a net profit too,” says Bose.

During 2017-18, SAIL intends to produce 15 million tonnes of saleable steel, with a thrust on value-addition from its new modernised facilities such as the universal rail mill at Bhilai, new plate mill at Rourkela, structural mills at Burnpur and Durgapur, a cold rolling mill at Bokaro and a wire rod mill at Burnpur.