The Hindu Business Line : SAIL strengthening its foothold

TMT bars and rods, structurals, hot- and cold-rolled coils, plates and pipes have been identified as the key growth products for the domestic steel industry. For SAIL, which is an established and significant player in these product segments, the scenario holds a huge potential for growth.

Even as scores of new entrants flock the steel industry to make the most of the boom, the state-owned behemoth Steel Authority of India Ltd — SAIL — is set to give them a run for their money.

With investments of over Rs 25,000 crore lined up over the next five years for its five integrated steel plants under its belt, SAIL is poised to retain its competitive strength in the years to come.

SAIL posted its all-time high net profit of Rs 5,717 crore in 2004-05. For the quarter ended December 31, 2005, SAIL's net profit was Rs 685 crore on a turnover of Rs 7,176 crore.

With this, SAIL has recorded consistent profit for the 12th consecutive quarter. SAIL's profit after tax for the first nine months of 2005-06 was Rs 2,935 crore.

The ongoing boom in the market will easily take SAIL's net profit past the Rs 4,000-crore mark in the current financial year.

SAIL also announced an interim dividend of Rs 516 crore for the second consecutive year. It reduced its borrowings by Rs 1,240 crore to the level of Rs 4,530 crore (as on December 31, 2005). Interest outgo dropped to Rs 98 crore in the first nine months of 2005-06.

The debt-equity ratio further improved to 0.36:1 as against 0.58:1 recorded on March 31, 2005. Having equivalent deposit with banks, the company is virtually debt-free.

On the production it improved its average capacity utilisation to the level of 107 per cent as against 104 per cent achieved in the last fiscal.

SAIL is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets.

Ranked amongst the country's top-10 public sector companies in terms of turnover, SAIL manufactures and sells a broad range of steel products, including hot- and cold-rolled sheets and coils, galvanised sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at four integrated plants and three special steel plants.

CORPORATE PLAN-2012

Changes in business environment call for periodical review of long-term plans. In the backdrop of the upheavals faced by the global steel business in the recent past, the general perception that the current phase of buoyancy in the market will last for a longer time-span, and market growth projections of around 8 per cent, SAIL felt it necessary to prepare a long-term perspective plan for itself, superseding the last such plan drawn up in 1992.

Corporate Plan-2012, which has been drawn up as a consequence, provides a blueprint for the company's growth in the coming years, in tandem with a growing market.

By 2012, the consumption of steel in India is expected to reach around 55-60 million tonnes, nearly double the current level.

Given its available infrastructure and skill base, SAIL has the comparative advantage to supply additional volumes at the most competitive cost to the nation.

Besides, the Centre for Policy Research, in its November 2002 report dealing with perspectives up to 2025, indicates that the construction, cold-reducing and oil and gas transportation segments are poised for major growth in India.

TMT bars and rods, structurals, hot- and cold-rolled coils, plates and pipes have been identified as the key growth products for the domestic steel industry.

For SAIL, which is an established and significant player in these product segments, the scenario holds a huge potential for growth.

Corporate Plan-2012 envisages enhancement in SAIL's domestic market share from the current level of around 26 per cent (it is estimated that in 2003-04 steel consumption in the country crossed 30 million tonnes) to around 27 per cent (of the projected 55-60 million tonnes).

It would be achieved through several measures which include stepped-up production, further intensification of market-orientation, and improved cost and quality competitiveness, supported by rational investment and multiple managerial interventions to optimise resource utilisation.

For realistic achievement, the plan has been split into two stages - Stage-1 pertaining to the period up to 2006-07 and Stage-2 up to 2011-12.

PRODUCTION

As part of the plan, SAIL will increase hot metal production from its plants to a level of about 20 million tonnes per annum (MTPA) by 2012 against the current level of 13 million tonnes per annum.

SAIL has also planned reduce generation of semi-finished steel from 20 per cent of saleable steel to four per cent. This will enable inclusion of more value-added products in the company's product basket.

INVESTMENT

SAIL has estimated that the measures to be taken to achieve the targeted levels of growth and sustain higher levels of cost and quality competitiveness will require investment in the region of Rs 25,000 crore by 2011-12.

The immediate priority schemes, which are to be taken up and completed by 2006-07, have been estimated to be around Rs 4,300 crore.

The capital expenditure envisaged will be financed mainly through internal accruals, and will be supplemented by market borrowing if the need arises.

Care will be taken to ensure that the company's debt-equity ratio attains, and is maintained at, a level of 1:1.The plan for capital expenditure covers upgradation and modernisation of some existing assets as well as installation of some new facilities.

Strengthening of competitiveness in cost and quality has been designated as a key strategic factor for the success of SAIL's growth plan.

The company will focus on technology & input quality improvement across value chain; thrust on special quality steel and new products; improvement in process consistency and metal treatment; advanced online testing and quality control facilities; standardisation/automation/process control & IT.

MEGA MERGER of SAIL & RINL

Meanwhile, in another interesting development, SAIL for the first time has favoured a mega-merger of steel-related public sector units, including the Vishakapatnam-based Rashtriya Ispat Nigam Ltd (RINL).

Recently, addressing a press conference in Kolkata, Mr V.S Jain, Chairman of SAIL, said the emerging steel market in India could witness fierce competition among all the steel producers.

In this context, he felt the public sector steel companies should avoid competing among themselves. Instead, they should be merged and a single entity should be created.

He, however, clarified that these were his personal views and the Union Government would be considering all aspects, including those of the State Governments and individual employees, before taking a final decision.

About four to five months back, the Steel Ministry had formed a high-powered committee to study the matter but no deadline was set for submission of a report.

The idea was severely opposed by the Andhra Pradesh Government, its MPs and RINL too.

NINL Merger

After the merger of Indian Iron & Steel Co Ltd (IISCO), SAIL is now hoping that it would succeed in merging the Orissa-based Neelachal Ispat Nigam Ltd (NINL) with itself.

Mr Jain said talks were on with the Orissa Government for this purpose.

MMTC is the principal promoter of NINL and holds around 40 per cent.

Several Orissa Government undertakings hold around 25 per cent in NINL, whose annual crude steel capacity is 1.1 million tonnes. Earlier, RINL and Tata Steel were keen to pick up equity in NINL.

NINL recorded a profit of over Rs 200 crore in 2004-05 and also won an iron ore mining lease from the Orissa Government.

It had merged its subsidiary Konark Met Coke Ltd with itself last year.

"We are hoping to merge NINL next, and quite positive about it, but the whole process takes six to seven months,: Mr Jain said.

He, however, accepted that SAIL was facing difficulty in merging its subsidiary, Maharashtra Electrosmelt Ltd and Manganese Ore India Ltd.

SAIL-CIL ARRANAGEMENT

SAIL and Coal India Ltd (CIL), two of India's leading public sector companies, have entered into an arrangement whereby SAIL would be giving Rs 116 crore to CIL for development of the mines at Monidih 16 and 15.

These are located at Jharia in Jharkhand and owned by Bharat Coking Coal Ltd, a subsidiary of CIL.

Mr Jain said that the money would be adjusted against future coal supplies.

Similar arrangement is likely to be worked out for the Kapuriah mines too.

According to him, SAIL and CIL may float a joint venture for overseas mine acquisitions in future.

At present, SAIL's annual coal bill is Rs 6,000 crore. While 60 per cent is imported, the rest is purchased from CIL.