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G. Madhan

IRONING out the previous year's losses, companies in the steel industry have managed to do the star turn in 2002-03.

An analysis of 53 companies which have declared results till now shows that quite a few companies have succeeded in moving from red to black. This despite the losses made by three of the top five players (in turnover).

The list of turnaround candidates includes not just major players such as Jindal Iron & Steel but also secondary steel manufacturers such as Uttam Galva Steel and Chase Bright Steel.

The sample shows a sharp 29 per cent growth in turnover this year from the corresponding previous year. Of the top five players, which contribute about 75 per cent of revenues of the industry, Tata Steel and Jindal Strips continue to make profits while SAIL, Jindal Vijayanagar and Essar Steel have managed to reduce their losses significantly.

Even if one looks at this sample sans these five companies, the industry continues to show a profit for 2002-03 from a significant net loss in the previous year.

Buoyant steel prices (the price of hot rolled coils — representative of the flat product segment — surged $80-$100 per tonne in the last one year) riding on an increased demand for steel products in China and few other Asian countries, bolstered the entire industry to record significant profits.

For instance, Tata Steel, which exported steel to the tune of Rs 1,000 crore, saw a sharp four-fold increase to its net profits. Strong steel prices coupled with an improved product mix appears to have aided this strong growth. The sharp drop in the company's interest expenses (about 18 per cent) has also aided the company in improving its profits.

Mr B. Muthuraman, Managing Director, Tata Steel, said, "The company has bolstered its position through customer mix, price contracts, branded products channel management and customer value management."

For Jindal Strips, which witnessed sharp spike in net profits (2.2-fold increase), value-added products appear to have done the trick.

The company also managed to reduce its interest expenses by 22 per cent.

Mr Arvind Parakh, Director (Finance) of Jindal Strips, said, "The company is now intrinsically stronger. We are looking inward in terms of cost reduction and outward in terms of price increases. A repeat of last year's steep rise in profit is unlikely but healthy growth should continue."

The turnaround candidate, Jindal Iron & Steel, on the other hand was aided by a sharp jump in its export revenues. The exemption from the additional tariffs on exports to the US also appears to have aided the company, as it accounts for 90 per cent of India's galvanised steel exports to the US.

The company has also managed to reduce its interest expense by restructuring its debt.

Essar Steel, which has made losses (if the last four trailing quarters are considered), has moved into the black in the half-year ending March 2003 from the corresponding prior period losses, due to the sharp drop in the interest expenses. However, this was aided to a large extent by an extraordinary item.

For the sample, the interest expense has come down by about 13 per cent.

It appears that quite a few industry players have used the soft interest rate regime to substitute high-cost debt with low-cost debt. And in some cases, this has helped some players to turnaround from losses to profits.

It may be pertinent to note that the JPC report earlier this year indicated that the years ahead will be decisive for the steel industry with only the fittest companies surviving, as development of markets with greater emphasis on penetration of the rural market, promotion of new products, betterment of supply-management chain and modernisation and use of software technology were the need of the hour.

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