The state-owned steel behemoth Steel Authority of India Ltd (SAIL) last August surprised the Government by refusing to pay dividend as it was facing liquidity crunch. While the market situation continues to be uncertain, Anil Kumar Chaudhary, Chairman, SAIL in an interview with BusinessLine is confident that things will turn around once its expansion and modernisation plans are complete. Excerpts:
Is the steel demand slowing down?
I do not think so. For us, demand has been good and I do not see it slowing down in futures. More than the demand, the threat of imports is major concern. Imports in the first nine months of the fiscal is at par with what was shipped in last fiscal. Falling steel prices due to excess production in China is another concern. Some people in India are taking advantage of the situation in China and demand lower price in India. It is not possible because the raw material prices are high here. India should clock a demand growth of over eight per cent this fiscal.
With the elections round the corner, do you think there will be a slowdown in demand?
Yes during this time demand slows down. However, a spurt in construction activities is expected which could lead to a slowdown in government spending. Traditionally, steel demand goes up during the last four month of the financial year.
Are you planning any measures to reduce debt?
We are in the last phase of expansion and modernisation project. Unfortunately, in the last three months cash flows are constrained due to market condition. We are now borrowing more from the market. In future, we should be able to generate more resources to take care of our debt.
Will you reconsider joint venture with ArcelorMittal if it takes over Essar Steel?
From our end there will be no reconsideration. We are committed with the joint-venture plan. They have been taking more time to finalise the terms because they are busy with Essar Steel bidding.
What is the share of Railways in your overall sales?
It is not very high. People think Railways gives me my entire revenue, but it is not true. Our turnover is going to cross ₹60,000 crore. We supply about one million tonnes of rails which is about ₹ 6,000 crore or 8-10 per cent of our total turnover. We are also supplying other products on tendering process while we supply rails on MoU basis at a reasonable pricing. This year we have agreed to sell one mt of rails to them. For next year, we have set a target of 1.2 mt. Our combined capacity for rails is about 1.9 mt.
Will the fall in global prices impact India?
It is a temporary phenomenon. It happened between July and August, but of course it is there for longer period now. Price volatility is the order of the day in steel sector. In India there is no reason for prices to remain soft due to high raw material prices.
Is government concerned after SAIL has refused to pay dividend last time?
We refused dividend because the company was incurring loss and the cash flow was tight. Dividend depends on the financial condition of the company. Though government owns 75 per cent, the dividend is paid to everyone. We have framed dividend distribution policy and the board follows it diligently. We need resources for completing the ongoing projects.
What are the measures taken to reduce manpower cost?
It may not happen. The average cost of manpower in Sail is about ₹11 lakh per employee, while it is ₹3.75-4 lakh in private sector. Our top-level executive are getting salaries in lakhs while their counterparts in private sector are paid in crores. Despite private sector steel companies paying 10 times higher salary at top level, their per capita salary is much lower than us. Tell me which company is spending ₹1,500 crore in township, hospital and schools? While we are retiring 5,000 employees every year, we are also recruiting fresh blood at front-line position.
How do you see the competition from the fast expanding private sector companies ?
We are also adding capacity. Sail is the largest producer with hot metal capacity of 23.46 million tonne and crude steel capacity of 21.5 mt. Of the operational 18-mt capacity, our utilisation is about 16.5 mt. Yes, our cost is on the higher than JSW Steel or Tata Steel. I leave apart Tata Steel for a moment as they are on higher pedestal with captive iron ore and coal mines. JSW Steel may be more competitive because of lower labour cost.
How is your overseas operations doing?
This year we will be producing 1.2 million tonne of washed coal in Mozambique. For next year we have a target of 1.6 million tonne. Both RNIL and SAIL is getting the supply in India.