Steel Authority of India Ltd profitability might see a further dent in the near-term over next four to six quarters due to an impending wage revision for employees.

Wage revision for over one lakh employees, excluding officers, is due for January 2012 and the employee unions are demanding a higher increase.

Wage talks in Jan

“We plan to start wage negotiations in January 2012,” Mr C.S.Verma, Chairman, SAIL, told Business Line recently. However, Mr Verma did not comment on how many employees would benefit from the upcoming wage revision stating it all depended on the negotiations.

In the previous wage pact, signed five years ago, the average increase was about 22 per cent, said Mr Tapan Sen, General Secretary at the Centre of Indian Trade Unions (CITU). “We have demanded a higher increase and have sought the inclusion of contract labourers in the wage revision agreement,” Mr Sen said. He estimates SAIL's contract labour strength at around 70,000.

Expected rise

Industry analysts see a further dent in SAIL's profit margins because of the incremental rise in wage costs. “There is a possibility that the wage costs might increase by Rs 1,000 crore to Rs 1,500 crore annually,” said an equity analyst at a Mumbai-based brokerage. SAIL's employee costs for the financial year 2012 are estimated at Rs 8,000 crore.

Based on the current revenue, employee wages account for about 20 per cent of SAIL's turnover. “The incremental rise in wage costs would further dent the margins by two percentage points in the near term for the next four to six quarters,” the analyst said. SAIL's operating profit margins, impacted by the rising input costs such as coking coal, stood at 12 per cent in the July-September quarter.

Offset with output

However, the SAIL Chairman is confident that wage costs would come down with the increase in production over next couple of years. SAIL is implementing a modernisation plan which would increase its capacity from 14 million tonnes per annum (mtpa) to 24 mtpa by 2014.

“We are increasing our output with the same number of employees, which should bring down the costs,” Mr Verma said. The company is retiring about 7,000 employees a year, while adding about 1,000 to its rolls.

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