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Rabindra Nath Sinha

KOLKATA, Feb. 23

BY all indications, the current quarter should mark a turning point for Steel Authority of India Ltd. The figures for the immediate past quarter and cumulative for the preceding three do suggest that SAIL is geared to live down the stigma of a navaratna PSU being a loss-making outfit.

There is one more significance. In compliance of the special business conducted at the 30th AGM held on September 24, 2002, the management informed the Board for Industrial and Financial Restructuring (BIFR), within the stipulated period of 60 days from the date of AGM, that under Sec 23 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) SAIL's accumulated losses as on March 31, 2002 had resulted in more than 50 per cent erosion of the peak net worth during the immediately preceding four financial years. Simply put, it meant that SAIL was a potentially sick company.

Surely the management would have welcomed a situation that spared it from compliance with Sec 23 (1) of SICA. But that was not to be. And, there is the other extreme. If the situation had worsened subsequently, SAIL would have attracted SICA's harsher provisions. Now the ground realities have robbed the reference under Sec 23 (1) of whatever little sting it had. BIFR naturally would take note of the upturn in the fortunes of the steel industry, in general, and SAIL, in particular.

The second quarter of the current fiscal marked its return to cash profit (Rs 111 crore) after a long spell. The third quarter saw it not only increase cash profit (Rs 215 crore) but also reduce net loss substantially - to Rs 79 crore from Rs 170 crore in the preceding quarter and Rs 585 crore in the third quarter of 2001-02.

For the combined three quarters, it recorded a cash profit of Rs 305 crore, against a cash loss of Rs 434 crore for the same period of 2001-02.

The drastic reduction in the net loss in the October-December 2002 quarter is a strong pointer that it would close the fourth quarter on a stronger note of optimism. It should see SAIL reverse its rather long `net loss' phase.

It is well known that the steel industry has benefited from a strong market from the start of the fiscal. To capitalise on the opportunity that had come their way after nearly two years, steel companies marked up prices and scaled down rebates over six times and their target has been the flat product segment, particularly HR sheets/coils.

It may be assumed that 50-60 per cent of the improvement in financial performance up to December 2002 was due to upward revision of prices and larger sales. Which means the rest of the improvement has been possible because of strenuous efforts to better techno-economic parameters and tighten fund management.

In the five months since taking over as SAIL Chairman, Mr V.S. Jain, while continuing the thrust of his predecessor, has had to identify ways for more fruitful utilisation of the existing facilities. Mr Jain strongly advocated a 10 per cent improvement in all critical productivity parameters.

After all, with no further headway in the business-restructuring programme, the `other income' factor has ceased to exert as much influence on the results as it did in 2001-02. Thus, other income at the end of three quarters was much lower at Rs 102 crore, against Rs 456 crore last time. For the past several months its only source of other income is lease of houses in the plant townships.

Moreover, following wage revision, staff costs have risen. Power, fuel and freight costs go up at regular intervals.

Hence the emphasis on reducing consumption of coke and energy and stepping up utilisation of the BOF and continuous casting routes to derive maximum benefits of the huge investments already made in modernisation. Simultaneously, the share of value-added products in the total saleable output is being raised and deeper inroads are being made in the domestic market by strengthening the dealer network.

Tighter working capital management and substitution of high cost debts with low cost borrowings helped to pare the outgo on account of interest and finance charges by Rs 168 crore to Rs 1,039 crore at the end of the third quarter.

Despite uncertainties and wide fluctuations, stock markets have taken note of the improvement in the outlook of steel companies. The Rs 10 SAIL scrip had touched a low of Rs 3.95 on September 1, 2001. Last week it quoted above Rs 11.

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