SAIL net profit dips 17% on lower steel prices

The country’s largest steel maker, SAIL, today reported a 17 per cent dip in net profit at Rs 1,663.49 crore for the second quarter due to lower sales realisation and the merger of Bharat Refractories Ltd (BRL) with it. The steel maker had a net profit of Rs 2,009.60 crore during the same quarter last year. The better-than-expected result of the current quarter is not comparable with that in the same quarter last year, as the current quarter figures include the earnings of BRL, which was merged with the company pursuant to the government order in July, it said.

“The biggest impact on the profit was on account of lower price realisation. Last year, in the second quarter, steel prices were at historic peak,” SAIL Chairman S K Roongta told reporters here.

The “adverse impact due to lower price realisations” in the reporting period over that of a year ago was to the tune of Rs 3,000 crore, he added.

However, the company is hopeful of a better third quarter, as demand and prices almost bottomed in the year-ago period.

“We expect 11-12 per cent demand growth in the third quarter,” he said, adding that he subscribes to the World Steel Association’s prediction of over 9 per cent growth in India’s steel demand this year.

“The government’s thrust on the infrastructure sector will give a fillip to steel demand in this fiscal,” he said.

The impact of the decline in prices, Roongta said, was partially offset by cost saving measures taken by the company. Demand from sectors such as automobiles and white goods is also encouraging, he added.

“SAIL saved around Rs 1,000 crore in Q2 on account of the cost saving measures,” he said.

After touching a low of about $400 a tonne during the third quarter last year, steel prices are now hovering in the range of $600-700 per tonne. The rates have peaked at about $1,200 a tonne in the Q2 last year.

Total income during the quarter under review stood at Rs 10,575.28 crore, while the same was at Rs 12,488.58 crore in the corresponding period last year.

Out of about Rs 10,000 crore capital expenditure planned for this year to fund its expansion programme, Roongta said, SAIL has already raised about Rs 3,600 crore.

The company plans to raise Rs 1,400 crore of the capex in this year. In the first phase of its expansion programme, the company is augmenting its annual production capacity from about 14 million tonnes to 23 million tonnes by 2012.

In the second phase, it will ramp up the capacity by another three million tonnes, he said.

Roongta said to feed its expanding capacities the company is working towards raw material security and has last week entered into a lease agreement with the Chhattisgarh government for iron ore mines.

“This will provide iron ore security to Bhillai steel plant for next 30 years,” he said.