SAIL to hire safety audit firm to prevent mishaps

Company aims to lower man power cost by mid-2015 to up margin

To prevent recurrence of accidents like the recent one at Steel Authority of India Limited (SAIL)’s plant in Bhilai, Chhattisgarh, the country’s largest steel company is planning to appoint a safety audit firm.

“We are in talks with a few big safety audit firms and will be soon appointing one,” C S Verma, chairman and managing director of SAIL, told Business Standard. “Though an external safety audit company will be in place, SAIL’s in-house safety audits will continue to function,” he said. On June 12, the state-owned company lost six of its employees due to leakage of carbon monoxide gas at the Bhilai plant. Thirty five others had also fallen sick after inhaling the poisonous gas.

“We have set up a high-level committee, which will look into causes of such events and will suggest how to prevent such situations going ahead,” Verma said. Since the last few years, SAIL has been spending about Rs 200 crore annually towards maintenance of its safety devices.

Meanwhile, SAIL’s total expenditure, which includes expenses towards safety measures, has been on a continuous rise since FY10.

With the intension of strengthening its raw material security in anticipation of bullish demand for steel in the country, SAIL, as part of International Coal Ventures Limited (ICVL), is looking to buy coking coal assets overseas and is in advanced talks for the same.

“We are in advanced stage of talks, as we have already submitted the bids for the coal assets,” Verma said without divulging details.

ICVL is a special purpose vehicle set up to make steel public sector undertakings self-reliant in the area of coking coal. The company plans to outsource mining at two big iron mines -- Rowghat (14 million tonne capacity) in Chhattisgarh and Chiria (15 million tonne capacity) in Jharkhand, and will be inviting tenders by mid-July.

“We want to have state-of-the-art mining techniques and since these are bigger mines we plan to outsource mining here,” said Verma. “We will, however, be comparing the in-house mining costs before out-sourcing mining,” he added.

Iron ore and coking coal are the key raw materials used by steel producers to make the alloy.

Of the top primary steel producing companies in the country, SAIL is in a better position in terms of access to raw material, capacity and debt burden, despite this, the company's stock has underperformed SENSEX in FY14.

"Currently, our employee cost is very high but once our production touches 23.5 million tonne by mid-2015 then our net manpower cost will slide and you will see an improvement in margins and profits," Verma explained.

The company's recruitment of 2,000 people every year is not in line with the production the steel company is adding. At present, SAIL's capacity stands at 17 million tonne.

"At present, our manpower cost is 18 percent of the total turnover but post increase in hot metal production by 2015, this (manpower cost) will reduce to 12-13 percent, in turn taking margins higher," said Verma.

SAIL recorded a turnover of 51,866 crore in the year ended March.

Given the dull domestic demand scenario for steel since the last couple of years, most primary steel producers have been laying thrust on value added products in order to churn stronger margins.

SAIL too upon completion of 23.5 million tonne capacity next year, intends to push up production of value added products to 58 percent from a year-on-year increase to meagre 6 percent in FY14.

Regarding exports, though SAIL has doubled its target for FY15 to 800,000 tonne, the company is open to altering the target depending upon the realisations it may draw.

"Though we have an ambitious export target for this year, it finally depends on what realisations we get," said Verma. "If we (SAIL) see better realisations in the domestic market for steel, we are open to altering the quantum in order to cater to the domestic more than the global and vice-versa," he said. "Just within two months (Apr-May) I can't say where (overseas or domestic) I can get better realisation," Verma added.

Meanwhile, the state-run company is looking at newer markets for exports mainly in West Asia and South East Asia.

"There are no plans to export to Europe and we will continue to look at Middle East (West Asia) and South East Asia since we have to keep in mind the logistics cost as well," Verma informed. "We are looking at new countries in these regions," he added.

Last year, domestic steel companies had taken the advantage of a weakening rupee to increase export volumes amid a weak demand scenario in the local market.