Sinking Sail Scuttles Steel Sector

A depressing topline performance with sustained lower demand saw the steel sector bleeding in almost all of the last eight quarters.

The earnings per share (EPS) for the sector have been throughout negative, excluding the sole quarter ended March 2000, when it derived a positive EPS of Rs 0.23. The EPS remained in the negative zone, between Re 0.50 and Rs 1.2, for the rest 7 quarters.

The hefty losses by the public sector major, Steel Authority of India (SAIL) severely warped the sector's performance. SAIL's net profit of Rs 344.84 crore in the quarter ended March 2000 was the reason why the sector was in positive territory in that quarter.

Apart from a sustained drop in demand, SAIL was majorly affected with the unfulfilled modernisation programmes with no major return.

This has caught the behemoth on the wrong foot. Its huge investments increased interest burden but it did not improve on the quality and productivity fronts.

The sector's EPS was worst during the quarter ended September 1999 at a negative Rs 1.82. This improved to a positive of Rs 0.83 during the quarter ended March 2000.

For the quarter ended June 2001 it fell afresh to a negative of Rs 0.91 following a huge net loss of Rs 375.7 crore.

The sector's performance has always being cyclical in nature. This has, however, been hammered further with increasing debt burden.

A major culprit, interest cost, accounts for over 8 per cent of sales income. A new investment of around Rs 25,000 crore in last five years with no major increase in demand has resulted in poor returns for manufacturers.

Industry experts don't expect the performance to be much better in coming quarter. The slowdown in domestic demand and depressed international prices are the major factors for their lacklustre show.

Depressed demand has put further pressure on domestic flat prices. To make matters worse, despatches are down four per cent for June 2001 quarter.

In hot and cold rolled coils, prices were lower by over 15 per cent in the quarter ended June, compared with the same quarter previous fiscal.

The concerns for Indian steel industry, the 10th largest producer in the world, have increased following the global crisis -- the predominant among these being excess capacity.

The import of steel or in fact the dumping of steel, specially the flat steel, at throwaway prices have forced the price to remain at low levels.

Lower import and anti-dumping duties and floor prices in major global markets have also dealt head-spinning blows.

Private sector major Tata Steel, which derives over 11 per cent of its income from exports, however, has been a better performer among the lot.

Cost reduction through improved productivity and concentration on high value products ensured a better bottomline for the company.

The company has been riding on positive earnings in last eight quarters. However, the quarter ended June 2001 was its worst due to low volumes. The company's EPS dipped to Rs 0.56 from a peak of Rs 5.69 in the quarter ended March 2001.

Essar Steel, whose exports accounts for 30 per cent of its total income, has also been haemorrhaging. Its EPS was a negative Rs 4.28 for the quarter ended September 1999.

Out of the eight quarters, the company reported a positive earnings only in two. And the last two quarters were the worst for the company.

For the quarter ended March 2001, it's EPS was a negative Rs 11.1, while in quarter ended June 2001 it was a negative Rs 6.5.