Input Costs Hurt Steel Giants

The poor performance of two of the country's biggest steel makers, Steel Authority of India (SAIL) and Tata Steel, mirrors the state of the industry at large, hit by an indifferent domestic market and an unprecedented rise in input costs during fiscal 1996-97.

While the net profit margin for Tata Steel was 7.3 per cent -- Rs 469.21 crore on a turnover of Rs 6409.43 crore -- SAIL could manage only a 3.5 per cent margin with net profits of Rs 527.21 crore on a turnover of Rs 14,739.65 crore.

The impact of the minimum alternate tax (MAT) is clearly visible on the bottomlines of both the steel majors, which paid corporate taxes for the first time in 1996-97. While the tax burden accounted for 6 per cent of Tisco's profit before interest depreciation and tax (PBIDT), for SAIL, it was 3 per cent of PBIDT.

SAIL paid out taxes worth Rs 74.64 crore (including Rs 3 crore as write back of excess provision of earlier years). The Tata company made a provision to pay Rs 73 crore as taxes. Tata Steel's margins were further eroded due to a Rs 78.7 crore VRS payout.

A huge pile-up in inventories -- a direct offshoot of a sluggish domestic market -- saw SAIL resort to high cost borrowings. This has raised its interest burden by almost 46 per cent to Rs 1,179.39 crore in 1996-97.

Tisco on the other hand has been able to reduce its interest burden marginally from Rs 279.48 crore in 1995-96 to Rs 274.36 crore in 1996-97.

The hike in railway freight cost hit Sail higher because the company moves a significant portion of its material by rail. Out of a Rs 1,100 crore additional input costs burden, the hike in freight cost alone accounted for cost Rs 250 crore. This, however, did not significantly impact Tisco's bottomline which transports most of its products by road.