Its Not Smooth Sailing For The Steel Behemoth

While there have been reports that the once star performer, Bokaro Steel is not yielding any profits and the only silver lining is the Bhilai plant which may yield a surplus.

But then there are greater problems ahead for Sail in the form of its stagnant steel production.

SAIL produced 6.414 million tonnes of finished steel in 1991-92 which rose to 6.6 million tonnes in 92-93.

The next years production was around 6.87 million tonnes in 1993-94, while the 94-95 fiscal production was slightly higher at 6.95 million tonnes which increased further to 7.1 million tonnes in 95-96, but fell to 6.796 million tonnes in 1996-97.

While the production of saleable production of saleable has increased over the past five years, it is due mainly to an increased production of semis which do not bring in any profit.

Thus the production of semi-finished steel increased from 1.227 million tonnes in 1991-92 to 2.104 million tonnes in 1996-97 and saleable steel production rose from 7.641 million tonnes to 8.902 million tonnes during the same period which does not contribute significantly to an increase in the profit.

SAIL has infested heavily to modernise the plants. The capital employed more than doubled from Rs 7626 crore in 1991-92 to Rs 18400 crore in 1996-97 and consequently the interest and finance costs have nearly trebled from Rs 463 to Rs 1179 crore.

The enormous burden of capital and finance charges and the stagnant production of finished steel may severely handicap the companys performance in the coming years.

The profit before tax to sales which stood at 3.92 per cent in 1991-92 improved to 8.39 per cent in 1994-95 and further increased to 8.97 in 95-96. This was followed by a crash to 4.16 in 96-97.

These are indeed warning signals for SAIL, as despite all the modernisation efforts, all the company has to show is an uninspiring bottomline.

A comparison with TISCO reveals the failure of SAILs modernisation efforts.

In 1991-92, Tiscos total saleable production was 1.976 million tonnes, of which 1.045 million tonnes were semis and the rest was finished steel.

With modernisation of the TISCO plants, the semis production declined sharply to from 1.045 million tonnes in 1991-92 to 811,000 tonnes in 1996-97, while the production of finished steel rose to 1.9 million tonnes most of which was flat rolled products thus adding to the value of steel produced.

Tisco which began by spending Rs 4000 crore between 1989 and 1994 could add a full one million tonne hot strip mill.

Gross revenue increased from Rs 2889 crore in 1991-92 to Rs 64.09 crore in 96-97 and profits before taxes rose from Rs 276 crore to Rs 542 crore.

SAIL on the other hand had a increase in total income from Rs 10290 crore in 91-92 to Rs 16188 crore, while profit before tax climbed from Rs 367 crore to Rs 588 crore.

Falling steel product prices and an increasing competition chart out an uphill task for SAIL.

While it has to be said that the company is revamping its modernisation programme to add value to its production, there is a general feeling that the companys expensive modernisation efforts might just not yield the desired results.