Overcapacity Cause For Declining Profits

The price realisation of Tisco during the second half of 1996-97 has shown a declining trend which may be attributed to a host of factors which had an adverse impact on the profitability of the steel major.

According to Tisco managing director J J Irani, overcapacity and lower international prices have led to decline in the last few months.

The cost of capital in India is much higher compared to other countries. With the present cost of capital, no steel project can give good returns, said Irani. Cost of credit extended to customers was another negative factor, he added.

The steel major has made concerted efforts for cost reduction during the year which would benefit the company nearly Rs 150 crore. Had the company continued with existing costs, it would have to bear an extra Rs 150 crore in 1996-97, said Irani.

Moreover, the bottling-up effect of infrastructure, particularly in roads and railways, has been a hinderance for smooth transit. Tata Steel, however, had an advantage as cost of power costs was lower than the national average of Rs 3 per kwh.

This was much higher than international power rates, particularly in countries like South Africa, France, Brazil and Poland.

The recent hike proved to be very expensive for the company as it has to shell out nearly Rs 2085 for transporting a tonne of steel from Jamshedpur to Mumbai.