Sail Unlikely To Gain From Cost Reduction Steps

Cost reduction measures, which is expected to yield a benefit of around Rs 800 crore to the Steel Authority of India (SAIL) in the current financial year, were unlikely to add to the margins of the company due to heavy increase in input costs, company sources here said.

On an annualised basis, costs had increased by over Rs 700 crore due to increase in prices of power, railway freight, coal and petroleum products. This was in addition to the Rs 1,000-crore input cost escalation effected due to rise in inputs costs, power and freight charges in the previous year, sources said.

On the other hand, poor market condition and dumping of steel by CIS countries and Korea prevented the steel major from offsetting the cost increase with a price hike, they said.

Sources said SAIL has to cope with pressure on its profits as a result of depreciation and interest costs at a time when revenues and realisation could not increase significantly due to a slowdown in the market.

Taking depreciation and interest into account, SAIL recorded a net profit after tax of Rs 48.53 crore, while the companys net profit stood at Rs 361.45 crore during the same period last year.

They said internal weaknesses came in the way of SAIL becoming a competitive firm mainly due to the labour costs, burden of supporting unviable and non-profitable units and technological backwardness in critical areas where competition was emerging.

Given the market condition, the company had now taken a drive to be more market-oriented and bring in a significant change in product mix, development and manufacture of new products and focused research and development in areas where the company perceived emergent demand, sources said.

It had increased production of wire rods, light structurals and galvanised products in the current financial year besides stepping up production of value-added products in critical sections including sailcor steel, TMT HRC, high tensile plates, UTS 90 rails and LPG sheets. In order to meet the changing requirements of the customers, the product mix was being continuously oriented to specific needs of different market segments.

Sources, however, said in a market that had shown negative growth, SAIL achieved a four per cent growth in total sales of steel in the first ten months of 1997-98.

Sales of wire rods, light structurals, HR sheets, GP/GC, tin plates and electrical sheets had gone up.

The company was also successful in developing and supplying HR coils in specifications required by the cold rolling segment which was mainly catered by its competitors and imports, sources said.

The companys export in the current fiscal would touch one million tonne registering a 200 per cent growth over last year.

The main products exported by the company were billets, slabs and plates besides HR coils/sheets, structurals and CR coils/sheets. SAILs export strategy was based on market segmentation with the objective of establishing the companys products in specific markets and emerge as a reliable supplier by maintaining long-term business with end-users and reputed business houses in the global market.