Scrip Mirrors Sail Show
The company attributes this poor performance to higher input costs and a considerable increase in interest burden. The other main culprit for lower profits was a Rs 97 crore provision for modified alternate tax (MAT). Till 1995-96 SAIL was a zero tax paying company.
Last year, prices of coking coal increased by 27 per cent while petroleum products prices increased between 15 and 25 per cent besides a 10 per cent hike in railway freight rates. The drag on the bottomline due to the hike in input costs is estimated to the tune of Rs 1,100 crore while the increased railway freight charges took Rs 250 crore away.
Interest burden increased by 54.5 per cent to Rs 1,250 crore mainly because of increased credit to finance the pile up of inventory, arising out of the sluggish demand for steel.
Almost 58 per cent of SAIL's turnover comes from flats, the prices of which dropped considerably in the past one year reflecting the international trend. Weak demand for the product, too, has impacted SAIL's performance.
All these factors together have severely affected the margins of the company. Usually, the domestic prices follow the trend of International prices and the international prices of hot-rolled coils (HRC), which were ruling at a high of $530 per tonnes in May 1995, dropped to $260 a tonnes in December 1995. During 1996-97, the prices were in the range of $285-320 a tonnes.
However, there are some positive news for the current year performance, since prices of HR coils are firming up. This is due to some strong demand in the international markets, where prices are ruling at nearly $350-360 per tonnes. SAIL has already hiked prices and the other players in the industry like Tisco, Essar and Lloyds, too, are increasing the prices by Rs 800-1,200 per tonnes.
According to industry analysts, even a price hike will not be enough to shore up the realisations on the domestic front. Producers in the CIS and in Europe are selling their products in India, almost at dumping rates. The differential between landed imports and SAIL prices is close to Rs 5,000 per tonnes. The prospects of SAIL will be hit if imports of this nature continue. However, the company has projected a 13.3 per cent increase in net profit to Rs 740 crore for 1997-98.
The current market price of the scrip at Rs 22 discounts the current earnings by nearly 14 times, which looks quite high.