A Prop For Sail

Despite its apparent enormity, the one-time write-off of Rs 5,454 crore loans to Steel Authority of India (SAIL) will just about help the beleaguered steel giant to plug a few holes.

Analysts expect the annual savings on interest outgo between Rs 300 crore to Rs 400 crore, though news reports suggest the figure could be as high as Rs 700 crore. This is to be seen against the company's annual interest outgo of Rs 2,017 crore on total loans of Rs 21,017 crore at the end of March 1999. SAIL reported a net loss of Rs 1,596 crore last year, and a net loss of Rs 2,049 crore in the first three quarters of this year.

 

Debt waiver forms a very small component of restructuring the company. However, analysts added that the effort is still a good move for the signal it sends: that the government is serious about restructuring the company and restoring it to financial viability. Sail will need at least two more booster doses.

For one, in order to improve operational efficiencies, it has to modernise its mills. Analysts are loathe to put a number to the amount of money required, but only point out that if the modernisation were to be funded through market borrowings, SAIL has no way but to sink further. They point out that the Rs 12,000 crore-odd modernisation on parts of the Durgapur, Rourkela and Bokaro steel plants led to a steep Rs 775 crore increase in interest and depreciation costs in 1998-99 (over the previous year).

Part of the deal is that the government will guarantee SAIL's market borrowings to the extent of Rs 2,500 crore. The government guarantees are unlikely to result in significant lowering of borrowing costs. Indeed, the credit markets do not place much reliance on government guarantees, after a few triple-A rated state government corporations defaulted.

SAIL is expected to raise resources from the sale of its non-core investments in power, oxygen, fertiliser and special steels. Again, apart from the difference in inflows and outflows, there is the more important issue of timing: SAIL needs urgent cash now, if it to benefit from the uptrend in steel prices. The process of sale of various assets can drag on indefinitely. In fact, prospective bidders for its Oxygen plants_which involved some MNCs_backed out in the face of stiff union resistance. Sale of assets is therefore not a simple financial transaction.

Sail will need a second booster dose to close the VRS process, and finally bring staffing strengths in line with the new generation steel companies. A VRS plan in June 1999 brought the workforce down from the March 1999 level of 1,74,736 by a mere 13,500 workers. Reports indicate the company is targeting a work force of 50,000 over the next four years. To fund this attrition, the company may need substantial infusion of cash in the next two-three years.

Clearly, SAIL is nowhere out of the woods. And there is no guarantee that the central government's plan will be put into immediate effect. The matter of dispensing largesse from Steel Development funds (SDF) is under scrutiny of the Supreme Court. Aggrieved private steel producers have apparently alleged that availability of zero-cost funds to Sail would give it an undue advantage over private producers. In a sense, the corpus contributed by the latter will be used against them. Plus, there is the matter of unions to tackle. Bringing the workforce from a level of around 1,60,000 currently to 50,000 in 4-5 years will require an immense amount of determination on part of the government and the management.

Ind Swift Labs

Ind Swift Laboratories, the Chandigarh-based bulk drugs company, is rapidly moving ahead in value added bulk drugs. The company is the largest producer of macrolides (latest generation of anti-biotics) in India and the amongst the top few in the world to introduce coated granules of clarithromycin.

Besides anti-biotics, the company has focussed on steroids wherein it has filed the drug master file with the European drug regulatory authorities for bethamethasone sodium phosphate, betamethaone valerate and betamethasone dipropionate, patents for which has already expired.

Currently, the company exports 40 per cent of its production mainly to US, UK, Europe, Argentina, Brazil, Mexico and balance is sold in the domestic markets. Its domestic clients include pharma bigwigs like Cipla, Ranbaxy, Cadila, Rhone-Poulenc, Alkem Labs, Novartis, Wockhardt and Sun Pharma to name a few.

Ind-swift Labs research team has been able to commercialise a number of new generation critical therapeutic drugs among the latest ones in the pipeline is Atorvastatin and Simvastatin, which apparently are the latest generation cardiovascular drugs.

The company was first in India to develop NDDS (new drug delivery system) of clarithromycin in coated granules. This product alone contributes 12 per cent of sales VK Mehta, joint managing director, "The latest NDDS is for azithromycin and roxithromycin."

The company is a bulk drug producer, and margins are volatile in this business. Additionally, exports streams are also susceptible to shocks. Mehta however clarifies "Our research focus is on newer generation drugs with better margins and in terms of country exposure, we are diverse."

The company's performance in the nine-months ended December 1999 has seen sales at Rs 45.93 crore against Rs 46.9 crore the whole of previous year, with net profit doubling to Rs 2.4 crore against Rs 1.23 crore in 1998-99. With volume growth and value added products, the operating margin has moved up from 7.37 per cent to 17.63 in the same period.