Jindal Strips Profits May Slump 50%

Jindal Strips Ltd, the flagship of the O P Jindal group is likely to end the 1996-97 financial year with almost a 50 per cent drop in its net profit from Rs 92 crore last in 1995-96 to around Rs 50 crore this year.

The company's board meets on May 31 to approve the results.

The substantial drop in the company's profitability have been primarily due to a sluggish domestic demand for steel and cheap imports.

While the profit before tax is likely to be around Rs 75 crore, an outgo of Rs 5 crore on account of minimum alternate tax (MAT) has caused profits to fall further.

 

The reduction in import duties on stainless steel slabs and a recession in the world steel market has seen imports of stainless steel slabs flooding the domestic market.

In addition to this, a number of major European steel producers resorted to de-stocking.

Senior company sources point out that the relative stability of the rupee vis-a-vis the dollar was responsible for imports being cheaper and thus more attractive for end users.

In rupee terms to extend a 180 day credit, implies a borrowing cost of 16 to 17 per cent. On the other hand, in case of imports the working capital cost are in the region of 9 per cent, which leads to substantial savings.

The profits would have dipped further had it not been for a 100 per cent self-sufficiency in power at each of its manufacturing units at Raigarh, Hissar and Vasind which led to substantial savings in power costs last year.

From the current year onwards, an expansion in total capacity from 100,000 tonnes to 250,000 tonnes is likely to yield significant economies of scale.

Moreover, a reduction in the import duty on nickel from 20 to 10 per cent announced in the budget is also likely to benefit the company. The company imports almost its entire requirement of nickel which constitutes nearly 50 per cent of its raw material cost.

JSL will also increase the production of high value added blade steel, of which it is the only manufacturer from its current level of 3,000 tonnes.

JSL is the only private sector player to have integrated facilities for the manufacture of stainless steel.

Its principal business is the manufacture of stainless steel and mild steel cold rolled coils.

It also manufactures mild steel slabs and hot rolled mild steel coils and sponge iron.

After amalgamation with Jindal Ferro Alloys, the company recorded gross sales of Rs 1100 crore during the year 1995-96, against a turnover of Rs 797 crore in 1994-95.

The profit before interest, depreciation and taxes (PBIDT) touched Rs 175 crore while profit after tax was Rs 92 crore.