Mar 08, 2004 05:36 PM
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(Updated Mar 08, 2004 05:36 PM)
Steel Authority of India Limited (SAIL), being a PSU is one of the real turnaround stories of the recent past. SAIL like many other PSUs was very badly managed and the general downturn and the global recession in the steel industry almost spelt doomsday for SAIL.
SAIL, a company incorporated in January, 1954 was initially setup as a private limited company by the Government of India under the name of Hindustan Steel. Then it was converted into a Public Limited under the name of ?Steel Authority of India Limited? popularly known as ?SAIL? in January, 1973 with a Government of India having a stake of 86%. SAIL is the leading steel manufacturer in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets.
The company had four plants at Rourkela, Bhilai, Durgapur and Bokaro.The company, which made profits of Rs 5 bn in FY97, has incurred huge losses for the consecutive last three years. A sharp drop in realizations and increase in operational cost took toll on its financials. The situation worsened further during the first half of year 2002. Its losses in 1HFY02 almost equaled its full year FY01 loss of Rs 7.3 bn. Its operating margins slipped to just 4.2% in 1HFY02 from 10.9% in FY01. The company had failed to control raw material and staff cost. Stiff pressure on realizations only contributed in inflating losses. SAIL was now on the brink of bankruptcy, on which the management had started taking the matter seriously.
The first nine months of FY2002 the net losses swelled to Rs. 13 bn. The FY2002 results were no different, on a year to year SAIL reported a drop in sales of 3.5% and net losses of Rs. 17bn (10bn higher than FY2001). The higher net losses were attributed to higher fuel costs and also increased staff costs. The company was on the verge of being referred to the Bureau of Industrial and Financial Reconstruction (BIFR). Then the various measures of reducing costs drastically including hiving few unviable units started producing results.
For the quarter ended June, 2002 the company reported a growth of 33% in Sales over the June, 2001. Though still in Net losses, the Net losses decreased by 18% over June, 2002. The Operating profits soared by 20%. The reasons citied were low cost of raw materials and control of key costs including staff costs. Quarter after quarter the company churned out better results mainly due to firming up of the international prices, increased domestic demand and exports. For the full year end March 31, 2003 the sales increased by 24%, reduction of other income of 78% and whopping 479.4% of the Operating Profits over March 31, 2002.
Though the company still had net losses, it had drastically reduced to Rs.3 bn. The silver lining in these results were that the Net losses for the 4 quarter was wiped out and showing a profit of Rs. 2 bn. SAIL had been to guard the sale prices inspite of the huge pile of steel stocks in China.
Currently the results for the quarter ended December 31, 2003 are mind boggling, the Net Sales Rs. 59 bn, Operating Profit of Rs. 12 bn and the Net Profit of Rs. 7 bn (yes I mean it, profit of Rs. 7 bn). The other important factor aiding the company?s splendid performance was the improvement in cost efficiencies. Also the company managed to replace high cost debt with lower cost debt saving a good 37% during the December quarter. The debt on the other hand has reduced from Rs.151 bn to Rs. 100 bn.
SAIL continues to perform better and better. This is real turnaround story. People who invest if Stock Markets should definitely buy this stock which is currently quoting at aroubd Rs. 43.
Any views/comments.
Regards
Vijay
