The PSU has been cutting down its excess labour and is on its modernisation spree. And the results are before us.
SAIL reported its first profit in 11 quarters and is poised to become the nation’s largest steelmaker by capacity in the year that ends in March. Its crude steel capacity is expected to...
rise 50 percent to 21 million tonnes for the year, according to a research report. If it meets targets, the company in terms of capacity will be ahead of JSW Steel Ltd.’s 18 MT and Tata Steel Ltd.’s 13 MT, the research note said.
Lower employee costs and improved capacity are already paying off. The company reported a profit of Rs 70 crore in the quarter ended December 2017 compared with a loss of Rs 796 crore in the year ago period. Debt as of H1 FY18 still stays high at Rs 43,900 crore.
Six out of its eight plants either made a profit or materially narrowed losses compared with the year-ago quarter and the previous quarter, noted brokerage HSBC in a report.
The company has largely completed expansion at IISCO and Durgapur in West Bengal, Rourkela in Odisha and Bokaro in Jharkhand. SAIL expects to commission the new blast furnace at Bhilai, Chhattisgarh in the ongoing or next quarter, marking the end of this capex cycle.
SAIL's high cost structure had curbed operating profit, which was then insufficient to meet the interest costs pushed up by its expansion. The situation is turning better with its capacity modernisation and expansion programme coming to an end. Increasing volumes are boosting gains from the uptrending steel cycle, while cost cutting has reduced the per-tonne production cost.
SAIL is now targeting 20.2 million tonnes (MT) in annual sales.
SAIL sold 13.9 MT of steel in 2016-17. It has largely completed the expansion programme at its plants at Rourkela, Bokaro, Asansol and Durgapur. Commissioning of a melting shop with billet casters at Bhilai in Chhattisgarh will mark the end of its current capital expenditure cycle. An improvement in the product mix, leading to a higher proportion of value-added products, are also helping in securing market share gains. A new 3 MT per annum blast furnace will reverse the declining trend in SAIL's operating performance and its steel melt shop is likely to be commissioned in FY19. This will reduce operating cost. SAIL is also working on establishing an integrated chain that reaches consumers. This should also positively affect realisations in the medium to long run. The Maharatna PSU's 14-percent and 18.7-percent year-on-year improvement in volumes and realisation, respectively, led to sales surging 36 per cent over a year before in the December 2017 quarter. Operating profit on a per-tonne basis was Rs 3,820 versus Rs 2,583 in the September quarter and a loss of Rs 130 per tonne in the year-ago quarter.
Despite rising fuel costs, rising volumes and realisation helped, beside better cost control. The modernisation programme has helped improve energy efficiency; employee costs to sales have declined from 21 per cent to 16 per cent in the last two years.
The wage cost per tonne was down $20 year-on-year in the December quarter, with higher volume. SAIL also offered a 7.5 per cent wage hike versus 20-plus per cent by most public sector companies, as the PSU was reporting losses. But, as profits improve, it will have to agree to pay more.