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SAIL: Losses intensify - Views on News from Equitymaster
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  • Feb 4, 2002

    SAIL: Losses intensify

    The financials of India's largest steel company, SAIL, continued to bleed during the December quarter. The company reported a sharp rise in losses due to drop in sales realisations and rise in operating expenses. In the first nine months of FY02, SAIL's net losses widened to Rs 13 bn.

    (Rs m) 3QFY01 3QFY02 Change 9mFY01 9mFY02 Change
    Net sales 35,272 34,759 -1.5% 102,094 97,503 -4.5%
    Other Income - 579 - - 4,560 -
    Expenditure 29,568 34,233 15.8% 87,025 94,337 8.4%
    Operating Profit (EBDIT) 5,704 526 -90.8% 15,069 3,166 -79.0%
    Operating Profit Margin (%) 16.2% 1.5%   14.8% 3.2%  
    Interest 4,597 4,076 -11.3% 13,411 12,071 -10.0%
    Depreciation 2,883 2,882 0.0% 8,635 8,554 -0.9%
    Profit before Tax (1,776) (5,854) 229.6% (6,977) (12,898) 84.9%
    Tax - - - - - -
    Profit after Tax/(Loss) (1,776) (5,854) 229.6% (6,977) (12,898) 84.9%
    Net profit margin (%) -5.0% -16.8%   -6.8% -13.2%  
    No. of Shares (m) 4,130.4 4,130.4   4,130.4 4,130.4  
    Diluted Earnings per share* (1.7) (5.7)   (3.4) (6.2)  
    * (annualised)            

    Higher other income however, trimmed the amount of losses. During the quarter, the company earned Rs 579 m from sale/lease of houses to employees. Other income for the period April-December 2001 also include gains from sale / assignment of captive power plant at Bokaro steel plant to its subsidiary company in September 2001 amounting to Rs 3.6 bn. As part of its restructuring exercise, SAIL aims to hive off its power plants to subsidiary companies. This is to generate additional revenues and to restrict its focus to steel business. Excluding other income of Rs 4.6 bn in the first nine months, net losses of the company sky rocketed to Rs 17.5 bn.

    The company managed to improve its volume sales by 3.6% to 6.3 m tonnes in the first nine months of current fiscal. Its exports also recorded a growth of 4% to 0.4 m tonnes. Nevertheless, pressure on sales realisations, particularly decline in flat product prices, resulted in a 5% decline in net sales. Over 14% rise in power cost and 10% increase in staff cost contributed to lower operating margins, which were reduced to 3.2% from 14.8% in the comparable previous period. Among the four integrated plants, only Bokaro and Bhilai steel plants recorded cash profits in the first nine-months of FY02. Operating losses from both Durgapur and Rourkela plants touched Rs 6 bn. Durgapur plant had earned cash profits in FY01 but failed to maintain the steam in the current fiscal.

    SAIL has successfully reduced its interest cost by 10% in the first nine months of FY02 by repaying high cost debt amounting to Rs 5.4 bn in the June quarter. SAIL aims to replace this debt by raising fresh funds from the market at lower cost.

    The stock currently trades at Rs 5 (52 week high/low of Rs 10 / Rs 4). The company's reserves at Rs 11.6 bn as on FY01 are likely to be wiped off with its reported net loss of Rs 13 bn in the first nine months of FY02. With a slow revival in the international steel prices and widening demand supply gap, the situation for SAIL is unlikely to improve in the near future.



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