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Centre injects life into bankrupt SAIL - Views on News from Equitymaster

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Centre injects life into bankrupt SAIL

Feb 16, 2000

The government has finally approved the restructuring programme for the Steel Authority of India Limited (SAIL). The package includes a waiver of Rs 54.5 bn of debt. The total size of the package is estimated to be Rs 84.5 bn. SAIL is the world's 10th largest and India's largest steel manufacturer. It operates 4 integrated steel plants and 2 speciality steel plants. The company has been on the brink of bankruptcy for some time now. It is attempting to raise resources by getting rid of its loss making units.

Among the other highlights of the program are:

  • SAIL to focus on the manufacture of carbon steel
  • Non core assets to be sold off
  • Salem steel plant will be hived off into a joint venture by March 2001
  • Divestment of Durgapur Steel Plant and Visvesvaraya Iron and Steel to be completed by March 2002

The government's package albeit late is essential for the revival of the steel giant. The company is plagued with low employee productivity and efficiency levels. The dull conditions in the domestic and international steel markets over the previous two to three years further aggravated the problem, as it was unable to cut costs to remain profitable. The company posted large losses during the last two years, as a result of which its net worth was eroded significantly.

The restructuring package fails miserably as no attempts have been made to improve the employee productivity and efficiency levels. The package at best, financially speaking ensures the survival of the company. In case demand were to slag again, profitability of the company would once again be suspect.

The decision to focus on the manufacture of carbon steel and sell off non-core assets is a step in the right direction. So is the disinvestment plan for two steel plants that are currently loss making. These measures will reduce overall losses and also raise resources for the company, which can then be invested in upgrading technology. However, the key concern would remain in the form of a large employee base.

Market View:
The stock is rated as a 'SELL' due the company's low employee productivity and the outdated technology. The government's attempts to restructure SAIL and the rise in demand for steel have led some analysts to review the rating.


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More Views on News

The BSE METAL Index Down 2% ; SAIL Among Top Losers (Market Updates)

Mar 25, 2019 | Updated on Mar 25, 2019

The BSE METAL Index Down at 11,073 (down 2.0%). Among the top losers in the BSE METAL Index today are SAIL, HINDALCO and JINDAL STEEL & POWER. Meanwhile, the BSE Sensex has plunged 0.9% to 38,017.

SAIL Announces Quarterly Results (3QFY19); Net Profit Up 1327.9% (Quarterly Result Update)

Feb 12, 2019 | Updated on Feb 12, 2019

For the quarter ended December 2018, SAIL has posted a net profit of Rs 6 bn (up 1327.9% YoY). Sales on the other hand came in at Rs 158 bn (up 3.3% YoY). Read on for a complete analysis of SAIL's quarterly results.

SAIL 2017-18 Annual Report Analysis (Annual Result Update)

Dec 21, 2018 | Updated on Dec 21, 2018

Here's an analysis of the annual report of SAIL for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of SAIL. Also includes updates on the valuation of SAIL.

SAIL Announces Quarterly Results (2QFY19); Net Profit Up 202.7% (Quarterly Result Update)

Nov 5, 2018 | Updated on Nov 5, 2018

For the quarter ended September 2018, SAIL has posted a net profit of Rs 6 bn (up 202.7% YoY). Sales on the other hand came in at Rs 167 bn (up 22.8% YoY). Read on for a complete analysis of SAIL's quarterly results.

SAIL: Operating Margins Offer Hope; Bottomline Languishes in Red (Quarterly Results Update - Detailed)

Nov 21, 2017

The company registered good performance at the operating level and reported a positive EBITDA of Rs 9.1 billion during the quarter. However, bleeding continued at PAT level.

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