Steel Authority of India (SAIL) is planning to hike product prices by 5% by the end of the current fiscal. This has been reported by a leading national daily.
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.
SAIL's decision to hike prices has been motivated by a desire to improve profitability and also benefit from the surge in the international steel prices. Infact, steel companies have successfully effected a selective 5-8% price hike earlier in January.
The domestic demand for steel has been on the rise over the last few months. Coupled with this international demand has been robust as the East Asian and European economies rebounded during 1999. Domestic steel manufacturers turned their focus to export markets to benefit from the higher realisations. As a result the pressure of excess supplies in the domestic markets was curtailed, creating a scenario for higher realisations.
SAIL is mired with high operating costs mainly due its out dated technology and large and inefficient employee base. Higher prices will enable the company to trim its losses or maybe even turn profitable. However, such a situation would persist only during boom times. In case of slack in prices, SAIL stand to lose loser mainly because it is unable to cut down costs to protect margins.
The stock is rated as a 'SELL' due the company's low employee productivity and the outdated technology. However, in view of the government initiatives to restructure the company, some analysts are taking a fresh look at the company.
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