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SAIL to be on its feet in two years - Views on News from Equitymaster
 
 
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  • Feb 29, 2000

    SAIL to be on its feet in two years

    According to a statement made by its chairman, the Steel Authority of India (Sail) is expected to return to profitability in a time frame of two years. The company's annual loses for FY00 had been projected at over Rs 20 bn (pre-restructuring).

    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.

    Some of the measures being proposed are: Divesting stakes in

    • Salem Steel Plant (SSP)
    • Captive power plants at various locations
    • Oxygen plant
    • Indian Iron and Steel Company
    • Visvesvaraya Iron and Steel
    • Alloy Steel Plants
    • Rourkela Fertiliser Plant

    The other key measure being proposed involves paring the work force by 90,000 numbers over the next three years at a cost of Rs 5 bn.

    The management of the company surely seems to be optimistic after the Centre approved the restructuring package. However, given the past track record, it is uncertain whether the plan will be carried out with an equal amount enthusiasm. The decision to reduce the employee base is definitely path breaking, and to say the least, difficult to implement.

    A key revelation has been made in the statement that anti dumping duties imposed by the European Union on Sail will not have an adverse effect on the company as it is protected by a one year pricing agreement. The company has targeted exports of Rs 10 bn in the coming year.

    Whether the government is justified in spending the taxpayer's money on an organisation like Sail, which is both corrupt and inefficient, is a discussion that will last some time. The need of the hour however is to make the company's operation profitable by slashing costs, improving employee productivity and plant efficiency. Subsidies in the form of loan write offs to such companies will only have a short-term effect on profitability and therefore there should be avoided.

    Market View:
    The stock is rated as a 'SELL' due the company's low employee productivity and the outdated technology.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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