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SAIL: Faltering on dividends

Mar 3, 2009

In last two of articles we have seen the dividend track records of two metals companies viz Tata Steel and Hindalco. In this article we have studied another major metal player SAIL and its dividend track record.

Steel Authority of India Ltd. (SAIL) is India’s second largest steel producer and is the world’s 16th largest. It commands almost 1/3rd of the domestic market share with its 13 MTPA capacity. After the merger of IISCO, it now operates 5 integrated steel plants and 2 specialty steel plants. It has around 1,897 dealers covering around 602 districts of the country, thus making available its products, almost throughout the country.

SAIL  inconstistencies abound
Source: CMIE

Unlike its counterpart Tata Steel, SAIL has quite a dubious dividend paying record. As seen from the chart the company has not been able to pay dividends for 5 out of the last 16 years. Furthermore, there has been a lot of inconsistency in dividend payouts. The company did not pay dividend between the period FY00 and FY04. This was mainly on account of inability of the company to register profits due to unfavorable steel cycle during this period. This was coupled with over leveraged balance sheet of company that resulted in higher interest costs. However, SAIL emerged as an efficient domestic steel producer, taking advantage of the upturn in steel between the period FY04 and FY08. This could be gauged from the fact that at the end of FY08, the net debt position (total debt less cash) had turned into a cash surplus position to the tune of a huge Rs 107 bn from a net debt of Rs 124 bn in FY03.

Of late though, the company has managed to pay dividend continuously since FY05. The dividend payout however has continued to remain inconsistent. Such inconsistencies cast a doubt over the company’s ability to sustain dividend payouts over the long run and in turn, make a reliable prediction of the company’s future rather difficult. Although the company has shown signs of shedding its past legacy of inefficiencies, a consistent dividend payout policy will go a long way towards enhancing investor confidence in the company.

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