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SAIL: Flirting with BIFR

May 31, 2002

Steel Authority of India Limited (SAIL) reported poor FY02 results. The company reported a 3.5% drop in the topline, while posting a net loss of Rs 17 bn for FY02. The net loss was nearly Rs 10 bn higher than what was recorded last year. This downtrend in the performance of the company was on account of the economic slowdown which led to low steel prices. The decline in prices was maximum in the flat products segment.

(Rs m) FY01 FY02 Change
Net Sales 145,726 140,645 -3.5%
Other Income 2,869 6,622 130.8%
Expenditure 126,928 137,157 8.1%
Operating Profit (EBDIT) 18,798 3,488 -81.4%
Operating Profit Margin (%) 12.9% 2.5%  
Interest 17,517 15,620 -10.8%
Depreciation 11,436 11,559 1.1%
Profit before Tax -7,287 -17,069 -
Tax 0 0 -
Profit after Tax/(Loss) (7,287) (17,069) -
Net profit margin (%) -5.0% -12.1%  
No. of Shares 4,133 4,133  
Diluted Earnings per share* -1.8 -4.1  
P/E Ratio   (2.0)  
(* annualised)      

Fall in realisations and higher operating expenses have put a strain on the operating profits of the company, which fell by nearly 81%. The margins have fallen drastically from 12.9% in FY01 to 2.5%. Higher fuel and power charges coupled with increased staff costs have affected SAIL's operating margins adversely.

There has been a 6% decline in the raw material costs, while the staff costs have gone up by 5%. While the exports of the company have actually grown in the first nine months of FY02, depressed realisations have lead to reduced revenues. Prices of flat steel products have been especially low. SAIL has reduced its interest costs by 11% by retiring its high cost debt amounting to Rs 5.4 bn. As part of a restructuring plan, SAIL plans to replace debt by raising fresh funds from the market at a lower cost.

The stock is currently trading at Rs 8. The loss suffered in FY02 is likely to wipe out the Rs 12 bn reserves of the company. The company may see some respite in coming months owing to the recent firming up of steel prices. With uncertainty of a global turnaround in the second half of the current year, its a long trudge up for SAIL. If it does not, it may very well be courting BIFR soon.

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