Steel Authority of India Ltd. (SAIL) has posted a sales turnover of Rs 33.8 bn (up 5.6%) and a net loss of Rs 6.1 bn (a loss of Rs 3.11 bn in the corresponding period last year) for the quarter ended 30th June 1999.
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 increased its domestic and export sales volumes by 15% and 70% respectively. However, the dull economic conditions prevailing in the domestic and international markets suppressed price realisations. This adversely affected the growth in turnover. Moreover, a 32% jump in interest costs and a 25% jump in depreciation costs further contributed to the loss.
Earlier, Tata Steel, a competitor, too posted a decline in sales realisations and attributed the fall in profits to the increased depreciation and interest costs.
However, there are increasing signs of a domestic economic recovery and this has infact lead to an increase in domestic steel demand. Moreover, the imposition of floor prices on the import of steel, although temporary, has also helped in improving the domestic steel market scenario.
Apart from the macro environment, SAIL has to bear the costs of low employee productivity, resulting from a large work force and outdated technology. With the prices of steel being market driven, companies in this sector need to have a firm control on costs. In the case of SAIL, this will be possible only after the company takes firm measures to rationalise labour and upgrade the technology currently used in the production of steel.
The stock is rated as a 'SELL' due the company's low employee productivity and the outdated technology. Moreover, with the steel demand yet to show a definite uptrend, analysts are skeptical of a turnaround in the near future.
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