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SAIL faces a dark future - Views on News from Equitymaster
 
 
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  • Aug 17, 1999

    SAIL faces a dark future

    According to newspaper reports, Steel Authority of India Ltd. (SAIL) is planning to relocate upto 30% of its senior executives from Delhi to its various steel plants. This follows the dismal response to the company's voluntary retirement scheme (VRS), which was targeted to reduce to reduce its workforce by 10,000 employees. Currently, SAIL has a workforce of over 170,000 employees.

    SAIL is the world's 10th largest and India's largest steel manufacturer. It operates 4 integrated steel plants and 2 speciality steel plants.

    Despite the large economies of scale enjoyed by SAIL, it was unable to sustain its profitability when the Indian economy slowed down in FY97. SAIl has been posting sustained losses for the past two years. This is mainly due to falling price realisations and an uncontrollable rise in costs.

    Other companies such as Tisco have managed to pass through this downturn by witnessing only a fall in bottomline (as against a loss) mainly due to stringent cost control methods adopted by them. For example, between FY96 and FY99, Tisco has reduced its workforce by over 22%.

    The inability of SAIL to reduce its workforce can be a critical factor that will determine its existence in an environment, which is likely to become more competitive. With the GATT stipulation that by 2002 all trade restrictive barriers will have to be dismantled, SAIL is likely to be the hardest hit amongst major Indian steel companies. This is because SAIL is plagued by low employee productivity and high production costs, which will prevent it from competing effectively against its domestic and international peers.

     

     

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