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.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407