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Sail gets blessing in disguise - Views on News from Equitymaster
 
 
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  • Sep 1, 1999

    Sail gets blessing in disguise

    According to newspaper reports, the proposed financial restructuring plan of Sail has received a setback with the Cabinet having decided against the conversion of the Rs 50 bn Steel Development Fund loan in to equity. The cabinet has instead suggested that the entire loan amount be written off. The company might be better off with a write off rather than a conversion.

    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 decision to write off the loan would immediately reflect on the bottomline of the company as the interest payments would no longer have to be provided for. Over and above this, Sail will benefit from a lower debt equity ratio, which would help it in raising fresh loans at some future point of time. However, the main advantage of such a move is the avoidance of the cost of having to service a larger equity, which would have arisen if the debt were to be converted into equity. Thus, although unintentionally, Sail might have got a better deal in an attempt to restructure its liabilities.

    The financial restructuring plan mooted by Sail is at best a measure to improve the bottomline of the company. However, it is essential to improve the company's margins at the operational level so that it is able to sustain itself in the future. Therefore, the move should be at best treated as one to provide temporary relief to the company, which is grappling to survive the downturn in the steel industry.

    Market View:

    The stock is rated as a 'SELL' due the company's low employee productivity and the outdated technology.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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