SAIL: Restructuring plans - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

SAIL: Restructuring plans

Sep 12, 2001

World’s 13th largest steel producer and India’s largest steel manufacturer, SAIL has been suffering from appalling financial health in the past few years. The company, which controls 36% of India’s domestic crude steel production, has been on the brink of bankruptcy for quite some time now. However, SAIL seems to be taking the matter seriously and is attempting to make business plans, which would yield profits to the company in the next 4-5 years.

For starters, SAIL’s management has drawn up comprehensive cost control plans. In FY01, the company’s cost of sales as a percentage of net sales realizations have declined to 105% from 112%. However, the company is yet to break even.

It is also aiming to get rid of the loss making subsidiaries either by selling them or by hiving them off to a joint venture. The company has already transferred its Unit – II of captive power plants at Durgapur and Rourkela steel plant to SAIL Power Supply Company, its subsidiary for Rs 3.9 bn. This subsidiary is also converted into a 50:50 joint venture with NTPC. SAIL has made profits of Rs 2.9 bn on this transfer, which was accounted for in FY01 accounts.

The company has also initiated steps for divestment of Captive Power Plants at Bokaro and Bhilai steel plant. Apart from this, SAIL aims to convert its wholly owned subsidiary, Indian Iron and Steel Company Ltd. (IISCO) into a joint venture. IISCO has been declared sick by BIFR in August 94 and the proposal for its revival is in process. It had accumulated losses of Rs 6.2 bn as on March ’01. Maharashtra Elektrosmelt Ltd. (MEL) another wholly owned subsidiary is also a BIFR case with accumulated losses of Rs 500 m. Although, SAIL is making the right noises, the government’s control over the enterprise is likely to prevent the management for taking proactive measures. Infact, one of the main reasons for SAIL's present condition is government interference in its operations. This has resulted in SAIL pursuing social rather than profitable policies.

As part of this restructuring exercise, SAIL has decided to produce and market several high-grade special steel products, which will constitute 25% of its saleable steel basket. These value added products are expected to bring additional remunerative earnings compared to low realizations from the base grade. Segmentation of the business into strategic business units and focus on marketing are among the other business strategies.

Notwithstanding the above efforts, SAIL needs to concentrate on updating its technology to improve operating efficiencies. This would assist the company in becoming competitive in the markets. If these plans are implemented successfully SAIL could turn into black and sustain profitability in future.

It is also taking steps to curtail the leverage. Its debt to equity ratio stood at 3.4x as on March ’01. To bring down the average cost of debt, SAIL has repaid debts amounting to Rs 5.4 bn in 1QFY02 and would replace the same by raising fresh funds from the markets at lower cost. This exercise is likely to reduce the company’s overall interest figure going forward.

Right sizing the organisation is also a commendable effort. The company’s total number of employees has reduced to 157,000 in FY01 from 183,000 in FY97. SAIL has targeted to bring down the number to 100,000 by 2005. Although, its VRS plans are under implementation, the overall improvement in productivity is marginal. Also, it will continue to have high cost on account of salaries and wages until the number of employees are reduced. Salary cost accounts for about 22% of total revenues as against 15% for Tisco.

The stock price of SAIL currently is below Rs 5 and near to its 3 years low. The company has already set a target to curtail its losses to Rs 1.5 bn in FY02, from the very high loss of Rs 7 bn in FY01. It also aims to earn profits in FY03. Nevertheless, the company is likely to be adversely affected by structural problems and the current grim scenario in the world economy. Also, over capacity in the Indian steel markets is likely dent its growth plans. More importantly, unless the management is made proactive SAIL may revive only to go back into the red yet again.

Equitymaster requests your view! Post a comment on "SAIL: Restructuring plans". Click here!

  

More Views on News

SAIL's Stellar Quarter Four Performance Puts Stock in Focus (Views On News)

Jun 11, 2021

Shares of Steel Authority of India (SAIL) surged over 5% on the BSE today after the company reported robust March quarter numbers.

SAIL's Stock Price Rises 50% In One Month (Views On News)

May 4, 2021

Even the second wave of the Covid-19 has failed to stop the stock's rally.

SAIL 2019-20 Annual Report Analysis (Annual Result Update)

Dec 10, 2020 | Updated on Dec 10, 2020

Here's an analysis of the annual report of SAIL for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of SAIL. Also includes updates on the valuation of SAIL.

Shyam Metalics IPO: Key Points to Consider (Views On News)

Jun 12, 2021

Shyam Metalics is commanding a strong grey market premium ahead of its IPO next week.

Godawari Power and Ispat Shares Surge 9% on Massive Jump in Profit (Views On News)

May 26, 2021

Key takeaways from Godawari Power and Ispat Q4FY21 results.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

SAIL SHARE PRICE


Jun 17, 2021 11:17 AM

TRACK SAIL

SAIL - BAOSTEEL COMPARISON

COMPARE SAIL WITH

MARKET STATS