According to newspaper reports, the Ministry of Steel (MoS) has accepted in principle a restructuring package submitted by the Steel Authority of India (SAIL). While the business plan has been developed by McKinsey, the financial restructuring is being handled by the Industrial Development Bank of India (IDBI).
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 has been on the brink of bankruptcy for some time now. It is attempting to raise resources by getting rid of its loss making units.
The highlights of the business plan include:
Reducing manpower by 100,000 employees to 75,000 employees within five years
The power and oxygen divisions to be hived off into joint ventures
Selling off idle and loss making assets, including fertilisers and alloy steel plants
Restructuring the special steel division
The financial plan has proposed:
The government extend a Rs 15 bn loan to finance the voluntary retirement scheme
Waiver of steel development fund loans
Government extend guarantees for the company's domestic borrowing plan
The proposed plan has targeted the root of the problem-excess manpower. If the company were to be successful in tackling this problem, it could after all emerge as a world class producer of steel products. A lower employee base would improve productivity, lower administration costs and facilitate the introduction of better technology. These would percolate into better quality and pricing that would increase the overall competitiveness of the firm. The other proposals are aimed at improving the company's current prospects by generating cash flows and reducing cost centres.
The plan is in the best interests of the company. However, retrenching 100,000 employees could be a difficult task for the new government and this could jeopardise the entire proposal.
The stock is rated as a 'SELL' due the company's low employee productivity and the outdated technology. However, in view of the upturn in the economic cycle, some analysts are recommending a 'Trading BUY' on the stock.
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