After having generated a lot of publicity regarding its acceptance of McKinsey's advice to restructure the company, the management of Steel Authority of India (SAIL) has decided against the hiving off or selling off its loss making special steel division. This was one of the key recommendations of the consultancy firm.
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.
SAIL is adopting measures to turnaround the Salem Steel Plant (SSP) by floating a new joint venture that will supply stainless steel slabs to SSP. The special steel plant currently imports stainless steel and as a result is often faced with rising costs of production (due to depreciation of the Indian Rupee, import duties et cetera). The new plant to be set up will cost between Rs 3 bn and 5 bn depending on various factors.
The purpose of McKinsey's recommendation to either hive off or sell off the unit was based on a number of factors. First, SAIL would get rid of a loss-making unit, thus limiting overall losses. Second, the cash generation on account of the SAIL would mitigate the existing cash crunch. Lastly, the company would be able to rid itself of a large number of employees, thus reducing the burden of excess manpower.
On the contrary now, the company plans to invest in a new plant despite it being on the verge of bankruptcy. Whether SAIL will survive is anybody's guess? However, what must be understood is that ultimately the taxpayer will have to bear the burden if the company were to continue to make losses.
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