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  • AUGUST 28, 2008

SAIL's latest annual report: A peek

India's largest public sector steel maker recently came out with its FY08 annual report. In this article, let us go through some of the important information therein.

Chairman's message: 2007-08 had been a historical year for SAIL as it celebrated its golden year of iron making. The company showed an overall improvement in operational areas and financial performance. It registered highest ever turnover, EBITDA and net profits. The company also paid a dividend of 37%, which was highest ever given by it till date. On the operational front production of hot metal, crude steel and sale able steel was 15 m tonnes, 14 m tonnes and 13 m tonnes respectively, highest ever recorded by the company. It achieved highest ever sales of steel of 12.3 m tonnes.

The company's 1,897 dealers cover around 602 districts of the country, making available its products, almost throughout the country. The company has taken many strategic initiatives of entering in new businesses including formation of joint ventures, mergers and acquisition etc to diversify its business. The company has been aggressive on its growth plans and plans to double its capacity to 26 m tonnes by FY11, which would be through both green filed and brownfield projects.

Management Discussion & Analysis: In 2007, global crude steel production grew by 7.5% to 1.3 bn tonnes, of which the Asian region contributed 56%. The demand for steel remained strong and global finished steel consumption reached 1.2 bn tonnes backed by BRIC nations, which registered a growth rate of 13%. India's steel consumption was growing at 11% just behind China's growth of 13%. As per the IISI estimates, the global consumption of steel will grow at a CAGR of 4% upto 2016.

India is fifth largest producer of steel in the world. It produced 53.9 m tonnes of crude steel and consumed 49 m tonnes in 2007. SAIL has been the largest producer of steel in the country, contributing around 26% of the total production.

Steel consumption in India is growing at a rate of more than 10% while production is growing at 6%, so there is huge supply-demand gap. Moreover, the 11th five-year plan has given thrust on infrastructure sector and plans to spend US$ 500 bn by 2012. Mega projects in sectors like power, energy, ports and railways and plans for rural infrastructure like Bharat Nirman would present exceptional opportunity for SAIL to cater the emerging demand.

There are certain risks and concerns raised by the company, which can have adverse impact on the growth of the company. The inflationary pressure, if continued, can hamper the domestic market of steel. The pace of infrastructure development is not in line with the development of industry. The rising prices of iron ore and coking coal is increasing the cost of production. Moreover, increase in oil prices causing higher ocean freight costs and are putting pressure on the margins.

Outlook: Steel consumption in India is expected to grow at an average of more than 10%. The medium term outlook for the industry is favorable. As per IISI, steel consumption in India is expected to grow at 9% in 2008 and 12% in 2009. India is expected to become second largest consumer of steel in world by 2015. With such opportunities galore, SAIL, which has undertaken expansion and modernization plan to double its capacity, will be able to reap the benefits from the expanding market.

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