The Hindu : Jain bullish about SAIL's prospects

Online edition of India's National Newspaper
Thursday, Dec 12, 2002

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Business

Jain bullish about SAIL's prospects

By N. N. Sachitanand

NEW DELHI DEC. 11. The new man in the hot seat of the Steel Authority of India Ltd. (SAIL), V. S. Jain, is quite bullish about the company's prospects for next year. In an interview with this correspondent at SAIL's headquarters here, he explained the reasons for his optimism.

One is the confidence that the international steel prices will continue to remain firm in 2003. While no addition to international production capacity is foreseen, the inventory levels have fallen at producer and consumer ends. International consumption of steel next year will rise by 3 per cent. All this will prevent prices from backsliding.

In the domestic sector, steel consumption, which rose 8 per cent this year, is expected to further rise by 6 per cent at least, next year, thanks to the investments in road infrastructure and building construction boom. There is no fresh capacity coming up while cut price imports from CIS countries have dried up due to higher consumption in their own domestic markets. Next year should see a fresh investment spurt by the Central Government as 2004 will be a Parliamentary election year. The second reason for expecting better results in 2003 is the continuing exercise in bringing down costs. During April-September 2002, SAIL has shown an improvement of 34 per cent in its financial performance. Sixty per cent of this improvement, says Mr. Jain, can be attributed to a 12 per cent increase in net sales realisation because of better prices and a volume growth of 8 per cent in mild steel sales.

But 40 per cent has come from cost cutting measures such as restructuring of debt to reduce interest outgo, cutting down manpower costs by VRS schemes and bringing down the variable cost of production by introducing technological and process changes. Mr. Jain, who is a finance man, has an eagle eye turned on the bottom line and is now focussing his attention on cost reduction, as sales are now not such a big headache as they were in the past two years. Although SAIL has reduced its manpower in the past four years from 1.8 lakhs to 1.4 lakhs now, Mr. Jain feels that there is still scope for further improvement here. "Our manpower cost is around 19 per cent of the production cost per tonne of steel,'' he points out, "whereas for other Indian steel plants in the private sector it is varying from 5 per cent to 13 per cent. We will be continuing to bring down this cost through a separation scheme involving 10,000 persons a year for the next four years.''

Another area where Mr. Jain is focussing now is maximising productivity of existing resources. "If we can get an improvement of 10 per cent in exploiting our resources,'' he avers, "we can get additional revenues of Rs. 800 to 900 crores every year.''

A beginning has been made with Coal Dust Injection in blast furnaces and use of soft coking coal in the coke oven blends. Plans are now afoot to use sponge iron in the blast furnace burden, for which a small, coal-based sponge iron plant involving an investment of about Rs. 10 crores is envisaged. Efforts will also be initiated to cut down arisings (scrap) in rolling mills which at present is as high as 11 per cent of the input. Energy consumption per tonne of salable steel at 7.69 Gigacalories is still high compared to the competitors and needs special attention.

"We have recently conducted a shop-wise audit in each plant to identify focus areas where operational costs can be significantly reduced. Some redefining of requirements are taking place as far as supplies are concerned.''

Mr. Jain is enthusiastic about the scope of the new technique of Internet-based reverse auctions to arrive at the lowest prices possible from vendors of supplies to the steel plants. In this system, approved vendors bid openly for the contract to supply an item and the lowest bid is then taken up by SAIL. Last year four to five items were successfully purchased through this system and this year many more will be included. Mr. Jain sees a potential to save 6 to 7 per cent on prices through this route.

On the marketing side, SAIL's emphasis has shifted to branding. The company is taking steps to imprint our logo on at least 70 per cent of our products so that customers can readily identify our products. We are also going on a brand building exercise for some our products such as TMT bars and galvanised sheets in order to earn a premium in the market. SAIL has divided its marketing department into two divisions, one focussed on long items and the other on flats. Key buyersare being identified so that special measures are instituted to keep them with SAIL.

On the divestment front, Mr. Jain appeared a bit despondent. Things have come to a standstill as far as the Salem Steel Plant is concerned and there are no takers for ASP and VISL. In the past few years, SAIL did manage to hive off some power plants, oxygen plants and company-owned housing. According to Mr. Jain, there will not be much activity here in the coming year, except for further divestment of company-owned housing. In the financial engineering area, SAIL has been fairly successful in bringing down debt from Rs. 21,000 crores five years ago to Rs. 14,200 crores now. By exchanging high interest debt for low interest debt, the interest outgo has come down by 4 per cent since 2000. The interest charges for the first half of this year were Rs. 703 crores, which were Rs. 96 crores less than in the corresponding period last year.

In fiscal 2001-02, SAIL recorded a net loss of Rs. 1,700 crores. Buoyed by higher prices and better sales, the performance has been much better in the first half of the current fiscal, with overall losses coming down to Rs. 467 crores from Rs. 704 crores during the same period in the previous year. Mr. Jain expects that for the whole of 2002-03, SAIL will show a cash profit and next year should be a net profit year for the company.

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