Fundamentally, the problem in the steel sector has been low realisations coupled with higher fixed cost of depreciation and interest. In such a scenario, higher sales without much increase in realisations can, at best, improve the bottom line of the company marginally.

As shown in the table all the steel majors recorded higher sales in March compared to that in February.

The good news from SAIL was that higher sales were done through direct despatches and not much by tender sales. Which means that the realisations are higher. According to the company, the direct despatches reached 50 per cent of total sales.

The realisation was lower by Rs 2,000 per tonne compared to earlier year. Nevertheless after the imposition of floor price, the company was able to roll back thediscounts and realise a higher selling price. But while volumes have risen by seven per cent in 1998-99, the average selling price has fallen by much more than seven per cent, resulting in a lower sales figure.

In addition, the inventory position was down to six lakh tonnes. There was a depletion in inventory level by 5.9 lakh tonnes. But in actual earnings, the company would show a better performance compared to other quarters of the years.

Clearly, the attempt has been to window-dress the balance sheet in March. Firstly, the effect of lower inventory would have a positive impact on bottom line. The inventory depletion of 5.9 lakh tonnes correspond to 20 days of company's production. A reduction in this would result in higher sales which in turn would push up the bottom line. Further, the company also sold fixed assets worth Rs 4 crore which would help to reduce the loss of the company.

The net cost savings due to modernisation was Rs 1,632 crore for the current year. The negative factor of higherdepreciation and interest would keep the fixed cost high. Unless the company acts fast on the divestment of power and fertiliser to reduce this high fixed cost of interest, it would be extremely difficult for the company to come out of the red. Ironically, the private sector giant Tisco, succeeded exactly where SAIL failed. Tisco got out of Tata Timken and cement. The cash flow for these sales would be coming only in this fiscal. But proceeds from sales of power plant to Tata Electric Company was used by Tisco to repay some of its loans during 1998-99 reducing its leverage further.

Interestingly, in spite of the on-going capital expenditure for the CRM project, the interest expenditure may show a decline. Firstly, the company has so far not picked up any money out of the sanctioned Rs 650 crore from IDBI for the CRM project. Analysts believe that it is quite likely that Tisco may not pick loan sanctioned by IDBI, because of cash inflow expected from Lafarge and Timken. This would keep the interest cost lowand would put less pressure on margins. Still lower realisations in sales by upto Rs 1,500 per tonne compared to last years would depress both the top line and bottom line.

Even Jisco saw higher sales in March. But with realisations falling in the galavanised sector, the net effect on the top line as well as the bottom line would be similar.