Slowdown, higher input costs take toll on SAIL’s net profit

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New Delhi: The slowdown in demand for steel coupled with high input costs saw the country's second largest steel manufacturer, the state-run Steel Authority of India Ltd (SAIL) posting a dip of 37% in its fourth quarter (January-March) net profit at Rs 1,486.68 crore compared with Rs 2,377 crore during the corresponding period last year. The company’s turnover during the period stood at Rs 13,008 crore, 16% lower than the turnover during the same period last year.

For the financial year 2008-09, the steel giant witnessed an 18.1% drop in net profit at Rs 6,174.9 crore from Rs 7,536.7 crore recorded the year before. This is in line with the experience of global steel makers who have seen sales and prices dip dramatically as the global economic crisis hit demand from sectors like automotives, consumer goods and construction.

Although chairman S K Roongta said that realisations during the fourth quarter have been the lowest among the four quarters, he refused to divulge supporting figures. Roongta further said that realisations would improve slightly in the April-June period, helped by declining prices of raw materials like coking coal and by cost-cutting measures.

SAIL, which has projected a capital expenditure of around Rs10,000 crore for the current fiscal, plans to borrow around Rs 5,000-6,000 crore from the market.

“Earlier our plan was to finance our ongoing expansion and modernization through internal accruals. Because of the adverse economic environment, our earlier targets of internal accruals wouldn’t be met. So we would have to raise funds. We are internally assessing the fund requirements and evaluating options to raise funds,”said Roongta.

The capex during 2008-09 was at Rs 5,233crore, for which SAIL borrowed around Rs 1,000 crore, mainly through long-term bonds. The workforce of the domestic steel giant could also shrink by 6,000-7,000 this year as it continues with the rationalisation of manpower aimed at lowering employee cost.

The steel giant had seen a net reduction of 7,500 employees in 2008-09 mainly through superannuations and voluntary retirements. The company's workforce stood at about 1,21,295 at the end of March 2009. However, Roongta clarified that the company is not going for any temporary job cuts and the rationalisation is "natural separation" and would help in checking the impact of high wages.