Steel stocks are in demand again, and the attraction for these stocks could be attributed to the centre's decision to fix a floor price for import of hot-rolled (HR) coils, strips & plates and boiler-grade steel. Given the current international HR price of around $175 per tonne, the cost of imported coils will rise to Rs 19,000 per tonne, up from around Rs 13,000 a tonne a few weeks ago.

Domestic producers have been selling HR coils at about Rs 14,200 per tonne. The additional realisation Rs 4,800 per tonne will reflect in the bottomlines of companies like Tisco, SAIL and Essar Steel.

For Tisco, (quartely sales are around 0.75 million tonnes), this additional realisation will work out to a minimum bottomline rise of around Rs 300 crore. For SAIL, the bottomline rise could be worth Rs 1,000 crore, which would more than cover its half-yearly losses.

But in a bid to act fast, the government has not made any changes in the duty structure for CR coils. HR coils are used as inputs toproduce CR coils, which are then used by various manuafacturers to make steel for end-use applications. The ruling price of CR coils in international markets is in the range of $230-$250. This translates into a landed price (inclusive of all duties) in the range of Rs 15,500-16,600. Add to it dealer margins and freight, the cost would still be cheaper than that of HR coils.

This can result in a rise of CR coils imports. Sales of domestic HR coils producers can also decrease. Lower CR prices will put pressure on HR prices in India, pushing it down to the original levels. Pure HR companies will not benefit from higher realisation in the present circumstances.

Exide Industries

A steady growth in performance and consolidation of market share have been the hallmark of Exide Industries' strong track record in recent years. Take for instance the acquisitions of Standard Batteries and Cosepa Fiscal Industries and a new focus on the industrial battery segment. Given the automotive segment's plight, whichhas affected offtakes by OEM's, the focus on the industrial range of batteries was expected. In line with this strategy is the firm's endeavour to search for global technical alliances, which will boost exports.

But the firm finds it difficult to contend with a rising interest burden thanks largely to its on-going capex programme and the recent spate of acquisitions. There has been a 104.89 per cent jump in the interest burden to Rs 24.71 crore for the six months ended September 1998. At the end of 1997-98, the company's loan funds were Rs 357.27 crore (Rs 178.02 crore).

Exide had raised $13 million via an ECB at an exchange rate of Rs 35.37 a dollar. Since then, the rupee value vis-a-vis the dollar has substantially depreciated, resulting in an additional burden of nearly Rs 8 crore. Further depreciation will add to the company's woes. Besides, Exide's prospects in the interim, will be affected by the automobile sector slowdown.

But steady demand from the replacement market should help maintain itsrevenue stream. Exide will also benefit from the additional inflow accruing from Standard Batteries' manufacturing facilities. Its foray into the industrial-battery segment will lend a greater degree of stability to its earnings stream. The valve-regulated lead-acid battery unit, which commenced commercial production in July 1997, could well become the primary engine of growth in the future.

DAP availability

The start of the winter session in parliament has been marked by heated exchanges regarding the shortage of di-ammonium phosphate in the country. Vajpayee has stated that all that is possible will be done to correct the situation. He has even hinted at the possibility of importing more DAP into the country to ensure its adequate availability for the sowing of the rabi crop.

DAP's short supply this season is largely the result of a faulty government policy, which not only led manufacturers to cut production, but also led importers to stop imports. Having once announced free pricing of DAP, thegovernment reversed its stand on the plea free pricing will make buying DAP unaffordable for farmers. While the concerned ministry may have been right in doing so, it went wrong in failing to adequately compensate suppliers for the rise in production and import costs.

The industry had expected price support to rise from Rs 2,000 per tonne to Rs 3,500 per tonne on imported DAP, and from Rs 3,500 per tonne to Rs 5,500 per tonne on indigenous DAP. However, the government had fixed the subsidy at Rs 2,500 per tonne on imported DAP, and Rs 4,000 per tonne on indigenous DAP. Even after the ceiling on the retail price of DAP was re-imposed, the government did not hike the quantum of support. The net result has been that DAP retails at a premium of over Rs 3,000 per tonne in the northern states.

Had free pricing been allowed to prevail, not only would there have been adequate supply of the nutrient, the price rise would have been much lower at about Rs 1,000 per tonne. Now that the situation has gone awry, arethe steps the government is taking likely to make a difference? Hardly, for it is a trifle too late as the sowing season in the northern states, where the short supply is most evident, has almost ended. By the time the new supplies arrive, they will be of little use to the farmers there.

(With contributions from Manish Saxena, Percy Dubash and Sarad Saraf)