The company is the largest producer of stainless steel in the country, with a capacity of 30,000 tonnes. This capacity is being increased by another 60,000 tonnes after importing second-hand equipment from Australia. The company has been resorting to large-scale borrowings to fund its expansions, while its own funds have been tied up either in idle investments in Jindal group companies, or as loans given to subsidiaries and other companies. The outstanding investments amount to Rs 240 crore, of which investments in subsidiaries and unlisted companies total Rs 161 crore. Outstanding loans given to various companies amount to Rs 86 crore. Unless these funds are released at least to some extent, the ongoing repayments and expansions will put a severe strain on its cash flow.

SAIL

SAIL has been moving in a narrow band of Rs 4-5 in the past two weeks. The notification by the commerce ministry to put a floor price for import ofhot-rolled coils (HRC), boiler-grade steel and HR plates also did not significantly alter the sentiment for the stock. This is partly because the company produces a diversified range of products, and partly because its mordernisation programmes are in disarray owing to its weak financials.

To address its weak financials, the ministry of steel is in favour of converting the loan taken by SAIL from the steel development fund (SDF) and the funded interest into a capital-redemption reserve. Subject to approval by the finance ministry, the principal amount of the loan amounting to Rs 4,800 crore would be so converted. This amount would be returned to the government after five years pro-rata over an additional five-year period.

The immediate impact of the conversion would be that the debt-equity ratio would change from 3.34:1 to 1.77:1. Since the interest on the SDF loan is merely a book entry (it is added to outstanding debt), the proposals would not have any impact on the cash flow of the company. Moreover,the EPS and equity structure would remain unaffected. In spite of the best intentions of the government to revive the tenth largest producer of steel in the world, the proposed restructuring is unlikely to persuade lenders to provide more funds for the modernisation programme. And unless the company modernises, it will continue to make losses.

The total funds required for the modernisation of its three plants has risen from 10,137 crore to Rs 12,000 crore. In addition, the company has to shell out Rs 364 crore to Iisco for an additional equity stake this year itself. In spite of the price rise announced by steel companies, SAIL will not benefit much as it has been following a tender system for the bulk of its sales. Due to this, the realisations earned by SAIL are lower, and hence, analysts' expectations are that there would be a loss of Rs 800 crore in 1998-99 (down from a profit of Rs 132 crore earned in 1997-98).

The only decent news coming from SAIL is that it is planning to get out of the loss-makingRashtriya Ispat Nigam Ltd (RINL), and is willing to sell its captive-power plant. Unless the company manages to sell these assets, the modernisation programme will not be able to proceed further, which will obviously keep the sentiment for the stock depressed.