COVID-19 crisis: Hit by liquidity crunch, SAIL looks to conserve cash, push recoveries

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Published: April 21, 2020 2:30 AM

Employees have been directed to reach out to customers and maintain continuous offtake of finished steel from the plants so that cash flows are maintained and consequences of a liquidity crunch are avoided.

The steelmaker has seen piling-up of inventories and cash flows drying because of the lockdown.The steelmaker has seen piling-up of inventories and cash flows drying because of the lockdown.

Facing liquidity crunch because of the COVID-19 crisis, SAIL chairman Anil Kumar Chaudhary has asked employees to review each expense and conserve cash, and follow up rigorously with customers to promote sales and realise outstanding dues. He has also asked them to focus on production at the least possible variable cost.

The steelmaker has seen piling-up of inventories and cash flows drying because of the lockdown.

In a written message addressed to employees on April 16, Chaudhary said: “With cash collections being meagre and inventories increasing to a level of over 1.7 million tonne (MT) for finished steel, thereby, blocking cash worth over more than Rs 8,000 crore, SAIL is facing a difficult situation. We are a company with huge fixed costs and need optimum level of production to be maintained so as to absorb such costs. While it is understandable that profitability will take a severe beating in the coming months, it is the liquidity situation which is of immediate concern.”

Employees have been directed to reach out to customers and maintain continuous offtake of finished steel from the plants so that cash flows are maintained and consequences of a liquidity crunch are avoided. They have also been asked to maximise sales through export channels.

Steel companies, in general, started seeing deferment of orders since the lockdown started on March 25.

According to rating agency Crisil, on a quarterly basis, steel demand would be a washout in the first quarter of current fiscal.

SAIL is also sitting on a huge debt. According to Bloomberg, as in September 2019 end, the PSU had Rs 48,181.35 crore, up from Rs 41,433.88 crore as in March 2019 end.

In his message, Chaudhary has also said priority should be on producing steel at the least possible variable cost so that even if the company sells at reduced prices in the current depressed market conditions, there will still be some positive contribution. Special emphasis will be on fulfilling demands as per customers’ need.

SAIL will also focus on maintenance, including preponement of capital repairs, in the time of slowdown and prepare for a quick launch once the crisis is over.

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