Steel Authority of India has been battling weak steel demand for the past few years to maintain its bottom line in the face of a broader slowdown in the economy. However, things now seem to be looking up for the steel industry as the Narendra Modi government reportedly prepares to unleash more reforms to stimulate economic revival. Not surprisingly, the Sail management sounds quite bullish. In an interview to FE’s Noor Mohammad, Sail chairman CS Verma shares the PSU’s business plans. Excerpts:
How is the current business environment for the steel sector? Which sectors are driving growth—infrastructure, construction or automobiles?
The market is expected to take an upturn in India, in the near future. All the key steel consuming sectors—construction, infrastructure or automobiles are likely to see healthy growth, thus, raising steel consumption. The initiatives taken by the new government, especially in the field of infrastructure, augur well for the steel industry. The Make in India campaign, FDI in defence, railways, etc., diesel price decontrol are such moves which will give a push to industry. However, globally the current business environment for the steel industry is challenging. The growth in production in China, the largest steel producer in the world, has seen a slowdown.
What is the medium-term outlook on steel demand in India?
We are bullish about the prospects of Indian steel industry over the medium term. We expect the manufacturing sector will see a high growth phase, which would, in turn, stimulate higher steel consumption. Moreover, the plan for infrastructure development, smart cities, freight corridors, ports, etc should lead to sustained demand for steel in the next five years. Even a modest recovery in overall GDP growth of 6% to 7% will increase the finished steel consumption of India close to a level between 175 and 200 million tonnes in the next ten years, which would
be an addition of more than 100 million tonnes from the current consumption level of around 74 million tonnes.
What are your expectations from the next Union budget?
We look forward to a supportive and enabling framework for manufacturing and mining sectors through interventions in the Union Budget or before that.
How is the global market faring?
Chinese steel exports reached a record high of 9.72 million tonnes in Nov’14, surging by 94% over Nov’13. Cumulative exports of steel from China during the first 11 months at 83.6 million tonnes recorded a 47% growth over the same period last year. The impact of this increase in Chinese exports is visible in major steel consuming economies, with steel production remaining almost flat on an aggregate basis this year.
What is your capex target for this fiscal? Do you expect to meet the target?
Sail is currently undertaking modernisation and expansion activities in all its major plants/units in order to enhance its hot metal production capacity to 23.5 million tonne, from the existing level of 14 million tonne with an investment of over R72,000 crore. In the last five years, a capital expenditure of over R10,000 crore per annum has been made and the projected capex target for this fiscal is R9,000 crore.
Till now, Sail has operationalised projects/facilities worth R31,800 crore. After the lighting up of the largest blast furnace of 4,160 cubic meters at ISP, Burnpur, the integrated operations of 2.5 mtpa new steel plant at this location have commenced. This would be the second such large-volume blast furnace in Sail, after the first one operationalised in the Rourkela Steel Plant in August, 2013. The integrated process route of 2.5 mtpa hot metal at the Rourkela Steel Plant has been operationalised and production is being ramped up from these facilities. Thus, the going has been good this year with the targets of integrated commissioning, as envisaged, completed.
Are you satisfied with the company’s financial performance?
Sail registered an Ebitda of R1,498 crore for the July-Sept’14 quarter, which is 58% higher than the corresponding period last year. During 2013-14, we achieved a PAT of R2,616 crore, which was 21% higher compared to 2012-13. It is satisfactory, considering the challenging environment.
The capacity addition of Sail is fructifying at a time when the country is witnessing improved economic sentiments and a renewed thrust on infrastructure building, which will lead to an increased demand for steel. With production at Sail being ramped up, we hope to be able to improve sales and financial performance in the coming quarters.