Domestic steel demand helped Steel Authority of India Ltd to remain profitable, even as the global demand has slowed down significantly.
Most global steel makers have witnessed 20-40% drop in sales volume. In contrast, SAIL reported just over 5% drop in offtake at 3.6 million tonnes in the March ’09 quarter from the year-ago level. On back of the results, the stock closed 5.17% higher at Rs 172.85 on BSE.
However, higher input cost continue to haunt SAIL’s operating margin which contracted by around 700 basis points to 18%. SAIL is self-sufficient in iron ore but meets 70-80% of its coking coal requirements through imports.
The cost of coking coal is 80-100% higher than what it was a year ago. This reflects in 45% rise in raw material cost. Coal prices are expected to come down once the new coking coal contracts are signed some time next month.
The company tried to mitigate higher input cost through various measures. The higher operating efficiencies like lower coke rate and higher blast furnace productivity could save Rs750 crore. Employee cost, which accounts for 20-25% of operating expenses, more than halved during the March quarter.
This was on account of lower provisions under Sixth Pay Commission recommendation and reduction of over 7,500 in manpower. The management has hinted at lowering the head count by another 6,000-7,000 during the current fiscal.
Preservation of cash in terms of higher liquid investments yielded better results during such tough times. Its interest income for the quarter jumped almost 70%, in line with rise in liquid investments, to Rs 535 crore. The company had short-term investments of Rs 16,216 crore as on December 2008.
The company is going slow in its capital expenditure plan and has a target of Rs 10,000 crore for the fiscal year 2009-10. The management believes that in spite of good domestic growth, current year is going to be a challenging one.
Source: Economic Times
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