SAIL Hit By Higher Coking Coal Prices

Steel Authority of India's (SAIL) Q3 standalone net profit came in at Rs 843.34 crore (Rs8.433 billion) compared with Rs 1934.66 crore (Rs19.347 billion) in the same quarter last financial year. Standalone net sales were up at Rs 8856 crore (Rs88.56 billion) against Rs 9533.30 crore (Rs95.33 billion) year-on-year.

Commenting on the company's results S K Roongta, CMD, SAIL, said its Q3 profit after tax (PAT) was impacted due to high coking coal prices. Q3 sales volume were lower by 20%. Mr Roongta said the product mix has improved and 40% of total production is now in value added products.



Here are excerpts of SK Roongta's comments at the company's press conference.

"Our profit before tax (PBT) for Q3 has been Rs 1,257 crores and profit after tax (PAT) at Rs 843 crore while we have maintained making profits but certainly there is decline in both PBT and PAT.

PAT declined by 56% year on year (YoY) and by 58% if compared with Q2. This has to be seen in context that there was significant downturn in the steel sector within India as well as globally. There is more than 24% decline in the global steel production in the month of December and there has been negative growth for the calendar year 2008 as a whole of 1.2% as compared to 2007.

The biggest factor that impacted our bottomline is very high cost of our inputs especially imported coking coal as well as domestic coking coal. We had to absorb the higher coking coal prices. Last year at this time the coking coal prices were ruling at USD 96, while in the current year the prices went upto USD 300.

Added to that there was adverse exchange variation; Rupee depreciated vis-�-vis dollar which further pushed up the cost of coking coal and this impact has been very severe. There was also downturn in sales. October was a month when virtually sales came to a standstill with most of the steel companies although it picked up in November-December but our overall sales in physical terms has been 20% less in Q3 as compared to Q3 of last year although in value terms negative growth is only 7.5% which also impacted our margins.

We took several internal actions to cushion the adverse impact of high input costs as well as fall in sales- especially with improvement in product mix we increased our share of finished steel in our production. We went for more value added products and now more than 40% of our total production is in value added products. The cumulative impact of these two factors alone gave us about Rs 400 cr additionally. We improved our domestic coal utilization and we changed our blend, reducing the imported component which is much costlier and we have also been able to reduce our energy consumption in the current year by about 4%.

So, while we could ward off some of the adverse effects of high input costs but the cost pressures were so high that the entire impact could not be neutralized.

We have been able to contain our employee cost in the Q3 of this year to the same level as was in Q3 of last year, this is a significant achievement. This has also helped in cushioning of the adverse impact of higher input costs."