While private peers continue to dominate the competitive steel market, state-run Steel Authority of India (SAIL) is set to surprise its detractors soon. Steadily building on gains since it clawed itself out of the red on a standalone basis last year, the steel major hopes to become profitable on a consolidated basis too in FY19.
SAIL, which had reported standalone net losses since financial year 2015-2016 (FY16), had swung to profit in the December quarter last fiscal (Q3FY18). It has gone on to post standalone net profits of Rs 816 crore in the March quarter (Q4FY18), Rs 540 crore in Q1FY19 and Rs 553.69 crore in Q2FY19. The company has turned profitable on the operating level too. As against an EBITDA loss of Rs 83.9 crore in FY18, it posted an EBITDA of Rs 2,576 crore in the June quarter this year (Q1FY19).
Clearly, the numbers indicate a fast recovery in standalone profitability and operational performance. On a consolidated basis, too, it has managed to hammer down losses by 83 per cent to Rs 281 crore in FY18 against Rs 2,756 crore in FY17. That apart, all five of its integrated steel plants have recorded individual profits since Q4FY18.
With the recent completion of its capex cycle, albeit after a five-year delay, the steelmaker is now in a sweet spot to capitalise on the improving demand-supply situation. In the first half of FY19, the company’s saleable steel production was 7.151 MT, up 4.2 per cent over the corresponding period of the last fiscal. SAIL has also guided for a sales volume of almost 16.7 million tonne for the current year against 14.1 million tonne in FY18.
Concerns over high costs, including high staff expenses, are also receding. During FY18, a total of 1,269 employees took up a Voluntary Retirement Scheme (VRS) and close to 5,000 are set to retire in the coming year, with a similar number estimated for next year. This is expected to bring down staff costs by 13 per cent in the next two years, say analysts.
While volume growth remains strong, SAIL’s own iron ore mines also give it an edge. SAIL Chairman Anil Kumar Chaudhary says that raising volumes, operating at rated capacities and focussing on meeting the requirement of the railways are among its foremost priorities. Further, the management’s efforts in process integration, ramping up production from new units, and stabilization of new mills are all yielding results, say analysts. Firm steel prices coupled with a further reduction in costs as availability of fuel improves is also set to drive earnings growth for the company in the next few quarters.
With the capex cycle over, debt has also peaked and improving earnings, debt and interest outgo should reduce drastically over the next two years. At Rs 52, the company’s share prices don’t yet reflect the positives. But if the management delivers on what it has said, the stock could move north too. All said, however, there is still a long way to go to match private-sector rivals like JSW and Tata. While SAIL posted an EBITDA per tonne of close to Rs 7,811 in the June quarter, the two rivals made Rs 12,580 and Rs 17,252 per tonne respectively.
Still lagging behind
While SAIL posted an EBITDA per tonne of close to Rs 7,811 in the June quarter, private sector rivals JSW Steel and Tata Steel made Rs 12,580 and Rs 17,252 per tonne respectively during the same period.