A furnace strikes sparks on a red hot steel beam inside a steel plant. (Photographer: Waldo Swiegers/Bloomberg)

SAIL Sees Earnings Improving From Current Quarter

The Steel Authority of India Ltd., which reported weak earnings over the last few years, expects earnings improvement from the current quarter, its Chairman PK Singh said.

The profit during January-March, 2018 period is expected to improve as compared with the three months ended December, Singh told BloombergQuint in an interview, adding that all its five steel plants will report positive earnings before interest and tax in the previous quarter.

The state-run steelmaker, which reported net loss since the beginning of the financial year 2016, had swung to profit in the December quarter.

The cost optimisation and higher volumes would lead to better profitability in subsequent quarters.
PK Singh, Chairman, SAIL

Watch the full conversation here:

Here are the edited excerpts from the conversation:

Let’s talk about the impact of the global trade war which has receded a bit but if that was to heighten would have on commodity prices and thereby on the recovery that we see in the steel sector in India as well.

The basic problem today we have is overcapacity of steel making throughout the world. China produces half of the world’s steel which is 1,600 million tonnes and they have overcapacity also. In fact, we have overcapacity in all countries. China, which is producing 800 million tonnes, has 300-400 million tonnes of extra capacity.

Most countries are safeguarding their national interest, so that at least they don’t have to dump steel at a price lower than the cost of production. In India, we have been doing it from the past, and we should continue doing it in future too.

Whatever happened in the U.S., they are trying to safeguard their interest but we have to have a balance too. In the name of national interest, the duty should also be rationalised. But at the same time, a balance has to be maintained.

Is this the reason SAIL ahas embarked on a capex plan? According to the analysts, SAIL is expected to take capacity much higher than the current one over the course of the next couple of years. The earmarked capex is of Rs 4,000 crore for 2018. What is the rationale here? What is the capacity expansion plan you will have at the end of next three years?

SAIL’s capacity was close to 12 million tonnes. After the current wave of modernisation which is almost complete, the capacity is expected to increase from 12 million tonnes to 21 million tonnes. At present, we are in the process of ramping up. This year we are closing our saleable steel production at more than 14 million tonnes, and it is expected to touch more than 16 million tonnes next year. We expect to reach 21 million tonnes in the next two-to-three years.

This is in line with the government’s policy of producing 300 million tonnes by 2030-2031. So, our next wave of modernisation should also start over the next six years. We should be able to complete by 2030-2031, so that we further increase our capacities.

Your sales volumes have moved up from what they were in the first quarter of the financial year ended March 2017 at 2.8 MT to about 3.8 MT in the third quarter of the previous financial year. What will the number look like in March quarter? Do you expect the number to move up significantly in the current financial year as the quarters go by?

The March quarter’s figures have already come, and they are almost touching what we have achieved in the December quarter. Further improvements will happen in this financial year. You will see an improvement in the current quarter because our new blast furnace at the Bhilai steel plant has started. Therefore, you can see significant improvement in the current quarter and the subsequent quarters. We expect a growth of 15 percent in 2017-18.

That would mean you could end the previous quarter with sales volume of 4.6-4.75 MT. Would that be a reasonable estimate?

We can expect more than 16 million tonne from 14 million tonne safely.

Last quarter, your investors were enthused. Because after multiple quarters of losses, you turned a corner. Is this a sustainable move?

Yes. There should not be any doubt about it. Our profit before tax was substantial last year, about Rs 4,800 crore, even when we incurred net loss of around Rs 1,400-1,500 crore every quarter. We were able to achieve a modest profit in the December quarter, but you will find much more significant figures in the previous quarter.

This strength will continue in subsequent quarters also. This is not only sustainable, but you will find a lot of improvement in the following quarters because on one hand, our volumes are increasing, and on the other, we are trying to reduce our cost of production.

We have taken a lot of initiatives on the value addition side. All these factors will have a cumulative effect, and will lead to an improvement in profitability in all the coming quarters.

How many of your plants have turned EBIT (earnings before interest, tax) positive in the previous financial year or the previous quarter?

All the five plants will be EBIT positive in the March quarter.

If the bottomline in the fourth quarter is better than what you did in December quarter, which was Rs 65 crore, and if you believe that trajectory to move up in the quarters ahead, do you expect substantial growth in the current financial year?

We are expected to make some provisions, and there should not be any doubt about it. In December quarter, we made a modest profit before tax of Rs 82 crore. In the March quarter, despite the substantial provisioning that we had to make for gratuity, we see an improvement.

Also in the coming quarters, there will be no provisioning. It has been hard work. Our entire team has worked very hard. We had projected it. We had a rolling plan for three years. We have detailed discussion with the government, stakeholders. It is exactly more and less on the same lines.

How your cost pressure shaping up in the current quarter? Do you see any pressures due to iron ore prices on the cost front?

We are not affected by iron ore prices because we have our own mines. Prices of steel depend on the input prices, which is coal. Last year, coal prices jumped to 30-35 percent.

So, whatever price increase we have seen in steel, it is because of coal and iron ore. We have some advantage on the iron ore front, but on another side, being a government set up, our workforce cost is high. So, there we have to compensate. On that front too, we have brought significant reduction in the workforce cost. It has come down from 22 percent to 16 percent in a year.

Next year, you will find further decrease on that front. Whatever rise you are finding in steel prices is because of the raw material, and it is worldwide. It is not limited to our country.