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Manish Saxena
Mumbai, Nov 5: Manufacturing alloy steel, or what is commonly known as special steel, has not helped Mukand ward off the general price downtrend faced by the steel industry. The company suffered a loss for the second consecutive quarter, with the loss in the second quarter at Rs 7.55 crore being more than twice that of the first quarter.
Even the topline has fallen by 30 per cent to Rs 179 crore in the second quarter compared to the similar period last year. The drop in topline is because of the lukewarm performance of all its three divisions -- machine building, machine tools and the steel division.
The machine building division, after completing the modernisation for the Rourkela plant, has not bagged any comparable order for the company. This division contributes to approximately 12 per cent of the sales for the company. Although the break-up is not available, the division would have contributed only a few percentage points to the total turnover. Further, the machine tools division has an order bookposition of Rs 120 crore, which is almost at last year's level. However, the biggest contributor to the top and bottomline is the steel division, which has suffered the most. The company says that on a half-to-half basis, the drop in volume sales for alloy steel is a mere 7 per cent. But the realisations are down by Rs 2,500 - Rs 3,000 per tonne compared to last year.
Given these prices, no wonder operating margins have fallen to 8.37 per cent in the second half of this fiscal year, compared to 14.5 per cent in the corresponding period last year.
Ironically, a couple of years back Mukand had enjoyed thrice the premiums over other steel manufactures, because of its ability to supply extremely low volume special grade alloy steels. But today, the majority of the users of Mukand's products are facing a cash crunch. Telco, Bajaj and Ashok Leyland orders have declined. This has reduced some of the phenomenal margins that the company used to earn. Moreover, with absolutely no progress on infrastructure themargins for bars and structural items have decreased.
The company is quite confident of improving the margins position in the next fiscal as its steel plant at Hospet, Karnataka, will be fully operational by that time. As per the company, steel manufacturing at Hospet would reduce cost of production by Rs 4,500 per tonne, while adding only Rs 600 per tonne for freight.
But what can really help the company is common standards for similar applications in different companies. Earlier, the company could afford to keep five months inventory by making more than 100 different products. Today, the same inventory is hurting the bottomline by around Rs 1,500 per tonne, with no extra money being paid by the customer. Till common standards are a reality, Mukand would continue to be plagued with low margins and low volumes of product batch quantity.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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