The management of the Steel Authority of India Limited (SAIL) seems to be a totally confused lot in the face of strong public criticism of its poor performance last year and continued bad showing this year.

Instead of putting its house in order, the company is issuing all kinds of statements in defence of the sales crash and loss of market to business upstarts like Essar Steel and Lloyds Steel. The SAIL chairman Arvind Pande has blamed the reversal to wrong projections by the government and fall in domestic demand. Pande has been talking about pruning Rs 1,000 crore worth of cost this year, and raising steel prices.

Inside SAIL, however, is a different story. In the first quarter of 1997-98, which ended last Monday, the company's production and sales dipped further. The first-quarter losses are projected to be close to Rs 500 crore. Its losses in April and May amounted to Rs 280 crore. SAIL is saddled with huge unsold stocks at its plants as well as in stockyards, whose volume is well over 10 lakh tonnes. It has shut down two blast furnaces in Bhilai and Bokaro, implying a big cutback in hot metal output. Significantly, the two plants account for more than 100 per cent of SAIL's profits. Two other plants, Durgapur and Rourkela, make losses.

In short, SAIL is in a serious mess. And, if anybody is to be blamed for SAIL's sudden downhill journey, it is the company's own management and not the government's wrong market forecast or the decontrol of the industry. Worse still, the management is clueless about how to recover. Pande has talked about cutting the consumption of coal by two million tonnes to save Rs 800 crore this year. But, he has not explained how. Has SAIL been wasting coal worth Rs 800 crore per year? There is a fixed coal (coke)-to-iron ore ratio per tonne of hot metal output. What Pande probably means is a cutback in steel output itself this year that will automatically lead to lower consumption of coal. Is SAIL planning to cut import of coking coal as well? Lower coking coal consumption will lead to cutting down other inputs, including iron ore and dolomite. SAIL also uses a large quantity of non-coking coal to run its captive power plants. Is SAIL planning to cut down its power generation?

Cost-cutting is not a new exercise in SAIL, or, for that matter, in any major corporate. It is a constant management practice in any organisation to become "lean and mean" and stay ahead of competition. However, companies rarely cut back production to reduce costs. They try to tighten their belts through cost-cutting of the sort that will not affect production or product quality. Anyone can cut cost by reducing production. Every SAIL chairman in the past claimed to have practised it.

Actually, SAIL's poor performance is, to my mind, mainly on account of poor capacity utilisation, fall in the quality of some of its high-value products like HR and CR coils and, even, rails, massive depreciation and interest charges, lack of marketing exercise and sales drive. It is unthinkable that Pande should blame the government's demand projections and not his marketing department for SAIL's failure to push more products in the market. SAIL's loss was the gain of other players. Essar Steel reported over 200 per cent rise in turnover, mainly from HR coils, and Lloyd Steel increased sales 28 per cent. Tata Steel too made a tremendous effort. Talking about the government's steel demand projections,it was thought by the Morarji Desai government that the country would require at least 50 million tonnes of steel by 2000 AD. The industry did not buy it. It went by its own marketing intelligence and projections. And, the consumption today is hardly 22 million tonnes.

In a recession-hit market, sales and profit margins are bound to be down. And they are down in the cases of all major producers, including Tata Steel. But, what made SAIL's performance unique was its negative growth in sales itself and letting competitors grab its market. Unfortunately, SAIL does not have a marketing strategy. The department is not even in charge of a hard-core marketing professional since S K Daspatnaik was made to leave under unpleasant circumstances. Daspatnaik, the late Subir Sen, P R Raghavan and J S Charlu had excellence, vision and deep knowledge of the market. SAIL never had a marketing problem under them. Incidentally, the steel price was not decontrolled last year. It was freed from controls almost five years ago. And, the domestic market always faced competition from imports.To my mind, SAIL's present problem is one of management.

The company had gone through similar situations in the past. And, fortunately, the government was quick to act to save the country's premier manufacturing company from collapse. It did not hesitate to hire the services of a Tata satrap, Wadood Khan, and overaged V Krishnamurthy of BHEL and Maruti fame to run the affairs of the company at times of crisis. And, both produced excellent results although the latter was condemned after his retirement with corruption charges. The services of at least two SAIL chairmen --- K C Khanna and S S Samarapungavan were cut short on the ground of "inefficiency". The government is not the only shareholder of SAIL. Public FIs, general public and SAIL employees are also shareholders.

They account for nearly 15 per cent of SAIL's subscribed capital, whose face-value is almost Rs 600 crore. Unless they take interest in the management of SAIL at this moment of crisis and force the government to hire top professionals to run the company, the steel giant has little hope in the long run. It may soon meet the same fate as the other three public sector steel producers -- Rashtriya Ispat Nigam, Indian Iron and Visvesvaraya Iron. SAIL should also be asked to stop all investments in new projects until the plants in Durgapur and Rourkela start operating at their rated capacities.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.