The SAIL board, that met in the capital on Friday morning, slashed the company's dividend to shareholders to a little more than 1 per cent, from 6 per cent last year.

The board of directors recommended a dividend of 31 per cent of profit, entailing a payout of Rs 41.30 crore, which thins out to roughly 1 per cent of the nearly 400 crore SAIL shares (of Rs 10 each.)

Grappling with a demand recession like all other steel-makers, SAIL saw its net profit dip to Rs 133 crore, from Rs 515 crore in 1996-97, when the net gains of the company slid for the first time by 50 per cent. The steel giant's operating profit went up marginally to Rs 2,497 crore in 1997-98, from Rs 2,458 crore the year before. A 7 per cent increase in sales, 69 per cent hike in export earnings and a 27 per cent rise in market share enabled SAIL toincrease its turnover by 3.6 per cent to Rs 14,624 crore. Input-cost increases nimbled away Rs 700 crore of that earning, but cutting corners in-house helped the company save another Rs 800 crore.

The real drain on SAIL's books was the Rs 479-crore increase in interest and depreciation since 1996-97 on account of the modernisation programmes of the Bokaro, Bhilai and Rourkela steel plants. Depreciation went up by 15 per cent to Rs 795 crore to provide for the Rs 12,000-crore modernisation projects just completed.

The interest burden went up to Rs 1,554 crore because of the borrowings for the projects. The public-sector giant paid a tax of Rs 16 crore.

A whopping increase of 115 per cent in exports to a million tonne of steel, special steels and pig iron helped SAIL augment its earnings in a bad year. Exports earnings, however, grew more modestly by 69 per cent to Rs 1,087 crore, from Rs 642 crore in 1996-97.

In a statement, SAIL chairman Arvind Pande acknowledges the impact of the higher interest anddepreciation on SAIL's profitability. "However," he says, "the modernisation of our plants, specifically the return to large profits by Bokaro this year, and the warm reception that the Rourkela hotrolled coils have received in the market make us confident of targeting higher profits in the current year."

According to a release, the company's sales volume had already gone up by 20 per cent in the first two months of this fiscal.

Insight

Interest component affects cost-competitiveness

Inspite of having the lowest profit margins in the last five years, the fact that the company could maintain operating margins at 17 per cent is quite impressive. The cost-cutting measures of converting the open-hearth furnace into an LD converter has offset the higher cost of coke, raw material, and lower price realisations.

Moreover, the closure of re-rollers and induction furnaces due to excise duty norms in the last budget had created scope for increasing sales of about 1.5 million tonne of rolledproducts. All steel majors have reported increased volume sales this year.

But, the worrying part is the weak financials due to the debt-equity ratio being at 2.3:1. Unless the inventory is brought to a level of less than one month from the present level of two months-plus, the interest component would continue to affect the cost-competitiveness of the company.