The public-sector giant was felled by dipping profit margins (because of the crashing prices of finished steel) and the huge capital cost it incurred to upgrade its steel plants at Durgapur and Bokaro. A drastic reduction in inventory by 300,000 tonnes resulted in a mere 4.7 per cent rise in sales turnover to Rs 7,011.25 crore, from Rs 6,825.72 crore in the first six months of last year.

Notwithstanding ``cost-reduction measures'' that have apparently helped save Rs 275 crore, SAIL's expenses between April and September this year were 9.4 per cent higher at Rs 6,213.48 crore, compared with Rs 5,675.62 crore in the first six months of last year. The real blow came from a 25 per cent increase in interest on loans taken to modernise some of SAIL's steel plants, and a 36 per cent rise in depreciation charges for the same purpose.

SAIL paid Rs906.49 crore as interest this year, against Rs 723.81 crore in the first six months of last year. Provision for depreciation went up to Rs 508.19 crore, from Rs 372.07 crore in the first six months of last year.

The hugely inflated interest charges show up as a loss of Rs 108.72 crore, against a gross profit of Rs 426.29 crore in last year's first half. The double blow from the higher depreciation charges translates into a loss before tax of Rs 616.91 crore, compared with a Rs 54.22-crore profit before tax during the same period last year.

In the whole of last year, SAIL had earned a profit before tax of Rs 148.59 crore, and a net profit of Rs 132.09 crore. In the first six months of last year, SAIL had earned a net profit of Rs 48.53 crore. This year, the company did not have a tax liability, which keeps its net loss at Rs 616.9 crore.

The SAIL board on Friday took into account that the interest and depreciation charges were higher ``following commissioning of the Durgapur Steel Plant and other capitalschemes.'' To make matters worse, some of the newly commissioned facilities that dragged down SAIL's finances this year have not been stabilised enough to bring in returns.

The modernised hot-strip mill at the Bokaro steel plant, which upgrades SAIL's hot-rolled coils from the tube-making grade to the more value-added cold-rolling mill quality, for instance, is still being stabilised. In other words, costs of moulting to a more-demanding market are showing on the SAIL balance sheet, but the fruits of that labour are not.

Chairman Arvind Pande sounds optimistic in his statement at the end of Friday's board meeting, saying, ``We hope the worst is behind us.'' He draws strength from a rise in the company's sales volume and the consequent ``liquidated inventories''.

The market leader sold 3.5 million tonnes of finished steel at home, which was a 12 per cent increase over last year, but sales realisations fell by 4 per cent. SAIL's ambitious export plans suffered because of the 20 per cent drop in steelprices worldwide.

The higher sales volume only managed to bring down SAIL's stocks of unsold steel, but did not really liquidate inventories. The company retained a closing stock of 9.4 lakh tonnes of unsold steel, but SAIL has the right to rejoice since its stocks were much higher before.

The higher sales, but lower margins, did not leave SAIL with enough money to pay for higher interest and depreciation charges, and still make a profit.

SAIL paid a dividend of Rs 35.45 crore to the centre, which owns 85.82 per cent of the company. The public-sector steel giant's dividend payout for last year was Rs 41.3 crore.