Profiting by proxy

Profiting by proxy

In view of the Steel Authority of India's huge loss for 1998-99, it would be all too easy to succumb to pessimism. Yet there are several silver linings. The most important mitigating factor, of course, is that there is a downturn in the fortunes of the core sector, as well as for automobiles--the two sectors which make up the bulk of SAIL's customers. The good augury is that SAIL hasn't used this as an excuse to do nothing. The basic reasons for the loss are simple--the economic slowdown, the interest and depreciation charges, and the huge manpower and the high level of social infrastructure which the company is called upon to maintain. We must not lose sight of the fact that SAIL made an operating profit. SAIL has battled the slowdown by reducing inventory (this has lowered realisations because of discounts offered), by going ahead with a voluntary retirement scheme, and by cutting costs. SAIL has been able to cut costs up to Rs 1,010 per tonne of saleable steel. This has been done by savings on rawmaterials purchased, on power and fuel, on consumption of stores and spares, and paring administrative expenses. SAIL already has a well-defined turnaround plan in hand, with asset restructuring and divestment of non-core businesses, disposal of idle assets, financial restructuring, restructuring of capital and liabilities, and a host of joint ventures on the cards. The government needs to do its bit to support SAIL in this restructuring exercise. Funding VRS programmes, reducing the social infrastructure burden which SAIL has to carry, and waiving SDF loan are options which the government needs to consider urgently. It need hardly be emphasised that, as the holder of 85.8 per cent of SAIL's equity, the government which will be the main beneficiary of SAIL's turnaround.

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