The steel ministry has asked Steel Authority of India Ltd (SAIL) to look at niche steel products that command a premium and can be exported, as the public sector behemoth plans to roll out a massive Rs1.5 trillion phase II modernization and expansion plan (MEP) by 2015 end.
The ministry has asked SAIL to seek technology joint ventures and engage with consultants to build a progressive vision on products and marketing.
“Over the longer term, SAIL needs a technological vision by developing a product profile for the future. SAIL will have to decide what kind of mass commodity products they will sell and what kind of niche products they will sell,” said steel secretary Mohan Kumar. “In mass market products the price is determined by the competition. In certain areas, I have asked them to make studies through consultants.”
For instance, SAIL is not able to produce steel for auto body parts, unlike private steel players.
SAIL chairman C.S. Verma said that the company has set up an internal committee to plan the second phase of expansion, which will also look into more specialized products. The expansion will be funded through 50% debt and 50% internal accruals. The value-added products have been a thrust area for the company, Verma said, and SAIL is seeking joint ventures for auto products.
Around 37% of SAIL’s revenues are from value-added steel products and in the next year or so this will move up over 50%, Verma added.
An ICICI Securities report notes that the company has witnessed subdued blended steel realizations in the past, with realizations down 3.9% year-on-year to Rs38,236/ tonne in FY14, versus Rs39,784/tonne in FY13. It states that the company is also undergoing a shift in the product mix, wherein it will start manufacturing more value-added products compared to the present mix that is skewed more towards basic products. “We expect blended realisations to remain flat YoY at Rs38,194/tonne in FY15E and increase thereafter by 1.3% YoY to Rs 38,680/tonne,” the report adds.
In comparison Tata Steel’s India operations earns realizations close to Rs45,000/tonne.
The steel ministry has also asked SAIL to plan the next phase of expansion quickly and more efficiently by implementing total quality management. In a recent meeting, it froze all the dates for completing SAIL’s delayed MEP phase I; it was to be completed by 2011, but will now be completed by 2015. This will take the company’s production capacity from the present 13.4 million tonnes (mt) to 23mt by the end of 2015. “In the next phase of MEP we will add 27mt, taking our total capacity to 50mt,” Verma said.
The MEP phase I of SAIL’s Bhilai, Bokaro, Rourkela, Durgapur, Salem and Burnpur plants have so far entailed investments of over Rs53,000 crore and will eventually cost the company an estimated Rs72,000 crore when it is complete. Steel ministry officials say that implementing the various projects in several different packages led to the delays. Implementing them through turnkey projects would have been a better idea, an official said.
The ministry also wants SAIL to utilize better its assets, particularly its huge land bank, and consider alternative technologies like coal gasification to boost productivity.
SAIL’s expansion plans come with a huge price tag. Its balance sheet is getting stretched due to an increase in debt on account of the ongoing expansion and modernisation plan. The current gross debt and net debt (31 March 2014) stands at Rs25,648 crore and Rs22,792 crore, respectively. The second phase of expansions could further burden the company’s finances.
Source: Livemint
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