New Delhi: Steel Authority of India Ltd (SAIL), India’s largest domestic maker of the alloy, on Monday reported a 43% decline in profit for the three months ended 31 December because of increased coal costs and foreign exchange losses, but chairman C.S. Verma expects the state-run company to end the full year on a brighter note after demand for the metal rose in the current quarter.
SAIL chairman C S Verma.
Net profit in the fiscal third quarter was Rs 632.12 crore, compared with Rs 1,107.47 crore a year earlier, the company said. Revenue fell 4.8% to Rs 11,685.95 crore.
“Profits are lower compared to last year, but there is a growth compared to the previous quarter,” Verma told reporters after a board meeting. “The current quarter is going to be very brisk.”
SAIL took a hit of Rs 578 crore on account of increased price of coking coal and Rs 499 crore on account of foreign exchange variations as the rupee depreciated against the dollar in the last quarter. A weaker rupee makes imports more expensive. SAIL imports most of its coking coal requirements from international markets where prices have remained firm.
In the nine months to December, SAIL had a net profit of Rs 1,966 core, down 42% from Rs 3,374 crore in the same period a year ago. Sales in the nine months earned Rs 32,650 crore, up nearly 5% from Rs 31,160 crore.
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SAIL chairman C.S. Verma talks about the decline in his company’s thirs quarter profits and his outlook for steel demand in the future.
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Steel production also fell in the nine months to 9.11 million tonnes (mt), from 9.46 mt a year ago. In the October-December quarter, too, steel production was down slightly to 3mt from 3.3 mt in the year-ago period.
“The results are in line with our expectations, though the sales volumes are disappointing,” said Bhavesh Chauhan, an analyst at Angel Broking Ltd. “I don’t think the company is doing okay. It has a lot of employee cost, a lot of inefficiencies, and there are cost overruns because of the delay in its expansion. It has a lot of scope for improvement.”
Verma said demand from the construction sector has been on the upswing and the outlook for prices was “firm...more or less steady”.
The company’s ambitious modernization plan has been delayed. By the end of the next fiscal year, its capacity is likely to reach 19 mt as a result of the modernization of its five integrated steel plants.
“Our capex plan for 2012-13 is again the highest ever at Rs 14,500 crore,” Verma said. “In the next one-and-a-half months, we are going to commission some of the facilities.”
SAIL’s total borrowings were Rs 19,925 crore as of December. Of this, Rs 11,628 crore were Indian borrowings and Rs 8,297 crore were forex borrowings. Deposits with various banks were worth Rs 8,670 crore.
“Let us hope for the best,” Verma said when asked if the full year to 31 March will see higher steel production.
SAIL is expecting to set up an iron ore mine and a manufacturing unit in Rajasthan.
“We have got a major success recently with the government of Rajasthan that has recommended a major iron ore mining lease spanning 821 hectares in Bhilwara for approval of the central government,” Verma said.
“For the first time, we will be entering Rajasthan with a manufacturing facility,” he said. The company is awaiting approvals that are expected to come through in a few months, the chairman said.
Verma said International Coal Ventures Pvt. Ltd (ICVL), a group of government firms led by SAIL to scout for coal assets overseas, is likely to make an acquisition before the end of the financial year, of a “prime hard coking mine”.
Talks with the South Korean steel company Posco for a joint venture with SAIL are still on.
“I think it will be finalized soon,” he said referring to the company’s talks with Posco that entail setting up a small specialized steel unit. “We are at near completion of our dialogue. We are waiting for a good day to sign our agreement.”
SAIL’s follow-on public offer (FPO) has been put off until the next fiscal year.
“We won’t be in any position to bring out any FPO in this fiscal. We will see it in the next fiscal. Let the market conditions improve,” Verma said.
SAIL shares ended on BSE at Rs 110.35 a share on Monday, down 2.43% from the previous day, on a day the benchmark Sensex rose 0.14% to 17,772.84 points.
ruchira.s@livemint.com