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SAIL net takes a beating

New Delhi, April 29: Steel Authority of India’s fourth-quarter profit declined 28 per cent as floods in Australia increased coking coal prices.

During the quarter, net profit dropped to Rs 1,507 crore from Rs 2,085 crore in the corresponding quarter a year ago. Total income for the quarter fell 0.52 per cent to Rs 12,166 crore from Rs 12,230 crore in the year-ago period.

Rising cost of raw materials such as iron ore and coking coal has hurt margins of steel makers. SAIL is largely insulated from any rise in iron ore prices as it has its own captive mines. However, it is vulnerable to price shocks in coking coal as it imports all of its requirements.

On a yearly basis, rise in input costs impacted SAIL’s financial performance in 2010-11 by around Rs 3,718 crore, of which Rs 3,100 crore was on account of an increase in the price of imported coking coal alone.

SAIL had to bear an additional cost of Rs 2,200 crore on account of higher salaries and wages during 2010-11. Also, the weakening market demand for flat products was mainly responsible for SAIL’s 2010-11 profit before tax (PBT) falling 29 per cent to Rs 7,157 crore and a 28 per cent lower profit after tax at Rs 4,881 crore.

For securing supplies of coking coal, SAIL, along with its multi-member consortium, International Coal Ventures, hopes to conclude a deal this fiscal to access mines in Indonesia.

“We were given choices of three to four mines in Indonesia and we have carried out a due-diligence exercise and in this fiscal itself we would be in a position to secure at least one to two coking coal assets,” SAIL chairman C.S. Verma, who also heads ICVL, said.

ICVL started looking at Indonesia following an MoU between SAIL, ICVL and the Indonesian government, which envisaged the development of mines and steel plants at the central Kalimantan region of that country.

Verma said, “With a vision of becoming a global player, we are working on multiple fronts at the international level by adopting the inorganic route and strategic tie-ups, aimed at backward, forward and lateral integration. The coming months will witness the emergence of a new SAIL — a global SAIL.”

The company plans to increase its hot metal production capacity to 19.5 million tonnes from 14mt, Verma said.

The budgeted capital expenditure for 2011-12 is Rs 14,337 crore.

The Capital expenditure incurred by SAIL during 2010-11 was Rs 11,280 crore against revised estimate of Rs 12,254 crore. Capital expenditure incurred by SAIL during 2009-10 was Rs 10,606 crore.

The steel major said it does not expect “wild fluctuations” in steel prices in the near future. Verma said the demand for steel products in India was likely to continue to rise.       

Verma said the company is also planning to set up an equally owned joint venture with Japan's Kobe Steel in the next two months to produce 500,000 tons of iron ore nuggets in the country.

SAIL plans to invest close to Rs 3,000 crore in its proposed joint venture with Kobe Steel of Japan for the revival of the Jagdishpur unit of the erstwhile Malvika Steel which it acquired in 2009.

He said “we plan to have speciality and auto grade steel at Jagdishpur. I think in two months we would be in a position to finalise the DPR and take a view on signing the joint venture with Kobe.”

The project involves setting up of a steel plant of 1.5 MT per annum capacity based on gas-based DRI technology and using Electric Arc Furnace for steel making with value added products at Jagdishpur. The feasibility of setting up a 1,000-MW gas-based power plant is also being examined.

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