The Telegraph
Wednesday , February 13 , 2013
Since 1st March, 1999
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Go-slow on SAIL selloff

New Delhi, Feb. 12: The government is likely to put on hold its decision to sell a stake in Steel Authority of India Ltd (SAIL) following a sharp drop in the PSU’s third-quarter net profit — a move which would make it difficult for the Centre to meet its divestment target of Rs 30,000 crore for this fiscal.

SAIL’s profit after tax for the quarter ended December fell 23 per cent to Rs 484 crore from Rs 632 crore in the year-ago period. Sales turnover grew 1 per cent to Rs 11,801 crore.

Actually, the department of divestment is now seeing Rs 27,000 crore as a realistic target, possibly anticipating that the SAIL selloff will be postponed. The Centre has so far mopped up nearly Rs 22,000 crore through PSU divestments this year.

SAIL’s divestment was put on the back burner earlier this fiscal only to be revived after the Sensex touched the 20000-mark in January.

Sources in the finance ministry said SAIL and Nalco were among the big firms whose shares were to be sold this year. Stake sales in Rashtriya Chemicals & Fertilizers Ltd and MMTC are also likely before March.

The government wants to sell a 10.82 per cent stake in SAIL to bring down its holding to 75 per cent and expects to earn about Rs 4,000 crore. Differences with merchant bankers over valuation and a fear that sale at low prices can trigger a political outcry has held up the equity offering.

The decline in SAIL’s profit has been attributed to a sharp rise in other expenses at Rs 1,753.12 crore during October-December against Rs 1,427.77 crore in the year-ago period. It has pushed total expenses to Rs 9,936.60 crore from Rs 9,557.13 crore a year ago.

A more than 40 per cent fall in interest earned at Rs 207.90 crore against Rs 370.65 crore also eroded profits.

However, the steel firm’s main problem is its ambitious expansion plan, which threatens to jack up debt without a commensurate rise in profit.

Moreover, most of SAIL’s mine holdings are either involved in litigation or are awaiting clearances from the environment and forest ministry. This has hamstrung the PSU’s ability to fully exploit its huge iron ore reserves of more than 2 billion tonnes.

A proposed elephant corridor through the Bolani iron ore mine in Odisha, which meets 20 per cent of the company’s requirement, has put a large chunk of the reserves out of bounds.

Another productive mine in Gua has remained shut for more than a year because of delays by the environment ministry on the basis of a complaint by an MP from Gujarat.

Shares of the steel major today closed at Rs 81.20 on the BSE, around 30 per cent lower that its 52-week high of Rs 115.90 on February 17 last year.