New Delhi, Sept. 17: State-run steel behemoth SAIL is working on a turnaround plan, which includes cutting costs, changing its product mix in favour of more value-added products and higher exports from its new Burnpur plant.

"Green shoots are visible from our turnaround plan. While our pre-tax, pre-depreciation earnings have been profitable for the last five quarters, we will very soon turn the corner and have a post-tax profit," SAIL chairman P.K. Singh said in an interview with The Telegraph.

SAIL has managed to reduce its losses after tax and depreciation to Rs 2,833.24 crore in 2016-17 from Rs 4,021.44 crore in 2015-16. Its earnings before interest, tax, depreciation and amortisation (EBITDA) for 2016-17 was a positive Rs 672 crore against a negative EBITDA of Rs 2,204 crore in 2015-16.

However, an interest and depreciation burden of Rs 3,988 crore a year on account of a Rs 65,000-crore modernisation-cum expansion project has made it difficult for the steel giant to turn the corner.

As a result, SAIL has decided not to take on any fresh expansion or takeovers of sick private mills, which the banks had been pressing the PSU.

"This is a consolidation phase where we are working to improve our financials. What is making a difference is not just cost cutting but the fact that the Burnpur plant has come on stream. It is the latest and has the most efficient equipment with the lowest energy consumption. Hence, it is the lowest cost producer of high quality structural steel. We have increased its capacity utilisation to 75 per cent, which has helped us to cut the cost per tonne by Rs 2,500," said Singh.

IISCO, Burnpur, a 1922 vintage plant, has been scrapped and replaced by a modern 2.5-million-tonne unit, which has become SAIL's focal point to reap the benefits of modernisation.

Profit per tonne

"Profit per tonne is the key and the key to that is increasing value-added steel in our product mix. Durgapur has increased the capacity utilisation of finished products. In Bokaro, our fourth blast furnace is functioning well and even our old steel melting shop has increased capacity utilisation. We have reduced the cost of production at our electrical grade steel making unit in Rourkela... all this is leading to better financials. Our power and fuel costs have come down by 10 per cent and employee cost per tonne of steel has come down by 16 per cent."

SAIL has now decided to export most of its structural steel products from Burnpur.

"The quality and cost ensures that this will be the steel of choice for our exports," said the SAIL chairman.

In the first quarter of 2017-18, Burnpur's production of saleable steel increased 40 per cent to 3.88 lakh tonnes.

Sources in the steel ministry said their internal reports seemed to indicate that SAIL would show a positive profit after tax by the third quarter of this year.

Steel production in India increased 6.9 per cent in the April-June 2017 quarter on the back of a robust demand from the infrastructure sector.

"We believe infrastructure, construction and rural demand will push sales in the next few years," said Singh.

Compared to a global average demand of 220 kg a year per person, India's demand is just 64 kg of steel a year per person, while its rural demand is just 12 kg a person annually.

"We expect this to change with the current infrastructure push in railways and roadways," Singh said.

VRS package

SAIL is offering a generous VRS package to its employees but has kept its target at a low 2,000 for the year. It has a staff strength of 80,000 people.

"We need skilled people and it is their work which has helped us to increase the production per capita, but yes we are offering a golden handshake in certain areas as part our overall plan," said Singh.

SAIL says it has managed to reduce the cost per tonne of steel in all areas, except raw material, because of higher prices of imported coal which is mixed with the domestic variety for its blast furnaces.

"There too we are trying to expand the geographies from where we are importing coal. Earlier, it was just Australia. Now we have brought in Canadian and American vendors," he added.