Even at 9-year-low, SAIL could have to borrow for capex

Set to report a net loss for the first time in 13 years for FY16, state-run Steel Authority of India will cut its capex for the current year to a nine-year low of Rs 4,000 crore and may need to borrow even for this reduced investment.

Although PSU sources said that the lower capex was primarily because its ongoing Rs 72,000-crore modernisation and expansion programme is slated to be completed soon and a new capex phase was yet to be finalised, analysts said sluggish market conditions and dismal financial performance in the past fiscal also could have been the reasons for the low capex programme.

“The capex for the current fiscal would be funded through a mix of loan and equity. We have to assess the internal accruals in 2016-17 and if these are not sufficient, we will indeed have to borrow (to fund the capex),” SAIL’s finance director Anil Chaudhary told FE. Already significantly leveraged, SAIL’s interest outgo in the third quarter of the last fiscal was Rs 524 crore, up 43% from the corresponding quarter in the previous year.

The company incurred a net loss of Rs 2,906 crore for the April-December period of 2015-16 vis-a-vis a net profit of R1,758 crore in the corresponding period of the previous fiscal. Turnover was also down to Rs 30,725 crore in the nine-month period from Rs 37,740 crore a year earlier.

SAIL’s net sales realisation plummeted by 34% to Rs 24,403 per tonne between August 2014 and December 2015 mainly because of subdued steel prices in the face of imports at predatory prices from China, Japan and South Korea. With protective measures like a safeguard duty and minimum import price (MIP) in place and the recent increase in global steel prices, domestic primary steel makers like SAIL are poised to look up in the coming months.

As a result of the financial crunch, which has forced SAIL to take various cost-cutting measures including curtailment in bonus payouts to its 70,000-odd non-executives, the company is also considering developing some projects under the build, operate and own (BOO) basis, it said in a recent presentation to the parliamentary standing committee on coal and steel.

SAIL had its highest capex in 2011-12 at Rs 11,021 crore when its ongoing modernisation and expansion programme was at its peak. It has been gradually coming down since then. Capital expenditure could again rise if the company decides to forge ahead with its “Vision 2025” programme under which it plans to double capacity to 50 million tonnes per annum.

According to India Infoline Research, the company management expects sales volumes to jump to 16 mt in the current fiscal from around 12 mt last fiscal on the back of import substitution and ramp-up of new facilities.