Coronavirus lockdown: SAIL rings alarm bells over financial position

A man stands next to an advertisement of Steel Authority of India Ltd. (SAIL) at a street in New Delhi, India. Photo: Reuters
With inventory levels at a record high and borrowings having crossed Rs 52,000 crore, public sector steel major Steel Authority of India (SAIL) is looking at renegotiating contracts and purchase orders to tide over the Covid-19 crisis.

In a letter to plant and unit heads, SAIL said the slowdown has affected offtake since the beginning of March.

Cash collections have fallen to record lows, without any let-up in the expenditures, the letter said. “The result is that the borrowing has crossed Rs 52,000 crore (as of date) and is likely to go up further. This is an unsustainable situation. Among the many threats that it poses, stoppage of operations, ratings downgrade and debt trap are the most imminent,” it added.

SAIL’s saleable inventory level has crossed 2 million tonnes (mt) and another 0.8 mt is in process. However, company executives said this was a temporary situation and once the commodity starts selling as customers resume operations, SAIL would be able to tide over this. “There is a huge demand just waiting,” they said.

The lockdown had hit steel companies immensely, with customers in automotive and construction sectors shutting operations. Typically, SAIL starts demand registration with customers towards the end of March, but that, too, had been affected by Covid-19.

SAIL is now planning to undertake urgent measures to conserve cash. All purchase orders and contracts are to be reviewed and wherever possible, the delivery period is to be deferred.

Non-essential purchase orders are being advised to be foreclosed.

It is also being advised that high-value purchase orders and contracts are to be re-negotiated. Where sufficient rebates are not forthcoming, the purchase orders and contracts may be considered for closure and fresh tender floated to capture the benefit of reduced prices in the market.

“Allocation of funds from corporate office will be sufficient to meet only employee payments and statutory payments. Very little funds will be available for making vendor payments,” the letter said.

Special emphasis is, therefore, to be given to liquidation of scrap and defectives’ inventory lying at the plants. The money realised from the sales could be used to make vendor payment.

While the inventory level has crossed 2 mt, it is likely to increase further. “This inventory will increase as production continues while sales are weak. A large amount of money is blocked in these inventories. It is requested that further production may kindly be regulated and preferably only such grades as the market is willing to absorb should be produced,” the letter mentioned.

After the lockdown was announced, most steel companies had scaled down operations. SAIL has been operating at around 50 per cent production levels.

Best-ever annual sales

On Wednesday, SAIL announced its production numbers for the financial year 2019-20 (FY20). Chairman Anil Kumar Chaudhary said, “SAIL has been continuously focusing on ramping up its steel production from the new units, which came up under modernisation along with optimally utilising the older units.”

“The concerted efforts to increase volumes have resulted in the company becoming the largest domestic steel producer in FY20. The company’s well-coordinated production strategies leveraging augmented production capacities, which were installed under the modernisation drive, have started to fructify,” he added.

Chaudhury said he believed “once the nation comes out victorious in the fight against coronavirus”, the market would definitely show green shoots of steel consumption and SAIL was fully geared up to cater to the demand.

During FY20, SAIL achieved its best ever annual sales of 14.5 mt, an increase of 2.8 per cent over the corresponding period last year. It also registered the highest-ever exports of 1.18 mt, a 54 per cent increase.

SAIL said it had been recording sales growth consistently from the third quarter. The company registered a growth of 26 per cent in sales in the Q3FY20.


Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel