Moneycontrol
Jan 15, 2018 04:47 PM IST | Source: CNBC-TV18

Will focus on debt reduction once company attains profitability: SAIL

In an interview to CNBC-TV18, PK Singh, Chairman of Steel Authority of India (SAIL) spoke about the latest happenings in his company and sector.

CNBC TV18 @moneycontrolcom

In an interview with CNBC-TV18, PK Singh, Chairman of Steel Authority of India (SAIL) spoke about the latest happenings in his company and sector.

Singh said that we have been making tremendous efforts on sales, productivity and cost cut fronts.

He further said that this financial year volumes will grow more than 10 percent compared to last year.

FY20 sales volumes should be 18-19 million tonne versus 14 million tonne in FY17, he added.

Talking about EBITDA, he said FY17 EBITDA per tonne was around Rs 502; Expect FY18 EBITDA per tonne to move to Rs 2,500. Therefore, we expect EBITDA per tonne to improve phenomenally in FY19.

On employee cost, he said we have reduced employee costs by 15 percent. Our employee strength was 85,000 last year; will fall to 65,000 in next four-five years.

We are very confident that company will deliver a net profit in FY19, said Singh.

The goal is to expand capacity to 50 million tonne by FY30, he mentioned.

Singh also mentioned that the current debt is at Rs 45,000 crore. We will focus on debt reduction once company attains profitability, he added.

According to him, exports can go beyond 10 percent from current 5 percent.

Below is the verbatim transcript of the interview:

Q: After years there is so much hope on the turnaround of SAIL; steel prices and demand has improved drastically in the recent past. Do you believe that this is sustainable?

A: In SAIL we have been making tremendous efforts. I along with my entire team, we are making tremendous efforts and results are quite visible also in all areas like production, revenues, cost of production, quality, our projects, our market share. So this has been a very satisfying year particularly last year because two years back the situation was looking quite bleak. Therefore, we had taken a number of decisions; we got full support from the government. It is not only SAIL but the entire steel industry was reeling under a lot many problems.

Q: The sales volume is the number that the street is looking at very closely. What is the target for FY18 and what about FY19?

A: This financial year our volumes will grow more than 10 percent compared to last year. We will touch close to 14 million tonne, maybe 0.1-0.2 million tonne here and there, which will be 10 percent growth. Next year there is no reason why we should not touch, in next financial year, 16 million tonne.

Our capacity, whatever modernisation, expansion programmes are there, they are going to complete in next few months.

Q: What about FY20 volumes?

A: We should be more than 18-19 million tonne from the current level of nearly 14 million tonne.

Q: What about the targeted EBITDA per tonne given that raw material cost have also spiked, would that put a bit of pressure there?

A: The last financial year that we have completed, the EBITDA was around Rs 502 per tonne. This year it will be more than Rs 2,500 per tonne. I will not be able to give exact figure because of Sebi guideline we cannot reveal the exact financial data but it will be phenomenal compared to last year.

Q: The big problem for SAIL has been employee cost. The total number of employees was more than 80,000 in the past fiscal. In the next couple of years, say by FY20 what should the employee count look like?

A: You are right that our employee cost is high. It is one of the highest in the sector and typically all public sector undertaking (PSUs) have that. We have been successful in reducing our employee cost by 15 percent compared to last year and in the last year compared to earlier year. In this financial year also the similar trend is going on.

Our employee strength which was around 85,000 last year, every year it is reducing by natural retirement by 4,000-5,000 employees and apart from that we are also giving golden handshake where around 1,000 employees are taking voluntary retirement. Last year also 1,000 employees took and this year also more than 1,200 employees have taken. It is a win-win situation for both the employees as well as the company because the employees have fruitful years left for them. They can always look for better opportunities in other sectors and company also gains because this process of dynamism which has come in the industries where you have to take quick decisions. The skill gap which is there in the industry although we are taking number of steps to improve the skill gap but this phenomena will be the order of the day for all industries where employees will separate and new employees will join.

Q: Can SAIL deliver profit in FY19?

A: Next year it is definitely possible and there is no reason why we should not achieve that. There are certain policy changes which are going to take place, for example gratuity amount is going to be increased - that will impact us by nearly Rs 500 crore. So taking that into account this year probably the last quarter will be a tight situation if a particular cash outflow takes place then probably the last quarter will be challenging but next year yes.

Q: Last ten quarters you have been reporting losses but there are reports that suggest that you are looking at some of these distressed steel assets. Reports suggest that you are looking at many of them. Could you confirm any of this?

A: Why we should not. Any steel industry, anybody who gets asset at cheaper prices why they should not look for that and ultimately our capacity has to be 50 million tonne because Government of India's target to achieve 300 million tonne in steel production by 2030-2031, our share has to be 50 million tonne. So we are very open to that also. Therefore, if any company, if it falls in the overall setup and the new asset that we acquire fits in the overall product basket that we are making, I think it is a good synergy. These plants are operating and they are making EBITDA positive. We have discussed this in board meetings also. Our board is also quite supportive. So we are very open to that.

Q: What exactly is the current debt in the books?

A: Our overall loans are around Rs 45,000 crore and out of that nearly 50 percent is long-term and 50 percent is short-term although we are making steps to increase our long-term loans and the direction is that 70 percent of our loan should be long-term and 30 percent should be short-term. We are working in that direction and very soon we will achieve that.

The decisions, whatever we have taken, are quite correct for the long-term strategies of SAIL and all these decisions that we are taking has to be communicated to each and every employee of SAIL. I have personally interacted with more than 20,000 employees. We had detailed discussion also with them, non-executives, executives, unions, officers' association and other directors. We go to the employees directly in different units and having a very detailed discussion. I think continuous dialogue process is required so that our employees are fully aware because whatever we are trying to do, ultimately that has to be delivered by them only.

Q: Exports currently contribute around 5 percent of your sales mix. Can it go to around 10 percent in the next couple of years? Is that possible?

A: That is our long-term strategy. I think we will go beyond 10 percent also. Right now we are around 5 percent but in the long-term we would like to be more than 10 percent. Once SAIL will produce more than 20 million tonne, a good part of that should be exported. Any big company should have that strategy. It balances out because you cannot depend only on the domestic market. Once you export, you are fully aware with the quality requirements of choosy customers and that export market is quite competitive.

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