SAIL board okays capacity ramp-up plan

The board of Steel Authority of India Ltd (SAIL), the country's largest steel producer, has approved a plan to raise the company's capacity to 20 million tonne by 2011-12 from the present 12 million tonne to meet the projected rise in demand in the domestic market.

This will make the state-owned entity one of the top ten steel makers in the world.

"The board has approved a corporate plan at its meeting on April 28. Apart from raising the capacity to 20 million tonne by 2011-12, there will be greater thrust on improving quality, reducing dependence on coal and making more of finished products than semi-finished products," chairman V S Jain said.

He said the increased capacity will be made through brownfield expansion at its four existing plants, Bhilai, Rourkela, Durgapur and Bokaro over 2-3 years. Once these expansions are completed, the company will set up new production facilities but again at the same four locations.

"The existing capacities can be debottlenecked to produce more at lower investment. Later, we can create more grassroots expansion at the existing facilities," Jain said.

SAIL is not the only one. Buoyed by the higher consumption of steel owing to various infrastructure activities in India and China, private steel producer Tata Steel has also decided to increase its annual capacity to seven million tonne by 2007 and to 15 million tonne by 2010 from four million tonne at present.

Jain said the investments required for the expansion was yet to be worked out but added that Rs 1,000 crore will be pumped in every year over the next 2-3 years from internal accruals for brownfield expansion.

"The major investments for the greenfield expansion will be made later when the whole corporate plan is put into action," he said.

SAIL has a depreciation of Rs 1,000 crore every year, which will be used for expanding capacity in the short term. The rest of the internal accruals will be used to correct the debt-equity ratio, which SAIL plans to bring it down to 1:1 from 2.4:1 as on December 31, 2004.

According to Jain, the debt-equity ratio was drastically reduced from 6.5:1 as on April 1, 2004 to the present level by lowering the interest rate by 1.3 per cent to about 8.3 per cent and also through swapping high-cost debt with low-cost ones.

During the first nine months of the current financial year, SAIL reported a profit of Rs 1,500 crore against a loss of Rs 500 crore for the same period of the previous financial year.

According to credit rating agency Icra, rising steel prices and growth in the export markets were playing an important role in the fortunes of the Indian steel industry.