SAIL needs to review land bank, JV holdings to pare debt: BCG

Debt amount was pegged at Rs 41,396 cr by the end of March in 2017

Boston Consulting Group (BCG) has suggested that public sector steel major Steel Authority India Ltd (SAIL) to review the relevance of its huge land bank and joint venture holdings, in view of the cash required to deal with its debt, pegged at Rs 41,396 crore as of March-end in 2017.
 

A recent Motilal Oswal report mentioned that SAIL's net debt would continue to rise, while eroding its equity value.

Rating agency Icra had also flagged off similar concerns over SAIL's position.

Jayanta Roy, senior vice president at Icra said: "SAIL's debt burden has increased significantly during 2016-17 to over Rs 40,000 crore, while its net worth has eroded during 2015-16 and 2016-17 because of losses. Consequently, the company's capital structure has weakened over this period."

Meanwhile, SAIL declined to comment on the issue. 

Indeed, the public sector steel company owns huge tracts of land with the Union Steel Minister, Chaudhary Birender Singh, recently stating that around 100,000 acres of land stood available for the steel PSUs that can be utilised for diversification or high-end steel production.

Merits mention, RINL- another steel PSU- that has around 19,700 acres of land. Of this, around 7,000 acres of land remains unutilised.

However, it may not be possible for SAIL to monetise the land because it is leased by the government to the steel PSUs, indicated sources. SAIL, therefore, has explored joint venture options from time to time to utilise the excess land.

BCG, it appears, has indicated that there were 83 low hanging fruits, which should be worth Rs 1,000 crore and must be acted upon over a period of three months.

Industry sources said, better alignment between plants, marketing and raw material division could help SAIL achieve better results.

The Motilal Oswal report also pointed out that SAIL was facing issues in ramping up capacity. "While it is guiding 16 million tonnes sales in FY18, we estimate it would be lower at 15 million tonnes," it said.

SAIL's ambitious modernisation and expansion programme that had cost the steel PSU around Rs 65,000 crore until February has been delayed. It was conceived in 2006 but expansion was commissioned in Rourkela and Burnpur plants only by 2015. The modernisation and expansion programme entailed taking the crude steel production capacity to 21.4 million tonnes, from its erstwhile capacity level of 13.5 million tonnes.

Motilal Oswal said that SAIL could benefit from operating leverage over the medium-term given its high-cost base but delivery of volume was necessary. Moreover, the recent surge in steel prices amid improving demand and supply measures in China is expected to help improve margins but this won't be enough to absorb the cash drag, adds the report.