We are concentrating on greenfield expansion, says SAIL's PK Singh

The government-owned SAIL that lost its pole position in the domestic steel capacity to JSW Steel and Tata Steel has worked over the past few years to bring in operational and production efficiency while increasing focus on capacity addition and adopting new technologies. In an interview with Megha Manchanda & Jyoti Mukul, PK SINGH, SAIL’s outgoing chairman and managing director, says a large company has to do internal soul searching than just react to market while dealing with the sector’s stress. Edited Excerpts:
 
There has been an improvement in the financials of the company in the last two quarters after posting losses for 10 quarters. What is your assessment of the next few quarters? And, as you superannuate, what would be your view on the company’s focus henceforth?

 
I came in the last quarter of 2015-16, that full year SAIL had made a Profit Before Tax (PBT) of Rs 72 billion but operationally we were making loss. Steel sector was also not doing well; a lot of dumping was happening from other countries. First, we started making operational profit and that continued for 2016-17 and 2017-18. With the second quarter of last year, we also started making cash profit. It was all very gradual. We have been able to turn around the company over the last two years. I give credit to my team, all employees and stakeholders of the company. We had submitted the company’s turnaround plan to the government and more or less the turnaround is on similar lines and the third quarter of FY18, we made PBT even though it was modest Rs 820 million. In the last quarter of the previous financial year, we made profit and the momentum will go on for the coming quarters also. Our production in 2017-18 was 14 million tonne and we are targeting 17 mt this year.

 

One factor is SAIL capacity but from the demand side, did the market turnaround contribute, too?
 
It is not the increase in the price of steel that has led to an improvement in our performance. We had an improvement (operational revenue) of nearly Rs 70 billion last year due to increase in price. This is not because of increase in the demand for steel but mainly due to increase in the price of raw material of which Rs 50 billion was only on account of coal.
 
Margins improved because of the internal actions that we have taken. High-end products like rails, plates, etc, helped. Many more actions and initiatives in marketing also helped. On the manpower front, we have reduced our cost and this is by as much as nearly Rs 3.72 billion in the last financial year.

 
We have identified the inefficient routes in the company where have drastically reduced our costs. We have shut down four blast furnaces in total under our turnaround plan for better efficiency and this year also these plans will continue.
 
What would be the challenges in continuing with these plans in the future?
 
In large companies like ours, the internal action plans are more important than market and whatever decision is taken by the top management has to be followed by the entire employee base. The steps that we had taken have to be continued, for instance, cost reduction and efficiency has to be brought in to improve production. At the production end, we must reduce Sail Semis (blooms, billets and slabs), focus more on the finished product and concentrate more on high value items, more production of rails, plates and cold rolled products.

 
Even as you talk of production of more high end products, the company’s joint venture with ArcelorMittal for specialized auto grade steel has not taken of. What is the status on this?
 
These joint ventures take time as there are many commercial issues involved and the time period of the joint venture is for about 25-30 years, therefore one has to be very careful about the future market conditions, challenges etc. We are very close to our definitive agreement with ArcelorMittal and it may happen in the next 1-2 months. We have already started exploring the various sites where the plant would be set up. Both firms have to ensure that the venture remains profitable for the next 25-30 years and no company exits the JV. Finished goods exports is an area where we are concentrating and trying to enter Europe for the same and work towards that has begun.

 
World over external issues have impacted the steel companies, so what makes you say that internal plans are more important than the external market situation? Would you say that SAIL is unique in a way that your challenge has been different from others?
 
If you safeguard yourself internally, the impact of external factors would be much less. We have tremendous strength within us and the way we have managed our finances in the last 2-3 years which in the given circumstances, we could turn around the company.
 
Sector as a whole when it suffers then there would be factors impacting each and every steel company. The steel sector impacts the people directly as well as indirectly. Large number of NPAs that have happened in the steel sector is because of the turmoil; dumping that has taken place from the outside. More important are the internal actions so that as a company you remain competitive. Such blips will happen in the future also and companies should have the strength to sustain that.

 
Insolvency in the steel sector has led to a turmoil and realignments but SAIL has kept away by not biding for any of the insolvent companies.  Why and what are the lessons from the insolvency process?
 
In any business, problems will happen and there should be policies in place to take care of those problems. If there is no policy then that business or unit becomes sicker and ultimately it is all taxpayer’s money that is wasted.  These initiatives by the government should continue as other advanced countries also have such measures in place.
 
We already had invested Rs 700 billion on modernization. Our priority is to ramp up production from these units, attain 21 mt production from them and regain the glory that we are number one producer in the country; improve our top line and reduce our cost of production. We should concentrate on our internal issues first. We do not have time to look at units outside. We are concentrating on greenfield expansion.

 
Was there any regret which you have as you remit office?
 
I wanted more speed. It is very important. Market will not wait. We should always be ready. Our speed should not determine market but our speed should be determined by the market.