The steel major is likely to add 1 mt this fiscal and 2 mt in the next two fiscals as demand improves and new capacity comes onstream
After staying stagnant for years, Steel Authority of India's is likely to witness strong volume growth from the current year.
Beginning with 1 million tonne (mt) higher volume this fiscal, the public sector steel maker is likely to add 2 mt each over the next two years, analysts with brokerage Nirmal Bang Securities said in a report after meeting officials of the company.
"We had a meeting with the management of SAIL recently. After witnessing stagnant volume growth for the past 10 years, SAIL is likely to witness strong volume growth from this fiscal. The company is eyeing 1 mt higher volume in fiscal 2015, while it expects incremental volume of 2 mt each in fiscals 2016 and 2017, driven by completion of its expansion programme," the report authored by analysts Giriraj Daga and Aditya Joshi said.
SAIL's expansion and modernisation projects across its five integrated steel plants at Bhilai, Bokaro, Rourkela, Durgapur and Burnpur have suffered years of delays and cost overruns, entailing a final outlay of about Rs 70,000 crore resulting in a stagnant output for year at around 14.5 mt of hot metal, 13.6 million tonne of crude steel and 12.8 million tonne of saleable steel, as noted by a parliamentary panel last year.
Now all that is set to end with the expansion project finally starting to bear fruit from this year.
The commissioning of the project would coincide with the likely revival of steel consumption in the country, the report noted.
"SAIL is hopeful of improvement in demand driven by investment revival, which will help it to sell incremental volume arising out of expansion."
SAIL's current expansion project would take its production of 13.6 mt to 23 mt, while it aims to reach a level of 50 mt in the second phase that is yet to be firmed up.
Along with higher production and sales, SAIL is expected to improve profitability due to lower coking coal prices.
"The company will enjoy the benefit of lower coking coal prices, which will be slightly offset by a minor drop in steel prices. The management expects the performance to improve on the back of higher volume, and lower coking coal as well as overheads costs," the report said.
According to a recent Bloomberg report, spot coke prices have fallen 17% since the beginning of the year as demand in China fell, while supplies from Australia rose. It estimates contracted prices to fall by 7% to about $112 per tonne next quarter.
Despite such positives, analysts are not quite bullish about SAIL's improvement in performance, mainly due to the massive cost overruns and subdued margins.
"SAIL is investing Rs 72,000 crore which would result in incremental capacity of just 8 mt. The company has to generate Ebitda per tonne of Rs 10,000 in order to become PAT positive, which looks to be a Herculean task," the report said.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}