SAIL sets out to build capacity, cut down on costs

Nomura Financial Advisory and Securities is upbeat after its interaction with the chairman of Steel Authority of India (SAIL). The assessment of its report is that while expansion will take place in phases over the next two years, the full benefit will trickle in possibly in the next 2-3 years. Realisation of employee costs will take place after the entire capacity goes online.

Following are the highlights of the meeting:

• SAIL has drawn up a capacity expansion plan totaling Rs 70,000 crore, of which Rs 23,000 crore will go to modernisation, Rs 37,000 crore to steel capacity ramp-up and Rs 10,000 crore to expansion of mines.

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• It will be commissioning three large blast furnaces at Bhilai, Rourkela and Burnpur in FY12 and FY13.

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• Blast furnace yield to improve from 550 kg/tonne to 400 kg/tonne in the case of a new furnace and 450 kg/tonne in the case of existing one.

• The steel major will be reducing net headcount by 6,000 every year due to staff retirements. Employee cost will come down from 20% to 12-13% of the total revenue.

• SAIL has 60-70 million tonnes of high grade iron ore fines which it will sell to its joint venture partners at market prices. SAIL is currently not able to use them, given its capacity constraint and the fact that it is not allowed to sell iron ore in the open market.

• The company is trying to acquire mines through government level agreements with Indonesian and Mangolian governments. This, however, is taking some time.