Sail Or Sink, It's A Titanic Job

ARVIND Pande, chairman of the Steel Authority of India Ltd (SAIL), has been celebrating the silver jubilee year of his company almost like mourning. A new stinginess on the expenditure front, new locks for unviable units, a slimmer work-force, a new product profile geared totally towards the market—in short, a blueprint for bad days. Reason: for the Rs 16,000-crore public sector behemoth, 1997-98 may have been its worst year ever.

The first six months were a disaster. Net profit dropped by 87 per cent—from Rs 361.45 crore in April-October 1996-97 to as little as Rs 48.53 crore. While income increased by only Rs 82 crore to Rs 6,825.72 crore, operating profits fell by Rs 120 crore to Rs 1,150 crore. The later months, if anything, have deepened the gloom. Pande and other officials exhibit bravado, saying that the company will manage to make it to the black in the full year, but the ground reality may not bear them out. Domestic steel demand has not picked up, while low import duties continue to make SAIL's products costlier. And, thanks to its internal problems, the company's financial independence is heavily cramped.

The last two years especially have seen very little activity in the infrastructure and construction sectors. There has been little government spending and very few new private sector projects. As a result, demand for steel has grown slower and slower—from 22 per cent in '94-95 to 5 per cent last year. In the current year, demand has actually dropped by 0.6 per cent. Secondly, liberalisation also saw a progressive lowering of import tariffs, making India a favoured destination for cheap steel from other countries even as domestic producers couldn't keep costs down. Says a senior SAIL official: "The expected economic recovery in the second half didn't happen. And while the prices of finished steel remain depressed, input prices increased steadily. So, this time, we couldn't pass on the burden of higher costs to the consumer. Normally, we raise our prices once every six months."

SAIL is not alone in misery. The entire steel sector is facing the music of recession. The industry grew by a comfortable 11 per cent last year, but is expected to muster only about 4 per cent in 1997-98. Pande, who took over the reins of SAIL in January 1997, squarely puts the blame on government apathy towards the industry and its selective preoccupation with the country's macro-economic fundamentals. "The government had taken a view that it would not step up spending in infrastructure. This hit supplementary industries like steel and cement very hard. Then recession came at a time when a lot of new capacities had materialised, leading to a gross mismatch between demand and supply. At the same time, the lack of proper anti-dumping and safeguarding legislation is making the survival of domestic players more difficult."

What has made things more prickly for SAIL is, one, the emergence of new suppliers for a limited range of products, and two, its inability to reduce costs. Several factors impinge on SAIL's cost burden: the heavy interest liabilities on borrowings to fund its Rs 12,000-crore modernisation plan; unviable and non-profitable units; the deadweight of obsolete technology in critical areas where competition is emerging; and increasing labour costs. Apart from the Rs 2,000 crore capital investments it makes every year in various plants, it has also had to contend with rising input costs, which went up by Rs 1,000 crore in 1996-97 and Rs 700 crore so far in the current year.

Being 85 per cent government-owned, SAIL was forced to make a number of bad, politically motivated investments, such as the takeover of the ailing Vishvesharayya Iron and Steel Ltd (VISL) in Karnataka and investing in a new steel plant in the land-locked region of Dagaon in Assam. Says the SAIL official: "One of the ills of being government-owned is that you have to accept proposals which are unviable from the beginning. Without these, the financial results would've been a different story altogether."

WHAT is Arvind Pande's strategy to turn SAIL around? "My prime objective is to change the entire orientation of the company and take a long-term view. The pressures of competition and globalisation are here to stay. What is important is to get the organisation prepared to meet the competition effectively on a sustained basis. For this, we have to unlearn many things of the past and take a fresh look at all the available options. If we cannot do it now, five years later, SAIL will be a totally unviable, sick, loss-making company," says Pande.

Soon after assuming charge, Pande introduced a 'five-point plan' to improve the company's functioning and mindset. It focused on faster cost reduction, higher market realisation, increased exports, improved asset utilisation and quality and customer orientation. And, officials say, there was a tangible improvement. So it remains the basis of his current strategy. Pande has set up seven expert groups headed by directors which will look into the production, marketing and operational areas and formulate a clearly focused plan. All along, the buzzword would be customer orientation. "I am trying to get the organisation to come out with solutions which can be implemented. This can be achieved through cross-functional teams and motivated workforce," he says.

The groups are also looking at a possible change in SAIL's product profile to suit the new demand scenario. And Pande does not rule out venturing into other infrastructural fields, "although we would remain primarily a steel company and 90 per cent of our business will come from steel". In the pipeline are increased activity in mining, a cement plant and also a power plant in the near future. The plan is expected to be put into practice this month.

The countdown has already begun. SAIL will cut production from the first quarter of 1998-99 to clear its inventories and cur -tail its input needs. To reduce operating assets, one of the blast furnaces at Bhilai has been shut off, to be followed by similar shutoffs at Bokaro, Rourkela and Durgapur. It has launched its second voluntary retirement scheme (VRS) from March 1. Says an official: "We do not want to have 180,000 people for just 10 million tonnes of steel. We have to justify it somewhere." The company aims to reduce its staff strength by almost 65 per cent to about 60,000 in the next five years by way of VRS and natural retirement. Against this, recruitment is only 100 people per year.

In many ways, its 25th year has been an eyeopener for SAIL, prompting it to reassess its strengths and weaknesses and identify new needs. Pande is hopeful of a turnaround in 1998-99 and an increase in steel demand in the next two years. With the BJP government's promises to protect indigenous industry and promote infrastructure spending, SAIL looks set to get the much-needed shot in the arm.