Steel Authority of India has risen smartly in recent sessions on hopes that the company will soon return to profitability.

The stock of the state-run steel major rose by 14.70% last week to settle at Rs 10.90 on 21 February from Rs 9.50 on 14 February 2003. The 30-share BSE Sensitive Index advanced by 83.79 points, or 2.59% during the week. Interestingly, daily volumes on the counter more than doubled to 1.79 million shares on Friday from 856,000 shares on the previous Friday.

The recent rally on the Steel Authority of India counter stems from hopes that the company may stage a turnaround in the current quarter on the back of rising steel prices and the company's cost-cutting initiatives.

SAIL posted a 86.54% fall in its net loss to Rs 78.75 crore for the quarter ended 31 December 2002. Total income for the quarter rose by 26.58% to Rs 4,473.38 crore (Rs 44.73 billion). The company reported a cash profit of Rs 215 crore (Rs 2.15 billion) for the quarter.

SAIL has saved around Rs 250 crore (Rs 2.5 billion) through cost-cutting measures in the first nine months of the current financial year.

The surge in the company's DQ 2002 sales was aided by an impressive 52% jump in sales of Rourkela steel plant, followed by 31% rise in sales of Bokaro and Salem steel plants. The flagship and the company's most profitable Bhilai steel plant reported a 19% rise in sales.

RSP, the loss-making plant of SAIL, expects to cut its losses by about Rs 500 crore (Rs 5 billion) this fiscal. It had posted a net loss of Rs 1036 crore (Rs 10.36 billion) in 2001-02. The losses may come down because of higher sales, higher realisations and cost-cutting measures. Sail expects the RSP to record cash profit for the fourth quarter ending 31 March 2003, riding on a marginal cash profit in January 2003, after a gap of seven years.

Meanwhile, according to SAIL, international steel prices are expected to remain firm for the next six months. The Chinese market would primarily determine the demand and price of steel in the global markets. Consumption of steel in the developing markets has dropped and the focus is on China and other parts of the sub-continent. The Indian market, which is expected to boom after 2004, will also continue to remain in focus.

SAIL plans to increase its exports to China from the current 40%.

Meanwhile, SAIL is planning to partly replace its present feedstock coal with natural gas. By doing this, the company, which is the largest importer of coking coal and one of the largest consumers of coal, may cut its Rs 3,800-crore (Rs 38 billion) fuel expenses bill.

SAIL is planning to sign agreements with ONGC, IOC and GAIL to transport gas from Bangladesh. It is also toying with the idea to link up with the oil & gas discoveries in the Cauvery basin (Andhra Pradesh) and in Gujarat.

Though the construction and automobile sectors mainly pushed up the demand for steel, the capital goods industry also helped the cause. At the same time, a greater thrust on infrastructure projects, including national highway and roadway projects is likely to spur demand further for steel, feel players.

The global steel industry has seen a growth of about 5% during the current financial year, compared with 2-3% in 2001-02. The Indian market has also shown healthy growth, which touched about 6%.

The company has been utilising 100% of capacity at its plants. Its borrowings were estimated at Rs 13,000 crore (Rs 130 billion) with an average interest rate of about 10%, which is likely to be lowered in the next six months through debt restructuring.

BSE code: 500113