SAIL Raises Its Capex Plan By 25% For FY13.

SAIL, one of the largest steel producers in India, is continuing with its huge capex plans for modernisation and capacity expansion. In fact, recently the steel ministry has increased SAIL’s planned expenditure for the 12th Five Year Plan ending 2017 from Rs 45,000 crore to Rs 65,000 crore. Moreover, the company in its recent AGM presented various initiatives from adding downstream technologies to optimising operations in the coming years. One of the major initiatives already taken to optimise its operations is to reduce coke consumption by enhancing alternate fuels like coal dust injection in blast furnaces.  One of the major reasons to reduce coke consumption is the fuel cost.

Coking coal is a scarce resource and almost 80 per cent of the coking coal requirement is met through imports. The coking coal prices jumped significantly from USD 180 per tonne in 2010 to USD 330 per tonne in 2011, thereby impacting the margins of the steel companies. Although coking coal prices have come down to USD 210, the fall in the rupee (15 per cent) has negated all of the gains. This volatility in coking coal prices and the shifts in domestic currency has put pressure on the margins of the steel companies. And that is why most of the steel companies are putting in their best efforts to reduce their dependence on coking coal by using some of the latest technologies.

Capex Plan
SAIL has planned a capex of Rs 14,500 crore for FY13 after incurring a capital expenditure of Rs 11,021 crore in FY12. During the 11th Five Year Plan, its capital expenditure was Rs 40,321 crore. SAIL has been lagging behind in terms of the technologies which have impacted the productivity of plants and thereby the overall performance. To overcome these issues the company has come up with a modernisation and expansion programme. This programme is being implemented at an expenditure of around Rs 72,000 crore, besides targeting at increasing the capacity from 14 MTPA to 21 MTPA. The company has also addressed the need for eliminating technological obsolescence, achieving energy savings, enriching its product mix, reducing pollution and developing mines and collieries.

The company as on March 31, 2012 had a cash balance of Rs _ crore and is currently utilising its internal accruals for capital expenditure, as a result of which its debt/equity ratio stands at 0.41x, which is at a comfortable level. The company’s completed new facilities include a coke oven battery # 11 and a wire rod mill at the IISCO steel plant, sinter plant # 3 and coke oven battery # 6 at its Rourkela steel plant and a 700 tonnes per day (tpd) air separation unit at its oxygen plant # 2 at its Bhilai steel plant. A further portion of the first phase of modernisation is likely to be completed by the end of FY13. However, the expansion plans faced some delay in 2011, and any further delay will lead to cost overruns in the future.

In the area of enhancing power capacity from the present 1,000 MW to nearly 1,800 MW, NSPCL (a 50:50 JV of SAIL and NTPC) is preparing a feasibility report for setting up a 2 x 250 MW power plant at Bhilai and a 1 x 250 MW power plant at Rourkela. SAIL has the largest captive iron ore operations in India, which takes care of its entire requirement. And it has further planned to enhance the requirement of iron ore from captive mines by augmenting production from the existing ones and by developing new mines at Rowghat in Chhattisgarh and Chiria in Jharkhand. With plans in place to expand the mining operations, the company will continue to be self-sufficient in iron ore after the completion of the ongoing phase of expansion.

We believe that although the company has envisaged huge expansion plans, the implementation of the same will be a crucial part and the benefits of the same will accrue from FY14 onwards.