Steel Authority of India (SAIL) is considering renegotiating contracts and purchase orders to tide over the coronavirus crisis, Business Standard reported.
SAIL has written to plant heads for a temporary solution, which will not be needed once commodity sales pick up. “There is a huge demand waiting,” the letter said.
Moneycontrol could not independently verify the report.
The public sector enterprise (PSE) has record-high inventory due to the demand slump since March. Saleable inventory stands at over 2 million tonne (mt), with another 0.8 mt under process. This even after SAIL is operating at 50 percent capacity, the paper added.
“This inventory will increase as production continues while sales are weak. A large amount of money is blocked in these inventories. It is requested that further production may kindly be regulated and preferably only such grades as the market is willing to absorb should be produced,” the letter mentioned.
SAIL usually begins demand registration in March, but with the coronavirus pandemic afoot business has been disrupted. Also, with the auto and construction industries shut during the lockdown, demand has free fallen, the paper noted.
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Further, with cash collections at a record low, borrowings to meet expenditures have crossed Rs 52,000 crore. The borrowings are expected to increase as the lockdown continues.
The company thus plans to conserve cash. For this, it will review purchase orders and wherever possible, with emphasis on high-value contracts. For areas without sufficient rebates, contracts may be closed and fresh tenders will be issued. It will also defer the delivery period, while non-essential deliveries are advised to be foreclosed.
Other imminent factors raised were the ratings downgrade, piling debt and scale down of operations. To deal with this, the company has decided that allocation of funds from corporate will only meet employees’ and statutory payments, with only little for vendor payments, as per the letter.
The focus will also be directed toward liquidating scrap and defective inventories, which could be used for vendor payments.
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