Bloomberg reported that Steel Authority of India Ltd may fail to revive profit from an eight year low as project delays more than double the cost of a planned capacity expansion to USD 13 billion.

Mr CS Verma chairman of SAIL said that contractor disputes, holdups and rising equipment prices have inflated the bill for increasing capacity 59% to 21.4 million tonnes.

Mr Ravindra Deshpande a Mumbai based analyst at Elara Securities Ltd said that the estimate in 2006 was USD 6.3 billion. The overrun may shrink profit 36% to 5.5 rupees a share this year.

Mr Giriraj Daga a Mumbai based analyst at Nirmal Bang Securities Ltd which has kept a sell rating since July last year said that “After Steel Authority’s expansion, the return on equity will be low, so the stock is being downgraded. The cost is abnormally high and will only increase from here.”

According to Mr Niraj Shah, an analyst at Mumbai-based Fortune Equity Brokers India Ltd, typically, the cost of building a steel mill is about USD 1 billion per million tonne, while Steel Authority will pay USD 1.6 billion.

The company’s expansion program, which includes raising steelmaking and iron ore mining capacities and also refurbishing old equipment to boost efficiency, has been delayed. The first estimate in March 2006 envisaged completion by 2012. The steelmaker will be able to increase its capacity to 18 million tonnes by the end of the current financial year, Verma said, without giving a timeframe for the full expansion.

Source - Bloomberg

(www.steelguru.com)