The nationwide lockdown has already started to show it's impacted even on big players. In the latest development, the public sector steel major Steel Authority of India (SAIL) has reported a record high borrowings of over Rs 52,000 crore. The PSU is witnessing a major fall in the demand from its customers in the automotive and construction sectors as they also have shut their operation due to lockdown.
No orders from major customers
Moreover, without any source of revenue generation, the expenditure has remained at earlier levels only. Now, SAIL is mooting at renegotiating contracts and purchase orders to manage its finances during these tough times. As per a report in Business Standard, the company has sent a letter to its plant and unit heads citing that the slowdown has affected order books since the start of March and cash collections have fallen.
"The result is that the borrowing has crossed Rs 52,000 crore (as of date) and is likely to go up further. This is an unsustainable situation. Among the many threats that it poses, stoppage of operations, rating downgrade and debt trap are the most imminent," the letter highlighted. At the current level, SAIL has a saleable inventory of more than 2 million tonnes (mt) and another 0.8 mt is in process. Generally, the orders are placed at the start of the new financial year but this too has hampered due to the COVID-19 pandemic.
Now, SAIL is expected to take urgent measures to save cash. The company has ordered to review all of its purchase orders and contracts including non-essential purchase orders advised to be ignored. Further, it has also decided to defer the delivery period wherever possible. Moreover, the advisory has been issued on re-negotiating high-value purchase orders and contracts.
Notably, in the fiscal year 2020, SAIL clocked its best-ever annual sales with 14.5 mt, a jump of 2.8 percent over the same period last FY. It also registered the highest-ever exports of 1.18 mt, an increase of 54 percent.