Showing posts with label Indian economy. Show all posts
Showing posts with label Indian economy. Show all posts

Saturday, April 27, 2013

"I only bother about production volumes"

C. S, Verma, CMD, SAIL – India’s largest public sector steel company and the second-most profitable in the business in India Inc., refuses to believe that dampened economic sentiments are making life difficult for Indian steel businesses. For him, 10% is how the trajectory of growth appears for the industry. He might be right.

B&E: Besides being one of the highest profit-makers in India Inc., in recent years, the Rs. 503.5 billion topline-earning SAIL has worked on marketing its brand. How important is the brand to the company and its stakeholders?
Chandra Shekhar Verma (CSV): Today, branding activity in the steel industry in India is on the rise. And from September 1, 2012, the government of India will introduce the mandatory BIF standard, which will make branding compulsory for industry players. As far as SAIL is concerned, today, roughly 20% of our sales come from products that are branded. So, in times to come, brands and the power of branding will hold great importance for all in the steel industry. At present, we have more than 3,000 dealers and 67 warehouses across the country, so we expect branding to hitherto impact positively the efforts of SAIL as far as strengthening its front and back-ends are concerned. Investments in branding will also give us a distinguishing upper-hand over competition that is rising each day.

B&E: You mentioned competition – can you elaborate?
CSV: Today, government policy allows free import of steel from overseas – therefore it is a case of survival of the fittest. And this is again where I come back to the branding bit. We had to create brand equity in the minds of customers. Due to the marketing activities in recent past, I can say that SAIL has got a brand awareness that is unmatchable. Whenever customers or government officials talk about steel, they talk of SAIL. And the popularity of our slogan which goes as, “There’s a little bit of SAIL in everybody’s life”, proves the how SAIL has been able to position itself in a cluttered market where there are more than six to seven big players.

B&E: India’s steel consumption grew only by 5.5% in FY2011-12 to 70 million tonne due to lower demand from industries like auto, FMCG and construction. This figure shows lack of investment in industrial projects. There is all the talk about a slowdown in the steel industry – what is your take on how your company has performed vis-à-vis the industry during FY2011-12?
CSV: I don’t agree that either the Indian economy or the steel sector is facing a slowdown. India is a demand centre as far as consumption of steel is concerned, and even last year, despite an increase in production, we had to import steel to fulfil just our domestic demand. And the fact that the government has planned a total investment of one trillion dollar during the 12th Five-Year plan period is definitely an encouragement for investors and participating companies in the steel industry. Moreover, to achieve 1% growth in GDP, there has to be a growth of 1-2 times in production of steel. To be realistic, yes, we are not completely insulated from the happenings in Europe and US – the slowdown and crises across various markets have impacted India, but the fear of slowdown only lives in the mindset of people in this country. Today, the installed capacity of steel in India is about 82 million tonne a year, which is going to rise to about 140 million tone by the end of the current Five-Year plan and then to more than 200 million tonne by FY2020-21. The reason for a slowdown in the sector in Europe and US is that they are oversaturated economies and the low 1-2% growth in their economies cannot drive forward demand of steel. But if you look at growth of the steel sector in India it has averaged 8-10% over the past few years. And this growth will continue.

B&E: So you claim that the previous financial year was not a challenging period for SAIL?
CSV: Challenges were there. They still are. But the growth of more than 8% in demand and production of steel in India over the past few years, due to the India growth story, has been more than encouraging for us. There are challenges galore. More and more players are entering the industry today. The market is a free import market so if we are not cost competitive, there will be imports from China. Today, the total installed capacity of steel in the world is 1.8 billion tonne. Of this, 50% capacity is in China. And China is our next door neighbour. So, if we do not control costs and therefore prices, there will be free imports from China. So there are many more such challenges in the industry in India, but the opportunities outweigh the threats. And this is really not the case with other economies in Europe. India presents a growth opportunity for this industry.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
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Thursday, August 30, 2012

FUEL PRICE DEREGULATION: AUTO INDUSTRY

Deregulation of petrol and diesel prices has given rise to a lot of hue and cry in the domestic auto industry. B&E reaches out to various experts for a commentary on how the dynamics of the auto industry may change. by Sanchit Verma

Evidently, there may be a small impact on customers’ choices of passenger cars i.e. a new buyer may decide to go for a diesel car instead of petrol car or may decide to buy a B/C segment car instead of C/D segment car to factor the increased operational costs. But overall sales (number of units) would not be impacted. Experts like Abdul Majeed, Head-Auto Practice, PwC point out to B&E, “Deregulation of fuel prices had to happen; but it will not have any significant impact on India automobile industry because vehicles have become a necessity for every citizen and sales of the same are bound to happen. Probably what we may get to see is that the customers and manufacturers moving towards more fuel efficient vehicles. This will certainly bring in new and improved technology to the industry.”

But this is assuming that deregulation of fuel prices results in price rise and not price fall. Increasing prices have not only promoted development of more efficient technologies, but also have given rise to innovations in terms of alternative solutions. Today, the US and European auto industry are heading towards hybrid cars purely because of energy dependency issues.

On a macro angle, deregulation would open the Indian economy per se to the vagaries of global oil price fluctuations – and this per se becomes extremely dangerous for the Indian economy as a whole; and for the auto industry in specific, because if the economy suffers a recession (most past recessions have been because of energy price rises), that’ll put paid to all expectations on market growth. But practically speaking, this has an extremely slim chance of occurring. Why? Because, like it does in the forex market with respect to the rupee-dollar exchange rate, the government in reality will never allow oil prices to float completely free. That said, the auto industry is not going anywhere in the near future, but up.


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