Kolkata: Can steel be sold like fast-moving consumer goods (FMCG)? Yes, says T.V. Narendran, managing director for India and South-East Asia at Tata Steel Ltd, India’s oldest steelmaker that is now looking to ramp up the contribution of direct sales to consumers from 20% of revenue to 30%. Such sales, which Narendran refers to as B2C or business-to-consumer, are more profitable for Tata Steel. In 5-8 years, he expects its contribution to go up to 30% of revenue. And to achieve that internal target, Tata Steel has to act like an FMCG company as it seeks out new markets for its products and solutions, he adds.
Sellers of consumer goods build distribution networks and brands in any market where there is a demand for their products—they don’t care whether they have their own manufacturing facilities there, Narendran says. With the same approach, Tata Steel is looking to expand in countries such as Bangladesh and Myanmar, where initial research shows the goodwill of the Tata brand is well recognized.
Tata Steel has, over the years, launched several products and solutions for direct sales to consumers. Many more are in the pipeline. These are aimed at people who build their own homes, and such people are to be found in economies which are developing or are at an early stage of development, according to Narendran. Edited excerpts of an interview:
Why are you looking at Bangladesh and Myanmar?
Tata Steel is one of the pioneers in developing B2C markets. We have done that very, very well in India. We are now asking ourselves if a distribution network and a brand can be developed in countries such as Bangladesh and Myanmar. Between these two countries there are over 200 million people.
The GC (galvanised corrugated) roofing sheets market in Bangladesh is bigger than in India. Whereas in India, the market for GC sheets is at 700,000-800,000 tonnes a year, it is already at 900,000 tonnes in Bangladesh.
We could send hot-rolled coils to Bangladesh, convert them into cold-rolled and galvanised steel and produce roofing sheets locally under our quality control. What people in Bangladesh will get is the same product as in India.
While we send GC sheets to Maharashtra and places far away, we have large untapped markets closer to our manufacturing facilities in eastern India. If you start measuring distances in dollars-per-tonne of freight cost, you’ll have a very different view of the world.
For the past few months, we are exploring opportunities in Bangladesh, and hopefully in six months to a year, we will have something going there. Myanmar is at an earlier stage of exploration.
Wherever there is a B2C opportunity, Tata Steel will look to get in. In developing countries, people still build their own homes—they don’t buy them. When people build a house, putting all their savings into it, they are a very engaged buyer of construction materials.
At the same time, they are not experts in buying steel, so they look for a brand that reduces the risk of purchase. You need only 3-4 tonnes of steel to build a house, which is about 5% of the total cost of construction. So even if one were to pay 20% more for a trusted brand, the overall cost goes up by only one percentage point—from 5% to 6%.
As we grow in confidence with our experience in other Asian markets, we will look to enter any market where such opportunities are available. Why not Africa? Soon it is going to have one billion people.
What’s your outlook on South-East Asia, where you have a production base as well?
South-East Asia is the fastest growing steel market outside India. Annual steel demand there is about 75 million tonnes (mt), whereas in India it is about 85 mt. Both in India and South-East Asia, demand for steel is growing at 5-6% annually.
Have the acquisitions in South-East Asia lived up to expectations?
We acquired Natsteel in Singapore in 2005, our first acquisition. Compared with what we acquired subsequently, it was quite cheap. It has more than paid back what we put in, and part of the money we got back was put into Tata Steel Thailand.
What are your plans for expansion in India?
Between Jamshedpur and Kalinganagar, we have enough headroom to expand our capacity to 25-30 mt if such scaling up can be justified looking at affordability, cash flows, returns and so on. By removing bottlenecks, we can ramp up our production capacity at Jamshedpur from 10 mt to 11 mt. If we restructure some of our smaller furnaces there, we probably have the potential to go up to 12-13 mt. At Kalinganagar, we have a 3,000-acre plot and we currently have a 3 mt capacity there. Expanding at Kalinganagar is going to be cheaper than setting up a new unit, which typically costs $1 billion for 1 mt. We are going to seek within months the board’s approval to raise capacity at Kalinganagar to 8 mt.
And going forward, we can add 8 mt more at Kalinganagar if we have the appetite for such expansion.