There’s been a slowdown in the growth of the Indian market for steel-related products. Can the Make in India campaign help? Not as much as fixing policies that allow the import of steel-products from China, which hurts local manufacturers, says S.M. Lodha, chairman, Indsur Group.
The Mumbai-based Indsur Group has interests in steel castings, forgings, auto components, thermal engineering, pipes, steel and steel related products and has some Fortune 500 companies as clients.
Its own strategy seems to indicate it isn’t depending solely on the Make in India push. Indsur set up a 50,000 MT capacity casting facility in Saudi Arabia, which will be commissioned in six months. And when Finance Minister Arun Jaitely recently visited the UK and met UK chancellor George Osborne, the two ministers welcomed the announcement that the Indsur Group had invested 25 million pounds in their UK operations.
That said, Lodha says, “that does not mean that we are only scouting for opportunities outside India.”
The Make in India push is meant to help all industries, yet some feel that it’s a little skewed towards those in electronics manufacturing. What’s your take?
There is lot of talk, focus, and initiatives around Make in India. Make in India is a basically an emphasis to manufacture goods in India. It is a common knowledge that if goods are manufactured locally it will boost the economy and generate employment.
But is this good enough? How about making it competitive? I strongly believe that, in real terms, we cannot derive any long-term benefit unless the manufacturing environment is conducive and supportive. We have to have a level playing field.
We import even needles, umbrellas, bulbs, tubes, fittings, and large number of such products. Don’t you think it is harming local industries? We, at Indsur, make goods in India; we also export, we can do much more. But are we not competitive as compared to China? How do we make ourselves more competitive is more important.
You set up facilities and you cannot sell, then what happens? If we do not address this issue it will remain as a slogan like garibi hatao. I wish something tangible comes out in next few years.
The growth of the Indian market for steel-related products is slowing down. What growth rate do you see for the Industry in 2015?
I see a good future for the steel industry despite slower growth of 2 percent in the last few years. India is fourth largest producer of steel globally at 85MiT. China, on the other hand, produces over 800MiT. Comparatively, our production isn’t even 10 percent of what China produces.
If we take a per capita steel consumption of 150 kg–against the global average 300kg per person– our steel production should be 200MiT. But we are nowhere near. Our infrastructure spending has been very, very minimal. Th¬at needs to get corrected. Unless we do that we will only be talking of slower growth.
As far as our industry is concerned, we are balanced because of our presence in different geographies. As we move forward, and see better spending on infrastructure with a five-year plan, demand for all downstream industries will get a boost.
But as it stands, I don’t see a major jump in growth rate in 2015. We’ve already had 10 months of this government. We have a lot to do.
It seems like your company’s strategy to beat slowing growth–and find the next big growth opportunity–is to look for opportunities from outside India.
Every organization has its own model of development and growth. So too for Indsur. The fact is we have a parallel growth model–organic and inorganic–and that applies to all our companies. On the one hand, we are gradually scaling our production facilities at all our companies, whether they are India or outside. And we are complementing that with new acquisitions. We are planning our expansions considering industry dynamics so that we are firmly placed.
Yes, we have a reasonable presence outside India and that it is going to give us competitive advantage depending on the product and services that we are in. We have a long-term plan for each of our products and our target.
We have already signed our first major contract for long-term supplies to the Russian market, which will be stepped up on a year-on-year basis. We are also negotiating for joint-venture manufacturing facilities. Let’s see how that shapes up.
Indsur has set up a 50,000 MT capacity casting facility in Saudi Arabia. When do you plan to start operations?
The Saudi project will be commissioned within the next six months. This a our major investment in a market which is almost unexplored.
Market wisdom says that China can be a source of growth. What are you currently doing in China? What are your near-term plans?
I have a different point of view about “China being a source of growth”. From a competition point of view, we are not near China–on any business parameter. They will always remain our competitors, and in times to come, may become fierce competitors.
We have policy flaws and that is also deterring our growth. We import small things like needles, umbrellas, bulbs, tubes, fittings, and a large number of such products. Don’t you think it is harming our local industries? The trade gap between India and China is almost $45 billion. This does not auger well for India. Sooner rather than later, we will need to take corrective measures.
Presently, we have no major plans for China. There are admittedly some professional and culture gaps, which need to be bridged. At present, what we could have done in China, we are doing here in India.
You’ve used acquisitions as a means of growth. Can you talk a little more about it? What trade-offs does such a strategy entail in your personal experience?
Yes, absolutely, we have had some overseas acquisitions in the recent past. They have proved to be immensely beneficial to us. We started by acquiring a company in the thermal engineering space. To enlarge our market presence and to cover various industry segments, we did acquire more companies and merged them with our UK operations. This was primarily to cater all sectors and to have a dominant role.
I must say, the UK is a great destination for doing business. We are not only supported but also respected at all levels. We have had a very good experience and we want to do more. We have a full-fledged professional team in place. That does not mean that we are only scouting for opportunities outside India. As I stated, our acquisition overseas complements our businesses. Our Indian companies are growing and expanding capacities and modernizing production facilities regularly.
How does information technology help you meet your growth goals (related to acquiring a global footprint)?
I have always believed that information technology is like the nerve center of any business. Any organization, small or big, has to be data driven. In a fast-changing world, the flow of information is also changing and that has to be blended the overall objectives of an organization. We are fortunate to have a robust system in place and most of data is properly tracked and analyzed. The importance of IT cannot be over-emphasized. Today, IT has become an integral part of the decision-making process.