• Language
  • App
  • Subscriptions
  • Specials
  • Sign-In
  • Register
GeStepAhead GrowMyMoney Invest Now master your money

Home » News » Management

Feb 09, 2007, 04.55 PM | Source: Moneycontrol.com

Our Intent is to be a Strong Domestic Player: Chetan Tolia

"BlueScope has very strong background on developing markets for coated and painted products, and Tata Steel has a good reputation as a strong, focused and efficient steel player in the country. So, rather than attempting it on our own, we thought the JV would be more successful."

Like this story, share it with millions of investors on M3

Our Intent is to be a Strong Domestic Player: Chetan Tolia

"BlueScope has very strong background on developing markets for coated and painted products, and Tata Steel has a good reputation as a strong, focused and efficient steel player in the country. So, rather than attempting it on our own, we thought the JV would be more successful."

Post Your Comments

Share Cancel

Within six months of kick-starting operations, Tata BlueScope Steel (TBSL) set up its third manufacturing facility in Sriperumbudur, Tamil Nadu. The Rs 1,250-crore, equal participation JV between Indian behemoth Tata Steel and Australia-based BlueScope Steel — a global leader in high quality metallic coated and painted steel products — opened its first component and systems manufacturing facility near Pune in August 2006, quickly followed by one in Bhiwadi, near Delhi, in December.

Of the total projected capex, Rs 350 crore is the outlay for the building solutions business with its three facilities. The balance will be pumped in for its backward integration facility — the 250,000 tonnes per annum (tpa) coated steel plant at Jamshedpur — to be operational by the first quarter of 2009. TBSL is confident of notching up sales of Rs 1,000 crore by 2010-11. Both Kathryn Fagg, president (Asian business markets), BlueScope Steel, and Chetan Tolia, managing director, TBSL spoke to Vatsala Kamat about the market potential for the pre-engineering building (PEB) industry in India and their strategy to address the fastest growing market in the Asian region.

BlueScope Steel has a 14-year trading presence in India. Why did you choose a 50:50 joint venture with the Tatas now?

Kathryn Fagg: Historically, our strategy for new markets has been to establish a market position through a trading office. Later, we support that by developing a building business. Once we are confident of the market potential, we backward integrate and develop the coating and painting facility. India being a large market, we spotted an opportunity and planned a similar trajectory.

BlueScope has very strong background on developing markets for coated and painted products, and Tata Steel has a good reputation as a strong, focused and efficient steel player in the country. So, rather than attempting it on our own, we thought the JV would be more successful. Further, the comfortable relationships at the CEO levels in the two companies helped cement it into a 50:50 JV, and work together on the whole initiative.

Did the Tatas not have the wherewithal to go it alone?

Chetan Tolia: We could have, but we would have taken much longer. We needed to cash in on the market growth potential. Since 1996, Tata Steel has pursued a strategy of going down the value chain, such as in the automotive sector. It set up a hot-strip mill and then a cold mill and later formed a JV with Ryerson Tull, USA. Today, we are leaders in the automotive steel segment.

The construction segment is far more fragmented and far less organised than the automotive segment. Hence, alone it would have taken us longer. The building business is at the highest end of the value chain and the building industry is the largest consumer of the coated steel segment. The business model of BlueScope steel has evolved beautifully in other developing nations, and can be replicated quickly to scale up in India.

Can you tell us about BlueScope’s Asia footprint?

Kathryn Fagg: We have businesses in China, Indonesia, Malaysia, Thailand, Vietnam and now India. BlueScope is Australia’s largest direct investor in each of those countries, in that we actually own and operate those companies. We have large manufacturing facilities in Singapore, Brunei and Thailand, the largest being the 400,000-tpa facility in Thailand. Our coated steel manufacturing facility in China, which came up last year, is akin to the one in India with a capacity of 250,000 tpa.

The majority of our business accrues from the construction and building segment. In some Asian countries such as Thailand and China, about 20 per cent of our business caters to the manufacturing segment. In some countries such as Indonesia and also New Zealand, we have high penetration in the residential markets.

In India, we see great scope in the construction segment — mainly industrial, infrastructure, which include the public facilities such as airports, railway stations, sports stadiums and even the commercial segment including hotels and retail shopping malls. We expect that our roofing and cladding systems, rather than our PEBs, will see demand from the public facilities. The PEBs will find high use in the commercial and industrial segment. So, here we have consciously decided to stay only in the construction segment.

What growth rate do you envisage for your business in India ?

Chetan Tolia: The construction sector offers a two-fold growth trajectory in India at this point in time. One is the normal growth rate of around 8-9 per cent that rides on the GDP rate of growth. The other is the inter-material substitution. For over 100 years now, the construction industry has been dominated by conventional methods like the use of bricks, cement, steel and other aggregates. The speed at which customers change over will offer the second growth opportunity for us. This will exceed the simple GDP growth rate.

We expect the PEB industry to grow at around 35 per cent annually, which is a conservative estimate. The smallest segment within the construction domain, where the conversion rate to PEBs from traditional construction methods is highest, is the industrial segment. And this is growing at 30 per cent a year. The largest sector is the residential segment, although this is growing at 6-7 per cent. In India, the PEB industry size is only Rs 1,250 crore right now, and is growing rapidly.

Complementing this, India is the fastest growing market in the construction segment at 9.5 per cent, ahead of China at 8.5 per cent and Thailand at 8 per cent. Out of the 40 million tonnes of steel produced in India, two-thirds finds its way into the construction segment.

What factors determined the choice of these locations in rapid succession?

Kathryn Fagg: Our strategy in the building component and systems manufacturing business is to be close to the target market. However, in the coating and painting business, one needs a large facility to benefit from economies of scale. And we also require cold-rolled steel as a raw material. Hence we chose Jamshedpur.

Our original plan was to set up three centres by August, but given the overwhelming response in the market, we advanced our schedules. At present, we have a six-month order book in less than six months from commencement of our manufacturing operations. So far, we have executed about 25 projects, and around 65 are under execution.

What is the progress on the coated steel plant facility?

Chetan Tolia: Scheduled to be operational by 2009, the estimated cost is Rs 900 crore. We are hoping all the relevant clearances will come in by this quarter from the Jharkhand government.

Will this plant be used to cater to BlueScope’s speciality steel requirements in other countries?

Kathryn Fagg: Well, we will export to the SAARC nations if there is an opportunity, even as we build demand for our products gradually in the local markets. Our intent, however, is to be a strong domestic player. Currently, the Indian market for PEBs at Rs 1,250 crore is 0.5 per cent of its full potential. However, our coated steel facility will supply to other players in the local market in the metal building systems segment.

What can you tell us about TBSL’s marketing strategy for India?

Kathryn Fagg: The India game plan will be similar to the other Asian regions. We do not believe in franchising sales operations or outsourcing to ensure quick growth. Market development has always been our core skill. Our biggest challenge in the initial years is to educate the target customers on the value proposition in the products and ensure speed of inter-material substitution. We have brought in architects from Australia to interact with universities, government authorities and the private sector players and build awareness of our products.

Do you have plans to introduce India-specific brands?

Kathryn Fagg: Yes, of course. Our premium pre-fabricated structures are sold under the globally renowned ‘Butler’ brand and our other special steels under brands like ‘Colorbond’ and ‘Zincalume’. However, we have already introduced ‘Ecobuild’ which is in the value segment of building construction products.

Chetan Tolia: We have planned a series of offerings in the branded retail market for building components. These will be launched this year.

Buy, Hold, Sell ? Hear it first on M3
Our Intent is to be a Strong Domestic Player: Chetan Tolia

See all

Get started using your favorite social network


Login using moneycontrol ID


Need help logging in? Reset password.

Don´t have an account? Sign Up

Get started using your favorite social network


Simply sign up using this short form

* mandatory


Username should be atleast 4 character


Password should be 8 or more characters,
atleast 1 number, 1 symbol & 1 upper case letter


Your Password should contain
  • 8 or more characters
  • At least 1 number
  • At least 1 symbol
  • At least 1 upper case letter
Confirm Password*
Already have an account? Login