'Quality will be the key differentiator'

Brazilian company Gerdau, is a leading producer of long steel in the Americas and one of the largest suppliers of special steel in the world. With over 45,000 employees, it has industrial operations in 14 countries, which together represent installed capacity of over 25 million metric tonnes of steel annually. The company has an integrated steel plant in Tadipatri in Anantapur district of Andhra Pradesh.

Gerdau Steel India Managing Director Sridhar Krishnamoorthy interacts with Umesh M Avvannavar and Hrithik Kiran Bagade and shares insights on the steel sector in India and future investment plans.

How is the current business environment for the steel sector in India? Which sectors are driving growth — infrastructure, construction or automobiles?

The steel sector in India is growing and future prospects are very promising. In the past few years, the demand for steel is driven by sectors such as automotive, defence and railways. The automotive market is still at a nascent stage, and coming years promise growth in the manufacturing of 2-wheelers, 3-wheelers, passenger vehicles and heavy trucks. Gerdau makes special steel (alloyed steel) products for the transportation, energy and infrastructure sectors. We are happy to participate in these markets by providing high quality steel combined with strong technical support and other services. Also, the proposed projects in railways and infrastructure will be of great interest to Gerdau.

How is the global market faring?

The global market is expected to grow by 2 per cent year-on-year from 2014 into 2015. As per World Steel Association, the total demand of steel in 2015 is expected to be 1.5 billion tonnes with half of that coming from (rate of growth in China will reduce in some percentage terms) China, but still represent an overall growth in absolute numbers. The Indian steel industry, with its ambition to develop in various sectors such as infrastructure, railways and power is expected to grow strongly in the next 2-3 years.

What is your capex target for this fiscal? Do you expect to meet the target?

Since 2006, Gerdau Steel India has been investing capex, and till date, our investments are close to Rs 2,700 crore in what we envisage as Phase 1. We anticipate that our first phase of investments will complete by 2016 and then based on the market situation and stabilisation of the existing assets, we will consider further investments.
What are the reasons for Gerdau’s entry into the Indian steel market?

India is an emerging market poised to grow in the next few decades. The growth in the economy will be based on growth in sectors like infrastructure, energy, automotive and consumer goods. To ensure this growth, there should be an increase in steel production and consumption that is required to support this economic growth. This growth will also mean great opportunities for young qualified people. India has many qualified and technically competent professionals who are eager to learn, and Gerdau will be happy to provide them with challenging opportunities.

Most of Gerdau’s global automotive customers have already established their presence in India and will also require quality steel for their manufacturing. Gerdau is well placed to serve them having already established a strong relationship in Brazil, the US and other markets. Gerdau has aspirations to be a leading SBQ (special bar quality/alloy steel) supplier to the automotive industry worldwide, and hence, we are here, and to build a platform to be in the export market from India.

How has Gerdau invested in India towards making the country a manufacturing hub?

The new Indian government is in need of new investments with an aim to provide opportunities for young people to learn and work. Gerdau has been present in India since 2007, and we will be happy to share this experience with potential investors.
As Brazil’s biggest FDI in India and as the only foreign steel maker in India operating a fully-integrated steel plant, we have much to share with potential investors about how India is growing to become a manufacturing hub.

Following your recent entry in India, what are Gerdau’s future plans? What timeframe have you set for expansion?

In India, we have invested Rs 2,700 crore, and the plant is ramping up. We anticipate that by 2016, we will reach full capacity. We will need to complete our planned goals in the first phase and then move into the second phase of growth. We believe in sustained growth. We will also need to see how the market develops and what sort of policies emerge with the current new governments at both the Centre and the state. Certainly, our aspiration for Gerdau in India is not just to grow bigger, but also to be the best special steel producer in India.

What does Gerdau’s product basket in India include? Who are the consumers of your products?

Gerdau’s product basket in India includes special bar quality (SBQ) or alloy steel bars with a circular cross-section of 16-65 mm. Another product is Round Corner Squares (RCS), and we are now developing a related family of products called Bright Bars.
Eventually, after these products are fully established, we plan to make other types of profiles. The final end consumers of our products are the automotive OEMs.

What is Gerdau’s current market share in the Indian steel sector?

As we are in the ramp-up phase of our operations and completing our second year, our market share is growing. Additionally, the special steel sector is highly fragmented with many players having more or less shares of 4-10 per cent. Eventually our market share will be somewhat similar.
DH News Service