Tapping the rural markets is currently on top of the agenda of all Indian steel makers.
Given the slide in automobile sales, besides the drying of new infrastructure project pipelines and a fall in overall demand growth, steel makers are back at wooing the rural market. They have sensed it would help keep their sales ticking.
Steel Authority of India (SAIL) is at the forefront of this plan. The state-owned entity, apart from its aggressive plans to set up retail shops in rural areas, is setting up 1,000 dealerships in villages. The company already has 2,700 dealers spread in 630 districts of the country — by far the most by any steel maker.
The 1954-founded SAIL’s aim is to ensure the company sells more branded steel in rural areas and increases its reach all over the country. So much so, the company is ready to bear the transportation costs of delivering steel to its dealers. SAIL has charted ways to ensure its steel is easily available and at competitive prices, according to a top official. “We will arrange transportation of the steel products from our nearest warehouses to the dealers’ outlets. We’ll bear the transportation costs ourselves,” he told Business Standard.(Click here for graph)
The country’s steel demand growth during the first half of this financial year was a mere 2.9 per cent. According to S Machendranathan, additional secretary and financial advisor to the ministry of steel, the country will not see double-digit demand growth this year. The compound annual growth of steel demand over the last five years has been over 10 per cent. “This year, we will be happy to achieve six per cent growth,” he had told a conference here last week.
It is this dip in demand that is leading manufactures and the ministry of steel to divert attention towards promoting sales in rural India.
A recent study on rural steel consumption by the Indian Market Research Bureau says the construction sector contributes to around 60 per cent of total consumption in the rural area. This is followed by the consumer durables sector, at 30 per cent. (The construction sector in rural India mainly involves building of homes. Long steel products like bars, rebars and TMTs are used in the construction sector. The consumer durables and auto sectors use flat steel.)
Annual production is expected to reach close to 200 million tonnes by 2020 from what is less that 70 mt currently. This explosive growth opportunity in the rural sector is on the minds of every steel maker.
An analyst tracking the sector says the per capita consumption in the urban areas of India is at 140 kg, whereas it is just under 10 kg in rural regions. “With the demand growth moderating this year,” he notes, “it is clear that the companies will try to increase consumption in semi-urban and rural regions.”
A P Choudhary, chairman-cum-Managing Director of Rashtriya Ispat Nigam Ltd, states that for India to achieve 8 to 10 per cent growth in the steel industry and reach the level of 200 mt in the long run, the companies need to look at new trends and opportunities in rural markets. “An increase in per capita consumption by one kg will result in an increase by a million tonnes,” he adds.
SAIL chairman C S Verma says the country’s rural market is undergoing a rapid transformation with its new-found purchasing power. “The need of the hour,” he notes, “is to go for innovative solutions that suit the dynamics of the rural market.”
JSW Steel, with its retail shops called the JSW Shoppe, is expanding fast in semi-urban and rural areas. The 1982-founded company has set an aggressive target to set up 600 retail shops in the next year or so. It currently has 264 JSW Shoppe all over India.
Essar Steel, with its Essar Hypermart, plans to reach 775 shops by 2012. The 1969-incorporated global conglomerate acknowledges that the retail shops helped the company tide over the economic slowdown a couple of years ago. With its steel production reaching 10 million tonnes soon, the company has plans to sell 30 per cent of its total production through these hypermarts.
Only recently, the Union steel ministry reminded dealers that since the country’s heart continues to live in its villages, there was a need to provide steel in the rural heartland through an efficient and widespread distribution network.
“The rural markets will provide the next big leap to steel demand in the country,” minister Beni Prasad Varma told a dealers’ meet last week. “The dealers at district and block levels will be the catalysts in this chain reaction.”
