A change of guard in a leviathan of industry operationally as complex as Steel Authority of India Ltd is necessarily fraught with risk. It is more so when the government considers it wise to allow lateral entry into the hallowed corner room. In this particular case, the compulsion to bring someone from outside as chairman was because the government which owns 85.82 per cent of the company wants the new incumbent to have a sufficiently long rein when SAIL must reinvent itself to continue to enjoy leadership status in the country’s rapidly growing steel industry.
The new SAIL chairman C S Verma is 51 years old. Therefore, he will have all the time to reshape the steel major in the way he thinks appropriate as he is to ensure completion of SAIL’s hot metal capacity expansion from 13.8 million tonnes to 26.2 million tonnes without time and cost overrun. That Verma has walked into the Lodi Road offices of SAIL with a clear-cut agenda is borne out by his maiden communication to the well over a lakh strong steel family and also by what he said in his first interaction with the media. Though he is new to the industry, Verma appears to have done his homework well.
That Verma starts his SAIL innings with clear the understanding that as the demand for steel here will continue to grow at a double digit rate, it will trigger “suitable strategic responses from other domestic steel consumers” and also heighten the resolve of world steel leaders to have a share of the Indian market. Not only are the likes of ArcelorMittal and South Korean Posco remain firm in their resolve to build mega mills in India, but Nippon Steel, JFE, Kobe Steel and Sumitomo have formed alliances with leading Indian steel producers to get a foothold here.
As ArcelorMittal and Posco are to build greenfield steelmaking capacity braving whatever comes in their way, they also know a good entry point here will be to offer technology of which this country is short to their chosen Indian companies. It will be appropriate here to recall Lakshmi Mittal’s observation that while there will be capacity shrinkage in the west, it will remain the fountain of new technologies. But technology is not the privy of the west alone as breakthroughs in South Korea and Japan will bear out. Think in this context of Posco’s Finex technology and Kobe’s ITmk3 technology both allowing use of iron ore fines to make high grade steel.
Read between the lines of his message to the SAIL family and you will understand how keen Verma will be to use “advanced technologies” to significantly raise the share of value added steel in the company’s product mix. As SAIL moves up in the value chain and makes much broader offerings of branded products, it will become less and less of a producer of commodity steel. In the process, SAIL will become a more valuable company. Being one of the country’s three Maharatna companies, Verma will enjoy enough freedom to steer SAIL to his stated goals.
At his coronation, Verma found the share of value added items at 37 per cent of SAIL product mix. While he has rightly identified that making steel for power projects and forgings and special steel for nuclear plants and defence sector will help SAIL in climbing the value chain, Verma wants to fully leverage the advantage that the steelmaker enjoys in terms of self-reliance in iron ore. Except for Tata Steel, albeit for its Indian operations, no other local steelmaker enjoys SAIL kind of cost advantage on ore account.
This advantage alone cannot make SAIL a cost effective producer. Verma has, therefore, given a call to “identify the factors responsible for SAIL’s high cost of production.” A good move will be to make relentless attempts to make steel according to techno-commercial parameters of the world’s leading steelmakers. Labour productivity at SAIL is now 226 tonnes per man year following improvements in all major techno-economic parameters during 2009-10. The industry will be keenly watching as to what steps Verma will be taking to hasten the pace of “people productivity improvement.” Verma has moved in at a time when SAIL will have to contend with “superannuation” across the organisation leaving “skill gaps” in many strategic places. He must quickly get plans ready to tackle the problem.
A secular concern in the industry is the rising raw material costs while steel prices have come under pressure in the face of consumer resistance and lack of restocking by final consumers. SAIL stakeholders will, therefore, find it reassuring that Verma considers the company’s “quest for success” will rest on input security. He should start looking beyond the SPV formed by five PSUs, which sadly has had no success in acquiring coking coal assets abroad and put faith in his own company’s wherewithal for the purpose. There is no reason why SAIL at this stage should not be nursing global ambition for which “inorganic approaches” will be ideal.
