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Exploring New Avenues

Indian manufacturing companies plan value-added products, entry into export markets to kickstart business
twitter-logo Nevin John   New Delhi     Print Edition: May 31, 2020
Exploring New Avenues
Photograph by Shekhar Ghosh

At a time when demand for steel has fallen sharply, both globally as well as in the country, Tata Steel wanted to insulate its books from the impact. A push for non-steel materials was the obvious choice. The division came up with fibre-reinforced polymer (FRP) and graphene, both in high demand. FRP is a structural material used for making light products that cater to automotive, industrial, infrastructure and railways sectors. Graphene coating, on the other hand, keeps steel corrosion-free. Non steel materials was targeted to contribute 10 per cent of revenues by 2025. With recent successes, it may get there ahead of schedule. Besides, the Tata group firm is also betting on its services and solutions business. It launched steel retail store, steeljunction, last year, which offers support in order management and deliveries to its e-commerce platform Aashiyana.

In another interesting development, Bharat Heavy Electricals Ltd (BHEL) has called for expressions of interest (EoIs) from foreign companies to use its 'idle' factories. It could well turn out to be a win-win situation for both - the state-owned firm can monetise its factories lying idle due to a slump in power demand, and the foreign company can save time and costs involved in setting up a manufacturing plant.

Manufacturing has been hit hard due to restrictions in production as the government scrambles to control the spread of Covid-19 through stringent lockdown measures. Companies across sectors are feeling the pinch. For example, leading automobile companies - Maruti Suzuki, Mahindra and Mahindra, Tata Motors and Ashok Leyland - have all reported zero domestic sales in April. Most manufacturers are trying to do business in the 'new normal' - expected to last for months - with affordable products, direct marketing and export to unaffected markets.

JSW Steel, which operated at 38 per cent of its capacity in April, plans to focus on exports for the first two quarters of 2020/21. The company recently received orders from China, Japan, South Korea, France, West Asia and the European Union (EU). The 60-year-old chairman of the JSW Group, Sajjan Jindal, who is facing a crisis like no other, has limited options for survival. Looking at newer markets is one of them. The company is hoping domestic demand will return with Diwali in the third quarter.

The lockdown has caused major disruptions in economic activities and resulted in a sharp drop in demand for power from large consumers in commercial and industrial sectors, says Praveer Sinha, Chief Executive Officer and Managing Director, Tata Power. The company will invest in growth areas such as renewables and transmission and distribution. "Tata Power will remain committed to investing in renewable energy," says Sinha. The company also plans to revisit its capital expenditure plan, depending on how the situation pans out post-lockdown.

"The new normal is more around dynamic planning and staying agile to respond to evolving scenarios," adds Anish Shah, Deputy Managing Director and Chief Financial Officer, Mahindra Group. The group is focussing on conserving cash, eliminating non-essential costs and tightening capital allocation norms. "We have taken actions to conserve cash, even while continuing to invest for the post-Covid world. The emergence from this unprecedented crisis will be an opportunity to 'reboot, reinvent and reignite' our businesses," says Shah, who will succeed Pawan Goenka as Managing Director in 2021.

Infrastructure major Larsen & Toubro (L&T) is planning to build its business in Africa, which is less affected by the virus outbreak. The company has a sizeable presence in West Asia, whose economies have been hit hard by the crash in oil prices. MD and CEO S.N. Subrahmanyan, who recently convened a webinar to explain the situation to employees, expects the government to focus on critical infrastructure, including roads, bridges and hospitals, once the lockdown is lifted. Since L&T is heavily dependent on public projects, it could spell an opportunity for the company.

L&T is not alone in scouting for new geographies. The domestic automobile industry is also realising the importance of scaling up in other continents. According to industry experts, car makers will focus on overseas markets during May-July. Exports are picking up due to pending order books and opening of major ports in Mumbai, Chennai and Mundra. To attract domestic customers in the short term, companies would look at reducing costs.

Reliance Industries Ltd (RIL) has increased its share of petrochemicals production to counter the decline in transportation fuel sales. The traditional petroleum refining business of the company is facing triple headwinds - a lockdown stretching over 40 days, instability in crude oil prices and the advent of electric mobility. For the Mukesh Ambani-led company, however, debt will not be a problem even during the lean period. Ambani has done multiple deals to get rid of net debt of around Rs 1.6 lakh crore accumulated on the company's balance sheet because of investments in Reliance Jio. RIL has sold a 9.9 per cent stake in Reliance Jio Platforms to Facebook for Rs 43,574 crore, and another 1.15 per cent to private equity firm Silver Lake Partners for Rs 5,655.75 crore. In addition, investments by strategic investors BP Plc and Saudi Aramco will also help the company pare debt.

Apart from the structural changes, Thyssenkrupp Elevator (India) has launched a new mobile application for customers to seek assistance or register complaints during the lockdown period.

Whatever it is, one thing is certain. The manufacturing sector is staring at a long battle ahead.

@nevinjl

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