In the wake of a slump in the Indian automobile sector, steelmakers and suppliers, such as Bhushan Steel, Essar Steel and JSW Steel, are likely to rejig their product portfolios to focus on high-margin and value-added products.
They are, however, hopeful of a turnaround in the auto industry after the Lok Sabha elections. They are also hopeful of a drop in interest rates in the coming months despite analysts believing that auto sales will remain subdued till the middle of the next fiscal.
Essar Steel, which currently has an exposure of nearly 20% to the automobile sector, is looking to alter its product mix to suit market demand.
Alok Gupta, president of sales and marketing at Essar Steel, said: “Our exposure to the auto sector is about 20%. This includes auto component manufacturers, passenger vehicles and commercial vehicles as well. However, we have the flexibility in altering product mix to suit market demand.”
Bhushan Steel, whose total exposure to the automobile sector is around 40%, acknowledges the negative impact of slowdown on auto sales but remains hopeful. Chief financial officer at Bhushan Steel Nitin Johari says: “Definitely, the slowdown is going to affect us. But we are hopeful there will be a spurt in demand after the election.”
Regulatory issues, moderation in industrial activity and hardening of interest rates have already adversely affected the growth of both the automobile and steel sectors.
The steel industry registered a growth of 13.3% and 9.9%, respectively, in 2010-11 and 2011-12. In 2012-13, however, the Indian steel consumption grew only 5.5% on the back of a slowdown in demand from its key consuming industries like construction, capital goods and automobiles.
Annual car sales in India fell for the first time in 11 years in 2013, posting a 9.59% drop. According to the Society of Indian Automobile Industry (SIAM), domestic car sales last year fell to 18,07,011 units from 19,98,703 units in the previous year.
With rupee depreciating by around 12% against the dollar in last one year, analysts says many foreign auto companies are more comfortable buying steel from their own