Moving Towards Brand Equity

Updated: Jan 26 2003, 05:30am hrs
A slew of price hikes in steel has spruced up Tiscos show during the quarter to December 2002. The bullish domestic steel prices are partially prompted by the recent rebound in global steel prices and to some extent by an increase in domestic demand. This is because most steel producing countries have withdrawn from manufacturing certain steel items. Though the higher price realisation by close to 20 per cent was the main factor, sales volume growth of 3.8 per cent also aided in boosting topline. It is also a healthy sign that the share of exports to the topline has doubled to 15 per cent.

Sales (net of excise) grew 27.5 per cent to Rs 2,140.9 crore on the back of higher sales volume at 9.6 lakh tonne (9.3 lakh tonne). More importantly, nearly 35 per cent of the incremental turnover came from higher exports at Rs 320.6 crore. The companys continuous cost cutting efforts are evident from a couple of factors. Despite higher volumes, the freight and handling cost dipped to 8.1 per cent of sales (9.2 per cent). Although the companys output rose 8.8 per cent to 10.3 lakh tonne, its power cost fell 7.5 per cent to Rs 163.6 crore. Tisco has reduced its average cost of production to around $ 162 per tonne from $ 172 per tonne a year ago, which shows that the cost cutting efforts have paid off. Consequently, operating profit doubled to Rs 623.3 crore with a jump in OPM at 29.1 per cent (18.6 per cent). Write-off on account of VRS expenditure worth Rs 65.3 crore (Rs 56.1 crore) continues to plague the bottomline. Still, PAT zoomed to Rs 280.2 crore (Rs 34.5 crore).

With steel prices ruling firm in the international and domestic markets, Tisco is firming up contracts of February-March 2003 sales at current prices. This should ensure a robust performance in the fourth quarter as well.

Steel was never seen as a branded product during the protectionist regime, but it is now becoming so important that no company can afford to ignore it. Tisco has been the leader in developing its own brands- Tata Shaktee and Tiscon. The companys target is to increase market share of both the brands through various kinds of promotional activities. Last year, Tata Shaktee contributed merely 10 per cent of total turnover. The companys target is to get at least 15 per cent from the branded product in this year and in five years time, it should give at least 50 per cent sales.

Among other initiatives to increase steel consumption in domestic market, Tisco has launched a range of steel-intensive houses as alternative housing in rural areas, particularly for regions exposed to storms, fire hazards and earthquakes. The houses, albeit with lower life span than the cement houses, are priced much below cement-concrete structure and inclusive of construction cost would be deliverable to buyers in the price range of Rs 200-250 per square feet.

Tisco has been trying its best to ensure against any future downturn in steel prices by focussing on the automobile sector for higher value addition. Auto steel gives over 30 per cent higher realisation than does ordinary hot rolled steel. The company has plans to supply its high-grade automotive steel at lower prices than the imported steel to Indian automobile sector including Maruti Udyog Ltd for its vehicles in the near future.

Tisco has formulated a long term strategy to become economic value added (EVA) positive through an increase in efficiency and pruning of non-core or under-performing businesses. Divestment, mergers and acquisitions will be part of the strategy to become EVA positive. The company plans to identify and divest non-core or chronically under-performing businesses. Tiscos target is to earn a profit of Rs 400 crore, and produce 4.4 million tonne of hot metal and 4 million tonne of crude steel in 2002-03. By 2005-06, the company seeks to have a positive EVA regardless of how the steel industry performs.