Demand slip from these two sectors has hit steel industry the most: APL Apollo INTERVIEW

Coupled with an ongoing trade war and weak demand from automobile and construction sectors, the steel industry has been facing dual heat and prices have fallen considerably.

The current economic trend has directly impacted steel production.
The current economic trend has directly impacted steel production.

The domestic steel industry has borne a direct brunt of economic slowdown with the demand remaining down for close to a year now. Coupled with an ongoing trade war and weak demand from automobile and construction sectors, the steel industry has been facing dual heat and prices have fallen considerably, Sanjay Gupta, Chairman, APL Apollo, told Prachi Gupta of Financial Express Online. He also talked about why there is an urgent need for the revival of the lending sector, ways that the government can deploy to spur the economy and why APL Apollo is focusing on brand positioning. 

Here are edited excerpts of the interview:

GDP growth has slowed down, what does that mean for domestic steel consumption?

Domestic steel demand has slowed down significantly which is evident from the fall in steel prices in the last four quarters. Key reason is weak demand from the automobile and construction sectors. 

However, demand in our structural steel market is still better as this category is highly under-penetrated in construction and infrastructure activities. As developers and contractors are shifting towards steel-based construction we are seeing good traction. Reason for shifting is faster construction which results in cost savings for developers and also steel-based methodology is more environment-friendly as it uses minimal groundwater. Moreover, our products are replacing wood in a big way.

Where do you see the industry heading to considering the ongoing macroeconomic factors?

We are keeping our fingers crossed on recovery in the economy. Today India has the lowest interest rates in many years and the tax rate is the lowest ever. As an entrepreneur, you can’t expect better from the government. However, one problem which is keeping our economy from taking off is the slowing lending by the banks. The government needs to quickly resolve this issue so that private capex cycle can kick start which will have a multiplier impact on job creation, FDI inflows, GDP growth and consumption etc. In our view, things should start moving in the next 6-12 months.

Does ongoing trade war have any impact on steel exports?

Government is quite alert on this subject. They are aware of high stakes for the steel sector in terms of profitability, employment etc.

Any suggestions for the govt to tackle slowdown?

Government is trying its level best to boost the economy. There are two main areas of concern:

Lending by banks and dull consumption. Our financial system is struggling from large NPAs so banks and NBFCs require immediate capital infusion. Good organizations have been able to raise capital but still, there is a big hole which needs to be covered up. And it would not happen overnight as you need to manage inflation and currency as well. We hope that our financial institutions get recapitalized enough to kick-start the economy. On the consumption side, the government can handle the income taxes and GST rates wisely.

How is your target of achieving a production capacity of 2 million metric ton panning out?

We are on track to achieve the target of 2.5 million metric ton by FY22. This is despite the fact that there is minimal support from the macro environment. So our organization is fully geared up to work on our strengths which are innovation, the introduction of new application in structural steel category and market penetration. Over and above this, we are working on brand building exercise which will create pull demand for our products. If macro-environment supports us, the target can be achieved much earlier.

What is the current growth rate of steel pipe industry? 

Steel pipe industry is growing at 7-8%, and we are growing at 20% CAGR. Steel demand is directly linked to the GDP growth rate in any economy. For 12% growth in steel demand, India GDP needs to grow around 8% which seems a bit tough in the short term. At the same time, we believe that such high growth rates are possible in the near to long term.

APL Apollo isn’t a consumer-facing company. What made the company decide to go for TVC, especially when business is down for many sectors?

APL Apollo is a consumer-facing company. Most of our products like structural pipes, door frames, roofing solutions, furniture etc are aesthetically visible inside your house or residential complex. 

However, no player in our sector ever took an effort to build a brand around these offerings. Some of our peer categories like PVC pipes and wires & cables are not even visible inside homes but a few companies have created great brands in these categories. So for APL Apollo, it is very important to target branding as our products are visible. Our branding exercise which includes TVC is result of this thought process. 

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