The Hindu Business Line : Indian cos not in the mood for mergers, says SAIL chief

With the new steel entity Arcelor-Mittal identifying India and China as the next targets, the chief executive of India's top steel company SAIL does not see very many prospects of Indian steel companies being on the acquisition radar of the international steel giant.

Talking to Business Line here on Tuesday on the Arcelor-Mittal deal, the Chairman of SAIL, Mr V.S. Jain, said though mindsets were changing fast, in the present scenario no major domestic steel company seemed to be in a frame of mind to align with the international company. "At the moment I don't think any major steel company is in the mood for a merger with Mittal Steel. Which are the major steel companies in India? SAIL, the Tatas and then there are Jindals, Ispat and Essar... I don't know whether anybody is available to get merged at the moment."

But Mr L.N. Mittal is known for acquisitions. Will he try to acquire Indian companies on the strength of his financial muscle?

"Arcelor-Mittal with more than 100 million tonnes capacity won't look for small acquisitions. Even if he thinks of acquiring 10 per cent of the total Indian capacity, it would have to be over three million tonnes. There are only five or six plants that have three million tonnes or more capacity. So I don't see many opportunities. On the contrary, Mr Mittal has already announced plans for a green field plant in Jharkhand. I think that would be the route he would prefer," Mr Jain said.

So what does he make out of Mr Mittal's "India, China next targets" quote?

According to Mr Jain, Mittal Steel has considerable presence in North and South America, and Central Africa, while Arcelor was predominant in eastern and western Europe, and northern Africa. "But they have little presence in Asia. Probably what they mean is that they would look for sales opportunities in the emerging economies of Asia, particularly India and China. Acquisition of existing capacities in China are not likely since Chinese polices, as of now, do not encourage such takeovers," the SAIL Chairman said.

Asked about the message for India from the Arcelor-Mittal deal, Mr Jain said it had underscored the importance of consolidation. "We are already doing it, with IISCO being merged with SAIL and Maharashtra Electrosmelt, Bharat Refactories and Nilachal Ispat to follow. In fact, existing steel companies have to think how they can prepare themselves for the future environment by consolidating their position," he added.

About the international ramifications of the Arcelor-Mittal merger, the SAIL chief thinks that the coming together of the world's top two steel companies and the resultant flexibility in controlling 10 per cent of global steel production would augur well for the Indian steel industry on a macro perspective, as it would bring greater stability in global markets in terms of prices, which in turn would help domestic prices to stabilise.

"Having big volumes help because then the producer would be able to match demand and supply. In case of a downturn, steel manufacturers can regulate production. Larger players can groom themselves to market requirement and thus volatility remains under control," he said.

Mr Jain, however, ruled out any price influencing by Arcelor-Mittal in the international market because with 10 per cent share of global capacity, the Mittal-Arcelor combination would still have to face a fragmented and competitive market, and would not enjoy any monopolistic advantage though it would be able to leverage on its volumes.

Asked how SAIL would fare in an intensely competitive atmosphere when Mittal Steel and Posco eventually start production here, Mr Jain said if the public sector entity was given the right opportunities, it would be able to face up to competition. "We have inherent advantages. For instance, we already have infrastructure and logistic support at our existing plants and hence setting up additional capacity would be much faster in the case of SAIL as compared to any green field project. At Bokaro, for instance, we can straight away go from the existing four million tonnes to 10 million tonnes without any hassles of land acquisition, manpower availability or even rail connectivity," Mr Jain said.