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Why Adhunik Metalics expects to turn profitable by Jan-end

Suresh P Iyengar Mumbai | Updated on October 26, 2020 Published on October 26, 2020

Prices and demand are rising in tandem and the steelmaker will win back its old customers , says MD Uday Gupta

The perseverance of Indian born British businessman Sanjeev Gupta in buying Adhunik Metalics and Zion Steel has finally paid rich dividend. The blast furnace of the company, which was shut two years ago, was fired up last week, providing jobs to 1,500 people in rural Odisha. Industry veteran Uday Gupta, who had earlier headed Mahindra Ugine Steel, has taken over as Managing Director of Adhunik. In a interview with BusinessLine, he expressed confidence that the plant will turn around sooner than later. Excerpts:

What was it like for people to get their jobs back after two years?

They were much relieved and there was a celebratory atmosphere. Liberty Steel has been financially supporting the workers since 2018-19, even before it took over the company legally. Winning the confidence of workers is very important for turning around a stressed asset. Earlier, they were very distressed as there was so much of uncertainty in the last two-and-a-half years.

Also read: Liberty Steel restarts Adhunik, Zion Steel plants, employs 1,500 people

How do you see demand panning out given the Covid impact?

Our business is split between commodity and alloy steel. The commodity business includes pig iron and billets while alloy steel caters to sectors such as automobile, oil and gas, energy and mining. In the commodity space, we were booked to capacity as soon as we restarted the kiln. Prices are also been steadily rising due to good demand. Alloy steel demand has also revived compared to what it was six months back. Our alloy steel goes into making bearing and steel bars which is used by leading car companies. The auto steel market in India is estimated at 7-8 million tonnes, and it would not be very difficult for us to sell about 20,000 tonnes a month.

Can Adhunik win back its old customers after almost two years of break?

We ourselves were pleasantly surprised to see the kind of response from old customers. Having dealt with auto steel suppliers from the buyers side in my previous job at Mahindra, I clearly know what are the gaps that needs to be covered as a supplier to regain customers. In fact, big suppliers have become a little arrogant and do not want to toe the buyer’s line. At Adhunik we will reconfigure supply chain to ensure quality and timely delivery of goods.

Also read: Sweden’s SSAB sends feelers for Tata Steel’s Europe assets

When do you seek Adhunik turning profitable?

The way prices and demand are going up steadily in the last four months, we expect to turn profitable by this quarter-end or by January-end. Steel prices have gone up by ₹5,000-6,000 a tonne this month alone. Though there has been a bit of cost pressure, I would say we are in a sweet spot with prices and demand rising in tandem. Our capacity utilisation is expected to touch 75 per cent by the December quarter from 30-40 per cent early this month.

Can Adhunik regain its exports market share?

We have already revived the railway siding in the plant and have started booking for export of MS billets to Nepal, Bhutan and Bangladesh. There is good demand in these countries for billets while we are open to ship other products also. In the alloy segment exports should take at least 7-8 months. The supply chain in the US and Europe has changed completely and companies want to buy less from China. This has opened up the market for Indian companies. We have to reconfigure our production line to meet export demand and should be ready in 7-8 months.

What is the capex you are exploring?

I would first like to reach the optimal capacity at the current level and then think of doubling capacity to 1 million tonne, which calls for an investment of ₹500 crore. If the current uptrend in steel industry continues, our expansion plans should be taken up sooner than later.

Will you be able to compete with large steel companies such as Tata Steel and JSW Steel in the auto segment?

They have dominance in the quantity-driven flat rolled product space in the automobile segment. Whereas we are in the niche segment where volumes would be low but realisations are better. However, we compete with the Tatas and JSW Steel in certain segments, but there is enough space for everyone.

Liberty House has been promoting green steel. Will Adhunik toe that line?

Sajeev Gupta has set a stiff target for the GRG Group companies to become carbon neutral by 2030 and all our future plans will revolve around that. Producing steel through recycling is also an option being considered.

The government is also promoting a circular economy and it is close to finalising a recycling policy. In fact, Nitin Gadkari (Minister for Road Transport & Highways and MSME) wants India to become a recycling hub. Power is the major cost in recycling and we can bring it down by putting up a solar project. We have surplus land of 400 acre and can build a solar plant in future.

While Mahindra has been a pioneer in metal recycling, Tata Steel has recently set up a recycling plant. I believe the government will incentivise consumers to scrap their old vehicles to boost recycling.

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Published on October 26, 2020
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