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Mahindra, MSTC to generate wealth from waste

Murali Gopalan | Updated on March 10, 2018

Growing junk: The number of disposable vehicles was growing and had doubled over the last three decades

Sumit Issar

The partners intend to set up over 20 auto shredding plants over the next seven years

It was a little over four months ago when Mahindra Intertrade and the government-owned MSTC (formerly Metal Scrap Trading Corporation) signed an MoU to set up the country’s first auto shredding facility.

“It is a big initiative and India needs something like this,” says Sumit Issar, Managing Director of Mahindra Intertrade which operates a large network of steel service centres across the automotive, power and home appliances verticals.

At present, auto shredding here is an unorganised activity where decades-old vehicles are dismantled in a way which is hardly conducive to the cause of a clean air. Mahindra Intertrade began research on this subject nearly two years ago and it was a happy coincidence that teams at MSTC were working on something similar too.

It, therefore, made sense for the two to come together and jointly pool their strengths to take the story to the next level. “We have a big reach in the country and can handle manufacturing business effectively. They have a reach in terms of auction. The most important message is transparency to the customer,” says Issar.

Yet, it was important to first understand how this business was being carried out. It was clear that the number of disposable vehicles was growing and had actually doubled over the last three decades. Most vehicular residue also heads out to landfills. “Depletion takes place thanks to a lot of unorganised sectors where it is not being done the way it should be,” he says.

These small pockets face hurdles of costs and scalability as they resort to manual labour for dismantling. There are over a million vehicles recycled every year of which two-wheelers account for 60 per cent. They are sold as scrap where the parts are removed and go to a host of user industries. Quite predictably, most of the action is the north, west and south which are big auto markets.

“Most of these people do not have the technology and are able to recycle a number of good parts. The only problem is that they are not very competitive over a period of time,” adds Issar.

Clearly, here was a business waiting to be tapped and Mahindra Intertrade and MSTC now plan to set up a state-of-the-art plant which can effectively meet the needs of vehicle recycling. At present, the two are looking at either Maharashtra or Gujarat to kick off their operations but this is only the beginning of a much larger story.

“Our plan is to look at 20-30 such plants over the next seven years. By 2023, this mega recycling map could become a reality,” says Issar. Needless to add, this will involve huge investments but the returns are as attractive too especially when the partners also have the first mover advantage. It is equally likely that this would attract other investors too.

Each of these facilities will be huge with completely automated operations. Collection centres will also be an integral part of the plan as also a distribution network to ensure that scrap is collected from every nook and corner of the country.

The other priority is to bring in the latest technology for the facility to ensure 100 per cent recycling in an activity that is bound to attract the attention of environmentalists. Issar says talks are underway with a host of big global names to ensure that the best practices are followed.

The US, Europe and Japan are useful benchmarks for this exercise. China, which is the biggest second hand car market in the world, introduced a scrappage policy four years ago. This drive is raking in over four million used cars a year which is a fifth of its production.

The Mahindra-MSTC duo could also contemplate exports given that scrap is in great shortage worldwide and has huge business potential. As Issar says, once a scrappage policy comes into place, the sky is the limit.

“There will be a lot of innovation around this main industry which will focus on recycling. They can be sold as different products and here is where technology will play a role. It is an industry where shredding is a small part of the exercise,” he adds.

Mahindra Intertrade is already in touch with innovative players worldwide who have technology patents on recycling special materials. All this means a potentially new industry could be created.

“We are giving a strong message on sustainability, innovation and creating value for customers. Beyond automotive, our radar is on other industries such as oil and plastics for the recycling industry,” says Issar.

If the Centre’s scrappage policy does come into force, it will be a huge boost for the Mahindra-MSTC combine. Beyond business, it will also mark a saner solution to the problem of disposing old vehicles. The challenge for the partners is to work in tandem with the unorganised players and assure them fair returns to ensure that their livelihoods are not impacted.

It also remains to be seen if other automakers will throw their hats into the ring take a cue from this business model. After all, in a country like this, there is enough and more material that can be picked up for recycling. If all this ensures a cleaner landscape, the effort will be more than worthwhile.

Published on September 22, 2016

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