Vinod Modi, Managing Director, Sindia Steels
Vinod Modi, Managing Director, Sindia Steels

It is difficult time for the steel industry, not just in the domestic market but international as well. Takeover announcements are made and the investment banker fraternity expects more.

The reasons are not far to seek. Overstretching the debt funding option, combined with a global environment of low economic growth, and talk of sanctions and trade wars—these make for gloomy visibility on all fronts, right from revenues to cash flows to debt servicing and repayment.

No wonder divestment is being explored. In such an atmosphere, it feels good to see a company in the sector which is not struggling. That too, a small player like Sindia Steels, which clocked total net revenues of about Rs 82 crore in FY2019.

“As a business, we are quite old and seen quite a few business cycles impose themselves on our sector,” reasons, Vinod Modi, Managing Director of the company.

Experience always comes handy, especially when one is dealing with an industrial commodity, where pricing power is limited to begin with and practically disappears as one gets lower and lower on the size graph. Sindia Steels factory at Sinnar (the industrial area of Nashik) started production in 1998.

Sindia Steels: A stainless track record for a steely company

The company adopted to an external stimulus which was the expansion of the market.

Sindia's main product was (and is) stainless steel bars, and the focus area at that time was export markets, primarily the USA and Europe. At that time, the product was niche, with rather high-end applications. However, as in the case of many products, it was gradually absorbed into the mainstream category.

Today, as Modi explains, it is definitely getting to a mass-based product, with diverse applications in different areas in engineering and construction, along with chemical plant layouts. These go along with traditional and more esoteric user industries like aeronautics and space vehicles.

Sindia Steels: A stainless track record for a steely company

Elaborating on the market evolution, Modi states that it went both ways. Two decades back, India had a domestic consumption of around 15,000 tonnes of stainless steel bars, whereas the production was in the region of 60,000-70,000 tonnes.

Hence export orientation (the SS-304 category of bars) was the way to go. However, in 1999, both Europe and USA imposed anti-dumping duties on the product. Indian manufacturers then went for litigation, and though they won in the USA, the anti-dumping measures in Europe stayed as they were, with a limited quantity of imports allowed from India.

Hence, there was now only one large export market to focus on and therefore Sindia also started looking at the SS-201 grade of stainless steel bars, which have been predominantly popular in the domestic market.

Today, India has an annual demand of close to 1,50,000 tonnes of SS-201 grade material, whereas the demand for SS-304 is merely around 50,000 tonnes.

Thus, the strategy to focus on Indian market paid off. For the suppliers (domestic production of SS-304 today would be 1,50,000 tonnes from this 1 lakh tonnes are exported) it is imperative to have a product mix which can cater to local and export markets, more so if Europe imports still remain subdued. In technical terms, the export market values non-corrosive stainless steel bars, which the SS-300 and higher nomenclatures represent.

Simultaneously, Modi explains, new product lines were also being explored. Sindia started production of threaded stainless steel bars in 2004 and went into MS (mild steel) wire production in 2010.

Last year the company had another product initiative, stainless steel tubes, which again is primarily aimed at the domestic market. Though Sindia today has exports contributing around 60 per cent of its revenues,

it has understood the strategic significance of the domestic market as well. In machine-building and civil construction (residential, commercial and industrial), stainless

steel is now getting more weightage than it had two decades ago, and the trend will only intensify going forward. The main attraction is longevity, due to which stainless steel products come in as crucial parts in many areas at the design stage itself.

Lastly is a sense of prudence and perspective which, Modi points out, has prevented the company from overreaching itself. Sindia started off as a small-scale industrial unit and today it is categorised as medium scale.

The starting capacity of the Sinnar factory was 5,000 tonnes per annum and now it is 10,000 tonnes, a modest rise and enough to maintain market presence without compromising on financial stability.

The company today has a client base across multiple sectors, and has a domestic market which takes up 40 per cent of its output. In all this, it is largely self-funded with minimalist debt. Long-term borrowings are marginal and only half of the working capital limits of Rs 20 crore get utilised.

The small size of the fixed assets of the company is testimony to its thrift-based growth strategy. Modi reveals one possible capital-based growth strategy could be investment into a smelter, but that would entail a huge outlay and economics in the current situation may not support it for perhaps an entire cycle.

Hence, it would not be considered. The company is putting around Rs 1 crore into the tubes initiative, and the next step is a foray into fasteners, which would entail an investment of Rs 2 crore over a two-year period.

Sindia plans to produce 250 metric tonnes of tubes and pipes per annum. Modi says, “We plan to export 50 per cent of pipes produced by us to the Middle East where our associates are already in the business of marketing tubes and pipes for last eight years.”

At present in domestic market, Sindia has confined themselves to sell within Maharashtra. “As we go on in production of bigger quantities and wider size range, we look forward to much bigger export potential. We are also planning to manufacture square, rectangular and oval-shaped pipes which are now being used in bigger quantities.”

In case of fasteners as the company has wire drawing and annealing facility, it expects the capital costs to be lower and production to be cost effective. Other advantage is that Sindia is located in the hub (in Nashik) of all type of automobile producers like Mahindra and Mahindra, Bajaj etc.

Presently, the company has inbuilt testing facilities for all type of wires required to be produced for Fastener requirement. With the commissioning of Phosphating plant, it has started catering to M S WIRE to small-size fastener manufacture companies.

Given the company's net profit levels, all or most of this can be financed through internal accruals, and dependence on debt again would be minimal.

The factory plot is around four acres, and today the constructed area is just about 60,000 square feet, which leaves scope for further expansion. On the manpower side, Sindia has a lean set-up of around 70 employees in production, 15 staff at the factory and another 10 at the office.

Enhancement of the product offering is vital, Modi points out, at a time when Europe is still offering a limited window for Indian exporters and the Trump administration in the USA has already imposed a 25 per cent duty.

This is a deathly blow to a product where processing is anyway done on thin margins. To balance out the loss in export markets, Sindia would now want to look at new geographies like the Middle East and Turkey.

For the current year, with all these steps, Modi believes that the company will be able to run in a stable manner and at least maintain its profits. In an environment of such volatility, this says a lot for the inherent resilience of the company.

Over a longer period, the view is somewhat different and better. Modi's targets for FY2022 are Rs 125 crore in gross revenues and a bottomline of around Rs 4 crore. There is some inherent buoyancy of the domestic market factored into this estimate.

Today, as seen earlier, India's consumption of stainless steel bars is 2,00,000 tonnes where 1,50,000 tonnes is from the SS-201 and allied range of steels. By 2022, Modi believes the domestic market will grow to 4,00,000 tonnes where the SS-201 and allied steels will have just 50 per cent of this market.

Concludes Modi, the future is good. But over a longer trajectory, as the product becomes more and more of a mainstream offering, scale will be important here and small units would not find the going so easy.

Fasteners

There is a massive growth taking place in automobile sector with sales of cars/ motorcycles/commercial vehicles rising in double digits year-on-year.

Also, all types of consumer durable goods such as TV, air conditioners, fridge etc; construction industry; infrastructure sector require fasteners. It will be a forward integration for them who already have wire drawing and annealing facility.

Tubes and Pipes

The company is planning to expand their capacity in tubes and pipes of stainless steel as it is used in airports, malls, household items, kitchens, railings, bus stands, furniture, sugar industry, dairy industry, paper industry, etc.

Sindia Steels: A stainless track record for a steely company

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