Mahindra Intertrade enters into a JV with two global steel majors to set up an independent facility in Chakan and seeks auto-grade steel business from the local manufacturing units of OEMs and suppliers. Amit Panday reveals the new company, Mahindra Auto Steel's plans.
31 Jan 2014 | 11961 Views | By Amit Panday
The 20-year-old Mahindra Intertrade, a wholly owned subsidiary of the Mahindra Group, has formed a joint venture with Taiwan’s steel major, China Steel Global Trading Corporation and Japan’s Mitsui & Company to set up an all-new subsidiary named Mahindra Auto Steel. Mahindra Intertrade, which operates in the area of raw ...
This is an Autocar Pro Plus article. Subscribe to continue reading.
The 20-year-old Mahindra Intertrade, a wholly owned subsidiary of the Mahindra Group, has formed a joint venture with Taiwan’s steel major, China Steel Global Trading Corporation and Japan’s Mitsui & Company to set up an all-new subsidiary named Mahindra Auto Steel. Mahindra Intertrade, which operates in the area of raw steel processing (for applications in automotive, power and consumer goods), will hold the majority share of 51 percent while the other two partners will hold 24.5 percent each in the newly formed entity.
The three companies are jointly setting up a steel service centre at Chakan, near Pune, at a cost of Rs 150 crore. The plant, spread over 10 acres, will have an annual capacity to process 130,000 tonnes of steel. The facility will be operational by the last quarter of FY2014-15.
The China Steel Global Trading Corporation (annual group turnover: US$ 12 billion; annual capacity: 16 million tonnes per year) will be a major raw steel supplier to the new JV. Mahindra is known to source steel stocks from Posco India, Nippon Steel Corporation and other steel companies.
Business focus
The upcoming facility will bank upon the automotive-grade steel requirements of the auto OEMs based in and around Pune which includes Tata Motors, GM India, Volkswagen India, Fiat Auto India, Mahindra & Mahindra (M&M), Mercedes-Benz India and also the host of auto component suppliers located in this region.
Clarifying the focus area of the JV, Harsh Kumar, managing director and member, group executive board, Mahindra Intertrade, said that “through this completely independent subsidiary (Mahindra Auto Steel), we will provide auto-grade, customised, cut-to-size steel sheets to the OEMs focussing on just-in-time, SKU-wise deliveries covering end-to-end services such as sourcing of steel slabs, warehousing facilities, yield optimisation, forex cover, hedging the imports and others.” SKUs signify stock keeping units in raw steel supply business.
Explaining the concept of yield optimisation, Kumar told Autocar Professional that “standard steel slabs come with a width of 1250mm while an auto OEM may require a steel slab with a width of 1145mm and in particular profiles or shapes.
As per the regular practice today, the steel supplier is concerned only with supplying standard steel sheets to the OEMs, which later get the same processed through steel service/processing centres. This is one area of operation which requires organised efforts like a one-stop shop which can provide all crucial facilities under one roof and we see this as a huge business opportunity. The new JV will focus on just that. We plan to re-engineer the raw steel exactly as per the OEM’s requirements. We are looking at completely redefining the auto-grade steel supply chain in this region.”
According to Kumar, Mahindra Auto Steel will focus on securing nearly 80 percent of business outside of the parent company from this automotive belt.
In-house requirements
Another subsidiary of Mahindra Intertrade named Mahindra Steel Service Centre (set up in 1993, from the Pune plant) has been majorly taking care of M&M's internal auto-grade steel requirements for making passenger cars and commercial vehicles over the years. It will continue to source, process and supply the steel stock keeping units to M&M’s own internal consumption.
Nevertheless, according to Kumar, the area of operations of the Mahindra Steel Service Centre and Mahindra Auto Steel would overlap in the range of 25 percent but the two entities will operate with different focus.
Company officials highlighted that executing all major raw steel-related works at one place will enable savings in the range of 5-25 percent for the OEMs which source steel from Mahindra’s new JV. Kumar disclosed that currently Mahindra Intertrade has an annual steel processing capacity of over 200,000 tonnes, which will stand augmented to nearly 350,000 tonnes per annum once the planned facility becomes operational.
Kumar also added that if the companies decide to open more such facilities in any other region, this would require additional investment of not less than Rs 150 crore. The firm (Mahindra Intertrade) is optimistic about achieving sales of two million tonnes of steel per annum by 2017-2018.
The Rs 1,400 crore-Mahindra Intertrade has a total of four subsidiaries (including the latest joint venture) working under its purview and is one of the top performing companies within the Mahindra Group. The planned facility would be the seventh unit, besides the six other facilities – two in Kanhe, near Pune and one each in Nashik, Vadodara, Bhopal and Sharjah (Middle East).
Photograph: Harsh Kumar, MD, Mahindra Intertrade (left) and Paul Huang, chairman, China Steel Global Trading Corporation, at the JV announcement in Pune on January 7.