Will homegrown businessmen rule the roost in global steel industry sweepstakes?
Well, Lakshmi Nivas Mittal’s Arcelor Mittal, Tata Steel, Sajjan Jindal’s JSW group and Liberty House’s Sanjeev Gupta could push the envelope, ultimately ticking all the boxes in this regard. After major Chinese, Japanese and Korean steel makers, Indian industrialists seem set to dominate the international market for basic steel to specialised, high value products used in precision and technology driven sectors like atomic energy, space, automobiles and missiles.
From running the antique and outdated pre-British days steel mill in Jamshedpur, Tatas went global acquiring mass with the buyout of UK’s Corus Steel that stunned global industry majors way back in 2006.
It was in June same year that Lakshmi Mittal acquired Luxembourg headquartered Arcelor in a $33 billion deal and emerged as the New Rockfeller, top steel baron in 12 years with production capacities of over 98.2 million metric tonnes and annual revenues of $ 70 billion with operations in 60 countries. Arcelor became the crowning glory of his acquisitive strategy.
Though Corus Steel acquisition did not give similar edge to Tatas, the latest 50:50 joint venture with Thyssenkrupp of Germany will give the conglomerate the heft it was looking for. In addition, takeover of ailing Bhushan Steel through National Company Law Tribunal (NCLT) will add over five million capacities to Tata Steel that already accounts for 23.2 million metric tonnes steel. Acquisition of 50 per cent stake in Thyssenkrupp and proposed acquisition of another Bhushan steel project will consolidate Tata Steel’s place in global pecking order with a portfolio of over 40 million metric tonnes.
Tata – Thyssenkrupp tango could catapult the Indian steel major into second position globally surpassing Japan’s Nippon Steel with 35 million metric tonnes, Bao Steel of China (37 MMT), Posco of South Korea (35.4 MMT) followed by JFF of Japan (31.1 MMT).
Industrialists Sajjan Jindal and Sanjeev Gupta joining the global steel industry whirligig have only sweetened Indian stakes. For instance, Jindal scooped Italy’s second largest steel maker, Aferpi with two million tonnes per annum capacity. JSW Steel’s proposed investment worth $1 billion in two mid-sized capacities in US has only diversified its offering in range and value of products. Similarly, Gupta’s acquisitions in both France and UK have consolidated Indians’ rising hold in Europe.
With about 1,700 million metric tonnes production that’s scattered across continents, analysts aver that Indian businesses have a long way to go but they have the potential to catapult to bigger things.
What’s particularly galling is that Indian steel makers chose to invest elsewhere in the last four years while BJP-led NDA campaigned hard with ‘make in India’ initiative. Economies of scale often drive such decisions and these acquisitions offer that.
Steel industry could be just one example of inorganic and horizontal growth with preference to operate on foreign shores and not in India. This trend may not be limited to steel alone. Most homegrown companies have taken to geographies abroad to add muscle and diversify while going slow on their India specific plans.
Exposure and firm footing in foreign markets benefited the groups with technology, business and global practices especially at a time when tariff walls were going up and bitter trade wars are being fought. However, all the big Indian businesses may have to introspect and re-work their plans in places of origin.
Most desi businessmen complain of “non-conducive” industry environment with inordinate delays, hurdles in concluding land deals, resistance in some states to new industrial units apart from lack of quick debt and equity funding as enough reasons to look out.
On the contrary, foreign investors are the ones that have lined up several projects as part of ‘make in India’ initiative announced by Prime Minister Modi. Even these projects in half a dozen sectors like defence, ports, airports and other infrastructure areas have progressed very modestly. High transaction costs and intransigent bureaucracy seems to have contributed to slowing down thereby justifying Indian businesses going foreign.