Steel companies witness grows in retail segment

The segment contributes about 25% to total sales of Essar Steel and JSW

Retail segment has come as a boon for steel companies. Even in times of slowdown, this segment is growing for most private players including Essar Steel and JSW with as much as 25% of their total sales coming from this segment.

Essar Steel, which was the first one to enter this area, the retail segment contributes as much as 25% of the total sales, according to Girish Rao, CEO, Essar Hypermart . Currently, it has a network of 68 own stores and about 300 franchisee outlets. “We are currently consolidating out network and planning for growth through the existing outlets. Growth would come from new products and increased market shares,” Rao adds. Metro areas like Mumbai, Ahmedabad and NCR region are the large markets for Essar Steel and the company is seeing high growth in Tier 1 cities as well.

Even for JSW Steel, it contributes about one fourth to the total sales, Seshagiri Rao, company’s joint managing director and group CFO says.

The maximum growth is coming from semi-urban and rural areas. JSW currently has 425 shops covering 600 districts. “Next, we will go to every taluka level,” Rao of JSW adds.

Experts say with slow economic growth and slump in demand from major sectors such as infrastructure and auto, steel companies are going out to tap new stream of revenues to overcome tough times and retail is one such area which has huge untapped potential.

“Yes this segment has grown year on year and in times of slow down and volatility performs better,” Essar’s Rao says.

Jayanta Rao, Senior Vice-President and Co-Head, Corporate Sector Ratings, ICRA says, “Retail segment for steel has shown greater resilience compared to bulk buyers. When there is slowdown in the industry, bulk players defer their decisions. The retail shops service need based customers. Mainly, the growth is coming from semi-rural and rural areas.”

With branded/customized steel products, this segment is becoming more of small customer centric and some of the companies even offering delivery at doorsteps, he adds.

For JSPL, which has recently forayed into this segment, expects the segment to contribute 8-10% to total sales by end of 2014-15. It has about 661 retailers as of now, according to Ravi Uppal, company’s MD and CEO.

SAIL Chairman and managing director CS Verma said the volume of branded products in SAIL’s retail channel will increase more than two fold to more than 1 million tonnes per annum from the current level of around 0.5 million tonnes per annum following the completion of modernisation and expansion of SAIL’s IISCO Steel Plant and new Cold Rolling Mill of Bokaro Steel Plant.

SAIL has about 2,900 dealers in 611 districts across the country to cater to small requirements of retail customers. The outlets have been given a distinct identity as ‘Apna SAIL Shops’ and act as retail outlets for the company, Verma adds.

The proportion of branded products in SAIL’s portfolio will go up to around 25% from the present level of about 15% once the modernisation and expansion plans are complete.