Mahindra Partners_Steel Services Business Caselet

8/20/2019 Mahindra Partners_Steel Services Business Caselet

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Mahindra War Room 2014 Steel Services Business Caselet

Broadvision Perspectives Client Confidential Page 1 of 3

MAHINDRA PARTNERS SECTORMAHINDRA INTERTRADE: STEEL SERVICES

Mahindra Partners is the internal incubator of new businesses for the Mahindra Group,supporting a portfolio of existing ventures across Retail, Logistics, Boats, Energy and

Media, while constantly exploring new ventures. This caselet pertains to the SteelBusiness.

BUSINESS BACKGROUND

The Mahindra Group’s first business, started way back in 1945, was Steel Trading. Afterthe opening up of India’s economy in 1991, Mahindra created Mahindra Steel ServiceCentre Limited, MSSCL, at Kanhe, near Pune. MSSCL was the first steel service centrein the organized sector in India, with state of the art facilities, pioneering Just in Timedelivery of processed steel to its customers. In 1999, Mahindra Intertrade Division wascarved out into a separate company to leverage its skills in sourcing, trading and

processing, consolidating all steel-related operations excluding the manufacture of alloysteel and stampings, under one roof. MSSCL subsequently became a subsidiary ofMahindra Intertrade Limited (MIL).

Intertrade today is the pioneer in the steel processing space in India, or steel servicecentres as they are commonly called, and provides solutions for processing of flat steel.MSSCL broadly caters to three industries – Automotive, Home Appliance and Power. Itsprocessing activities include slitting, shearing, blanking, laminations and fully built uptransformer cores. Apart from this, MIL also offers services like sourcing, warehousing,financing, logistics, commodity-related forex risk management, etc. Mahindra Intertradeis headquartered in Mumbai with service centres in Kanhe, Vadodara, Nashik, Bhopal

and Sharjah (UAE) and an upcoming Service Centre at Chakan. Intertrade aspires to bean end-to-end solutions provider in the flat steel processing space.

In 2005, MIL set up its first venture in the Middle East as a Joint Venture with NipponSteel Corporation of Japan. Mahindra MiddleEast Electrical Steel Service Centre, FZC(MME) caters to the requirements of processed grain oriented electrical steel (CRGO)for customers located in the Gulf Co-operation Council area, and has the distinction ofbeing the first steel service centre set up by an Indian corporate overseas, and the firstsuch facility in the region. Year 2007 marked MIL’s foray into profile blanks with theinauguration of its blanking facility at Nashik. This facility is a best-in-class merchantproducer of automotive skin panel profiles. In 2008, 2010 and 2011, MIL augmented itsprocessing capacity for transformer laminations at Vadodara, Bhopal and Kanherespectively. These facilities are strategically located contiguous to consumption centersand cater to transformer manufacturers located in the region. In 2012 MIL set up astate-of-the-art electrical stampings facility at Kanhe. This facility processes non grainoriented electrical steel (CRNO) and semi-processed Cold Rolled (CR) steel to cater tothe home appliance and electric motor industries. It is the first such facility in the countryto have a presence across the complete value chain from steel to stampings and motorcores. In 2013, MIL signed a Joint Venture agreement with China Steel Global Trading


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Corp. and Mitsui and Co. (Asia Pacific) Pte. Ltd. for an Automotive steel processingcentre at Chakan. This service centre is currently under construction.

LIVE CHALLENGE: SALES GROWTH & RETAILING STRATEGY:

MIL’s current value chain & business model can be understood graphically as follows:

In each of the above stages, MIL is uniquely poised to grow the market - MIL is one ofthe largest steel aggregators in India, allowing it to source steel competitively, MIL hascapability in a range of processing (slitting, shearing, blanking, laminations, built-upcores, stator & rotor), and MIL can add value through superior quality, productcustomisation and Just in Time deliveries.

MIL and its subsidiaries together account for sales of nearly 300,000 tonnes of flat steelproducts annually. Trading and processing of flat steel from its six service centresgenerates a consolidated profit before tax of about INR. 100 crores, making Intertradethe 6th most profitable company in the Mahindra Group. The following are somehighlights of MIL’s key customer verticals:

Auto Vertical

Strategic tie-up with China Steel Global Trading Corp. and Mitsui & Co. (Asia

Pacific) Pte. Ltd. Exclusive supply chain managers for Mahindra’s Automotive & Farm Equipment

sectors.

State-of-the-art facilities at strategic locations.


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Power vertical

Strategic tie-up with Nippon Steel & Sumitomo Metal Corp., Japan (NSSMC) forsourcing of CRGO grades of steel in India and the Middle East.

State-of-the-art facilities at strategic locations, approved for the highest-end 765kV Class transformers.

Home Appliance vertical

One of the few players in the organized sector to offer the complete bouquet ofservices such as slitting, stamping, stress relieving, aluminum injection, stators,rotors, etc.

Steel consumption in India likely to grow at a CAGR of up to 7%, and MIL anticipatessignificant growth potential in this sector in the coming years. MIL has therefore

embarked on an audacious growth trajectory and aspires to achieve 10 times its currentsales. MIL has a line of sight for 500,000 tonnes per annum of steel sales throughcapex investments in new service centres or otherwise. The balance gap to reach the10X target is yet to be accounted for. MIL does not wish to pursue the option ofmanufacturing steel and prefers the trading or value addition route. The company isopen to dealing in any form of steel anywhere in the world, not limiting its vision to flatsteels alone. Options considered for expansion may include, but not be limited to,trading, retailing, stocking and processing of flats, longs, plates or even other metals,either through green / brown field initiatives or acquisitions.

With this background, evolve a strategy for MIL to grow 10X, including an

analysis of the Industry landscape relating to steel and metal processingbusinesses, identification of opportunities, competitive analysis of proposed newmarkets with entry strategies, organic and inorganic options for implementing therecommended strategy with risk analysis of the same. Also include if MIL shouldenter into steel retailing business with the necessary supporting analysis.

Documents

Mahindra Partners_Steel Services Business Caselet