Power & Steel - A fatal duo!
Sushil K. Maroo, Wholetime Director (Finance), Jindal Steel & Power – Upbeat, confident & surely a harbinger of growth in steel & power in the times ahead!

That was the elder brother’s saga, now lets peep into the younger sibling who doubles-up as the pioneer of the brigade of young politicians – Naveen Jindal, EVC & MD, Jindal Steel & Power (JSPL). Not to miss a word on the Jindal Group’s division as it didn’t create waves much like the Ambani duo did. The Jindal family, in fact, is one of the classic examples in India of a smooth division of responsibilities and assets between the various members of the family unlike in most powerful business families. To know more about his ambitions and state affairs, read on... Following are excerpts from B&E’s exclusive interaction with S.K. Maroo, Wholetime Director (Finance), JSPL.

B&E: how has the performance of Jindal steel and power in FY 2006-07 been?
The results were good, I think we did better than expected. Jindal Steel & Power posted a net profit of Rs. 7,029.90 million for the year ended March 31, 2007, as compared to Rs.5,729.40 million a year ago. Total income (net of excise) increased from Rs.26,177.60 to Rs.35,487.80 million, for the same time period mentioned above.

The good part is that export is up by 82% for the whole year. Of course, total interest cost has gone up slightly, because of rising interest rates, but to some extent it was off set by other factors like the rupee appreciation. But this was just a one time gain, and I do hope that in the future, the interest rates fall, as and when the inflation problem eases. Clearly, benefits will be available to the economy. We have also implemented quite a number of capacity expansion plans and total steel production volume is up by 123% on a q-o-q basis and 54% on a y-o-y basis.

Power production is also on a rise. We have been setting small power plants, quite regularly. We now have 340 MW of power with us. Power and steel – both the businesses are on a high and that has helped us to expand the turnover. We have commissioned a plant with 1 million tonne capacity of Plate Mill, which has generated huge demand across the industry. With this we have some 2.4 million tonne steel capacity. But right now we produce only 800,000 tonnes. Since it all got added very recently, we expect even better results and net outputs in the forthcoming quarters. So, good times are surely ahead of us assuming that steel prices will remain stable, which we feel it surely will.

B&E: what steps is JSP taking to reduce the net impact of rise in input costs?
We are doing a lot in this direction. Earlier we used to import coke, subsequently we set up our own coke capacity, which is now operational. So we now purchase coal from various countries and convert it to coke. It has given us loads of benefits as coke prices fluctuate a lot because there are not many producers, while coal’s availability is more and price variations are also less. So that has given us the fl exibility to import at better prices. We convert the coal to coke at our own plant and save a lot of money on that.

Besides, based on the hot gases coming out of the coking plant we have set up a power plant. We generate power at a low cost. And there is another benefit of this method of power generation – it gives us the benefits of carbon credit. So we have a 50MW power plant based on this and we have got our power plant registered with United Nations Framework Convention on Climate Change. That’s how we are saving on cost.

B&E: How does one insulate from downturn in the industry. What is your outlook of the steel prices?
The only thing to avoid such a downturn is to plan a project in such a manner that one can produce the product in the lowest possible cost. So, in case there is economic slowdown or the demand goes down, by producing at low cost one can reach levels of self-sustainence. So your project has to be based on good number crunching, study of the economic movement – that’s one area. Set up a plant and then manufacture the product at a low cost – that’s another. All this will help the company to sustain some amount of downtown for some time. Besides, there should be sufficient room for the organisation to withstand pressure if something goes wrong and the company decides to wait for the good times ahead.

I think steel prices will remain stable and I don’t see any significant changes in demand in the short term. As far as the question of sustainability is concerned, the price should be such, that other industries can afford and the demand of all other linked industries is not affected. Unsustainable prices cannot last long. Sustainability is what matters the most.

B&E: What has been the progress in the most recent bolivian acquisition?
Well, we have won the rights of access to 20 billion tonnes of mines through international competitive bidding in Bolivia. Right now we are complying with the government terms and conditions. We are completing the procedural part of it and we have already had a couple of rounds of discussion with the government of Bolivia on the contract.

Once we sign the contract, it will go to the Bolivian parliament for ratification, followed by the process of legalisation. JSPL plans to invest $2.3 billion over the next eight years in Bolivia. We have a huge product line over there – a 1.8 MT steel plant and 6 MT snooze iron unit happens to be one of them.

B&E: How important is ‘power’ in Jindal steel and power?
In Jindal steel & power, we have 340 MW power plant. We are planning to set up some more capacities. We are planning projects in Orissa and Jharkhand ranging from 500-100 MW in each state. We also have a 100% subsidiary – Jindal Power Limited. It is a 1,000 MW project and will be operational within a year from now. First, 250 MW by September 2007 and then every quarter we’ll have access to an additional 250 MW. We are also working to expand the 1,000 MW to further 2,200 MW. Within JSP, we are expanding to meet our own captive needs and the surplus power is then exported. Jindal Power is a company that will move into power business in a big way.

B&E: your opinion on Indian steel makers going abroad?
Indian companies are going abroad, so is Jindal Steel & Power. The company has gone to Bolivia and we also have a diamond mining licensing in Congo. Indian companies are going abroad, while foreign companies are coming to India. I feel that Indian businesses have gained that kind of confidence now to provide competition to foreign companies. The companies have access to more capital now and they have gained the depth & managerial expertise to run plants overseas and the respect of international community too.

NOKIA The India connection
Nokia needs to draw lessons from both Procter & Gamble and General Motors for enduring success

Marketing pundits could well be spouting a new acronym at wide eyed students of management courses. The acronym is FMCD. No prize for guessing correctly that the ‘D’ does not stand for a Ram Gopal Verma movie; it actually means durables. Thanks to Nokia, India Inc has discovered a completely new product category: Fast Moving Consumer Durables. Mobile phones now inhabit an arena that has seen the morphing of detergents and shampoos with microwave ovens and washing machines. Handset companies like Nokia now need new mantras to position and market FMCDs.

For Nokia India Managing Director Sanjay Sharma and his marketing head Sanjay Behl, there is a Hamlet like dilemma that simply refuses to go away: Do we position brand Nokia as a toothpaste or do we peddle it as a premium fl at screen television? On the one hand, Nokia needs to reinforce its stranglehold at the entry level itself where first time buyers join the mobile bandwagon by paying anything between Rs 2,000 to Rs 3,000. These buyers could pick up their first handset from the friendly neighbourhood shop which supplies them the latest pirated versions of Bollywood movies. On the other hand, Nokia also needs to keep these first time buyers as loyal customers when they move up the value chain and contemplate buying fancy handsets.

The Real Challenge
If Sharma and his team can transcend this dilemma, Nokia’s early success in India can endure as a legend and a lesson for others to emulate. If they get stuck with this positioning riddle, Nokia could be yet another example of how global leaders have failed to find the magic formula in India.

By any yardstick, Nokia is a smashing success in India. According to various market research reports, Nokia commands more than 60% of the handset market in the country. The nearest rivals, Sony Ericsson, LG, Samsung and Motorola barely manage a 10% market share as individual entities.

Yet, Nokia’s invincibility could be deceptive. For one, rivals like BenQ are rapidly emerging as aggressive price warriors. Moving up the value chain, new models from LG and Motorola are already giving Nokia a hard time.

Global Lessons
Nokia can draw from the lessons that global heavyweights have learnt in India. General Motors (GM), Procter & Gamble (P&G) and Sony stand out for their unique and oft en humbling experiences in India. All three are global leaders in their respective domains: automobiles for GM, Fast Moving Consumer Goods (FMCG) for P&G and consumer electronics for Sony. All three had an India entry strategy that tried to leverage their ‘status’ as world leaders and consumer perceptions about the ‘premium’ nature of their brand equity. All three initially disdained the bottom end of the market and concentrated on the top segments. Th e result: All three failed to capture even respectable market shares in their respective domains.

But Nokia has been proactive enough to invest $50 million to set up a manufacturing plant in the southern city of Chennai in India. This plant will manufacture mobile handsets as well as equipment. This is a clear signal from Nokia that it views India as a major market across the world. And why not? Going by latest figures, India is the fifth largest market in the world for Nokia. Also, if the current growth trend continues, more than a 100 million Indians will be buying mobile handsets by 2008. Nokia is not alone in investing in India and laying their bets on the future of the market. The South Korean conglomerate LG has already pumped in more than $32 million to set up a manufacturing plant in Pune.

The Sony Story
India has seen many such giants set up manufacturing facilities, only to withdraw later on as they found the Indian market hostile. A typical example is Sony, which trimmed down its manufacturing operations in Dharuhera, Haryana and now imports almost all of its audio products and CTVs (colour televisions). The Japanese giant’s performance in the Indian consumer electronics industry mirrors what is happening across the world: Sony is being battered by nimble footed and aggressive companies like LG, Samsung and even Microsoft in the segments that it used to dominate. In India, the Korean Chaebols LG and Samsung have emerged as clear leaders, both in terms of market share and brand visibility. Indian brands like Videocon and Onida too have hung on tight, leaving Sony quite far behind in the sweepstakes. According to an advertising industry professional that services the Videocon brand: “If you can get a good quality 29 inch fl at screen TV for Rs 15,000, will you pay Rs 30,000 for a 21 inch TV?” This is a question that Sony needs to ask itself if it is serious about emerging as a market leader in India. Sunny Sodhi, owner of a travel agency and a heavy mobile phone user, says: Nokia will not have the going as easy as it did in the past. The Indian market is too big and too tempting. Rivals will go all the way to grab the market share away from Nokia”.

P&G changed gears after being taught a lesson by the price sensitive Indian consumer seeking “value for money”. Till 2003, market leader Hindustan Lever Ltd. (HLL) faced a greater threat from its own fl aging growth than from P&G. All that changed last year with P&G becoming an aggressive price warrior. Till date, HLL and P&G continue to fight bruising price battles. P&G has gained significant market share, though accurate figures are difficult to obtain.

The GM Lesson For Nokia
Almost 10 years after GM entered India, the number one car company in the world boasts of a market share of just two per cent. Just one model from Japan, Honda City, sold more cars than all the GM models put together! However, Nokia’s India strategy seems to have worked very well right from the word go. It has offered value for money handsets for the price sensitive Indian consumer. It has invested time, energy and money to create and market ‘Made for India’ mobile phones. If things are so hunky-dory, why should Nokia be worried?

Nokia’s Roadblocks
There are plenty of reasons. The two most important ones are: A perception that while Nokia is all about connecting people, it is getting disconnected from upwardly mobile young consumers. Globally, Nokia seems to have paid a price for complacency when its market share dropped from 35% in 2003 to a little less than 30% by early 2005. Its initial reluctance to introduce clamshell (folding) models paved the way for LG and Samsung, who have cashed-in well on their popularity in the Asian continent. Long standing players like Motorola and new entrants like LG aggressively marketed themselves as brands that are funkier and technologically ‘with it’. “An even bigger problem confronting Nokia is the issue of after sales service”. Vijay Nair, a Senior Associate with a legal service firm has a scathing comment: “The only danger I see Nokia facing from rivals is at the level of after sales service. In Delhi, at least, the tie-up with HCL for after sales service is proving negative as the HCL employees are incompetent and discourteous to the customers”. Mr. Gogia, who has just ended his seven year association with Nokia as a Priority Dealer on a bitter note, shares the same view. His Nokia dealership is in the up market locality of South Extension, New Delhi has seen the Finnish giant in both its “gray and hay” days. According to him, Nokia has not been able to differentiate between a Priority Dealer and a roadside store that could also stock Nokia phones.

How Leaders Behave
Most market leaders face this problem of complacency. Some, like General Motors, become truly complacent and stop reinventing themselves. The result: hitherto unknown players like Toyota simply snatch away the leadership status. Some, like General Electric, ruthlessly and continuously reinvent themselves to stay ahead of the pack. The result, General Electric stays at the top.

As a global player, Nokia clearly has the ability to roll out models in all price ranges from entry level to premium. The best long term strategy is to identify market segments that can be profitably tapped and position key models segment- wise. Nokia is one company that can attack the competition on several fronts and it must leverage this strength. The Indian mobile phone market is currently in the Star stage of the BCG matrix. Nokia has to ready itself for a period of stiff competition, where it will invest heavily and margins will be highly squeezed. However, the market will eventually discard weak players and reach the cash cow stage; that is when Nokia will actually earn the spoils of victory.

After CDMA, will nokia miss the 3G bus?

The next big thing in wireless technology in India would be the transition to 3rd generation (3G) technology that promises users a great motley of services. 3G, as a technology, is inherently more sophisticated as it supports both the CDMA (Code Division Multiple Access) and GSM (Global System for Mobile Communications) technologies. The main differentiators from 2G/2.5G are video telephony and video content that are provided on a “better quality and higher speed” platform. But the first mover advantage in 3G eludes Nokia, though it possesses the technology. The slumber, however, has not lasted long as the company is introducing a number of 3G handsets. LG, reportedly, has already shipped one million 3G handsets in Europe during the first quarter of 2005. Nokia’s initial reluctance to switch over to CDMA in India cost it dear. History repeats itself! One can only hope that Nokia does not miss the 3G bus this time.

Nokia in 2007 is how we saw it in 2005

It was the inaugural issue of Business & Economy, the beginning of a journey, we are sure, will enrich and provoke readers for decades to come. Beyond the excitement of bringing something spanking new into this world, we were concerned deeply with providing analytical stories that could dissect a corporation, a sector, a policy and an institution or even a trend in the most comprehensive, yet readable manner. We genuinely believed that Indian business magazines fell short of genuine analysis & healthy critique. Nokia story was our first attempt to do what we so passionately believed in. Back then, Nokia looked simply invincible & had even become a generic brand when it came to the exploding market for mobile phone handsets. Yet, we predicted that Nokia would face stiff competition from Motorola, LG & Samsung, and that its image could take a beating in the high end of the market. We also wrote that the deal with HCL was in jeopardy. Chest thumping may not be the best of traits; but on this second anniversary of the magazine, we can surely say we were right all the way!