India's steel industry is set to gain momentum with government initiatives that will boost construction activity, thereby increasing demand. 'We anticipate demand of 10 crore tonne of TMT bars in the coming years to construct 2 crore dwellings under the government's Housing for All by 2022 scheme,' says Satish Kumar Agarwal, Chairman & Managing Director, Kamdhenu. The group claims to be the market leader in TMT bars in the country, with a brand sales turnover of around Rs 6,000 crore. Agarwal shares more on the company's plans with SERAPHINA D'SOUZA.
Kamdhenu aimed to sell 5 lakh tonne of steel in the second quarter of FY2017-18. Has this been achieved?
Kamdhenu reported revenue of Rs 225 crore from the steel segment in the quarter ended September 30, 2017. This was 15 per cent higher compared to Rs 195.59 crore in the first quarter of FY2017-18. During H1 FY2018, the company has sold a total quantity of about 8.12 lakh tonne of steel, which was 18 per cent higher compared to 6.87 lakh tonne in the first half of FY2017 through franchisees.
The company was projecting 20 per cent sales growth under the franchisee model. Has this been achieved? What is the strategy behind the franchisee model?
The steady growth Kamdhenu is registering over the years can be attributed to the success of our 'franchise business model', which helps us scale business and earn higher revenues without investing in manufacturing activity. This model is also in sync with the government's larger goal of bringing a large number of businesses into the formal sector, and it supports 'Make in India'. Under this model, we offer franchisees, mainly in the unorganised sector, our brand name and assistance in technology, quality and consistency besides marketing support. This model is a win-win for us and our franchisees; this ultimately benefits customers who get top quality products at a reasonable price. During the first half of the current financial year, we have added six new franchisees, thereby strengthening our manufacturing footprint by increasing our manufacturing units to 76 by the end of H1 FY2018.
We plan to add seven more franchisees in the next two months in our endeavour to increase the production capacity of TMT bars from our current 25 lakh tonne to 50 lakh tonne in the next five years.
How has the growth of the steel industry impacted the company's financial performance in the second quarter? What are your expectations for the rest of the financial year?
The company reported a revenue of Rs 498 crore, with PBT and PAT of Rs 9 crore and Rs 6 crore, respectively, in the first half of FY2018. During the same period, our royalty income has increased by 49 per cent in H1 FY2018 to Rs 28.78 crore compared to 19.26 crore in H1 FY2017. This can be attributed to the success of our franchise business model and several key initiatives taken by the company to capitalise on industry opportunities arising out of high growth in the real estate and construction sectors. The second quarter was marked by the adoption of the new GST regime, which is expected to spur the growth prospects of all key sectors of the economy. We took GST readiness as an opportunity to stand out from the rest of the industry; this enabled us to embrace it better than other industry verticals.
We expect the second half of the year to be better, given that demand for building materials from real estate and infrastructure remains robust and the effect of GST is likely to settle down further.
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