Mumbai, February 27: Hyundai Motor India, the wholly-owned subsidiary of the Korean automaker, has entered into an arrangement with Essar Steel for sourcing hot-rolled (HR) coils and sheets. These will be used for Hyundai's small car, Santro, scheduled to hit the roads by the year-end. The two parties are also exploring options for the supply of cold-rolled (CR) coils and sheets. One of these under consideration would involve an alliance with Essar's downstream CR producers. The company supplies HR coils and sheets to this category of users who use it as feedstock for manufacturing CR sheets.The list includes Steelco, Uttam Steel, Jindal Iron and Steel Company and others. In some of these companies, Essar Steel has a nominal equity stake too.
Thus, when it comes to supplying CR coils and sheets to Hyundai Motor India, Essar will work in tandem with one or more of these downstream buyers to meet the automaker's requirement. The revenue can be shared between the companies and this can translate into apractical long-term arrangement for Essar. Another option being considered, sources say, is Hyundai sets up its own cold rolling complex near its Chennai plant. This facility can directly use the HR feedstock from Essar's Hazira facility for conversion to CR sheets. "This could work to Hyundai's advantage as the company can even sell surplus CR coils/sheets in the southern market," observers add. Essar will supply its EDD (extra deep drawn) sheets to Hyundai Motor India. The HR coils and sheets will be used for Santro's chassis and door interiors, while the CR sheets will constitute the car's exteriors. Basically, the HR portion will form the base and interiors, which are not visible and, hence, need not be painted.
Essar supplies HR coils and sheets to the Hero group and these are used for the company's bicycles. This is its first major order for a foreign car and, observers say, more could be in the pipeline. At present, most manufacturers of new cars import steel as it is economical.
The order fromHyundai is expected to yield an income of around Rs 100 crore annually for Essar Steel over the next three years. If this could be extended to other carmakers, it will be a windfall for the company, which has a distinct advantage in manufacturing specialised HR sheets. Hyundai is keen on increasing the level of local content up to 80 per cent, for Santro and the other vehicles to follow. Some of its component suppliers world wide have already entered into tieups with local vendors here. The ultimate objective is to save on costs and that is evident in the case of 999cc Santro, which will be priced around Rs 3 lakh.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
