It was in 2016 that Mahindra Accelo, Mahindra and Mahindra’s steel processing arm, tied up with MSTC, to set up scrapping units. Three years on, Cero, as the joint venture is called, has one scrapping centre in Greater Noida and has plans to set up at least 25 more centres across the country, in the next 3 years. The company has been an early mover in the scrapping space and feels it can turn into a billion dollar industry.
India today imports 28 million tonnes of steel scrap and the Mahindra group believes that a flourishing scrapping industry will not only produce 14 million tonnes of steel but create lakhs of jobs. The auto industry has been demanding a comprehensive scrapping policy, which would not only check pollution but also generate demand for new vehicles.
In an exclusive interaction with CNBC-TV18, Sumit Issar, MD of Mahindra Accelo and BB Singh, CMD of MSTC said they are ready to go full throttle with their scrapping plans once the government rolls out a scrapping policy.
Edited excerpts from the interview:
This joint venture was formed in 2016, what has been the result of this partnership so far? Issar: Just to give you a brief outline, when we started in December 2016, both Mahindra and MSTC were looking at different ways of setting up these dismantling and collection centres. In fact we came together because we had the common ideology in terms of vehicle recycling. Also, if you see a brief history of these two companies, they have been trading a lot in the last so many years and frankly, we have been trading in steel and metals for more than 75 years. So for us this was a national integration way forward.
Along with MSTC which has also been trading in steel, scraps and metals, it was great to come together because the idea was from their side; MSTC could give us the reach, it had a lot of market penetration, plus it is one of the largest e-commerce portal companies in the country. For us, it was because we had this know-how on the IPR on the automotive industry, plus coupled with steel we thought it is a great thing to get into this industry and make sense especially keeping in mind sustainability, something as a group we want to achieve going forward.
How many scrapping centres does CERO have currently? Issar: The way it is today, we have a plant which is already operational in Noida and we are just about to open our second plant in Chennai. It is almost done, we are waiting for some final clearances and I think may be this month or next month that should be operational. The bigger plan is to have about 25 collection centres across the country coming up in the next 2-3 years. I think in this fiscal year we are looking at another 4-5, and both we and Singh are working very hard to make sure that we achieve this deadline before the final policy actually comes out on this. You are saying 25 more scrapping centres are in the pipeline? Issar: Yes, 25 more scrapping centres are in the pipeline in the next 2-3 years. Singh: The number of end-of-life vehicles per se is 28 million, the end-of-life vehicles definition are not defined as of yet, but post-Bharat Stage era, that is 2000, there are 28 million vehicles which have already crossed 18-19 years of its life. So if tomorrow any scrappage policy comes these many vehicles will be required to be scrapped. So, there is a huge potential for collection-cum-dismantling sectors as well as for the shredding plants. That is how we are already geared up and one collection and dismantling centre has already become operational in Greater Noida, another one is already ready, we are waiting for certain clearances which will be happening in a month or two and that will also become operational.
Now the third and fourth have been planned to come up this year, so we foresee a very huge potential of this scrapping centres to be opened up in India.
The other question and this follows from what you are saying, you are saying there is an opportunity to scarp 28 million vehicles. What is the economic potential of the scrapping sector in India? Singh: Presently, India is importing 28 million tonnes of shredded scrap or heavy melting steel (HMS) scarp but the demand is somewhere around 35-36 metric tonne so there is a gap of 7-8 million metric tonne, so this gap will have to be bridged by scrapping more and more vehicles. At present India is importing fully shredded scarp and HMS from abroad. Now once this policy comes and recycling takes an opening in India definitely there will be a lot of curbs on imports and lots of savings will be there in the imports towards the shredded scrap in India. Scrapping guidelines, in the sense guidelines on setting up scrapping centres, have been brought in by the Ministry of Road Transport, they have to be notified formally. But do you still await a larger policy, a guiding policy for both white goods and automobiles? Issar: As you know a draft policy has come and we are giving our own comments on that. A clear request from our point of view and maybe from the industry is that it needs to be very specific, if we really want to make. It can create lots of advantages for the industry across, even for the governments for that matter. The reason why we are saying this is that if it is a very clear defined policy in terms of age or with the kilometres, both together it will actually help a lot of recycle materials coming back.
As he said 28 million vehicles would mean average about 600-700 kg of vehicles which means about 14 million tonne of steel can get recycled in the next couple of years. If that is what it is, really we need to take care of items of recycling and potential it has. The policy needs to be slightly much more focused, both for the automotive industry and for the home appliances because a large part of the steel gets consumed in these two sectors.
It can actually be a win-win for the end customers because they get the advantage, they get price for their old vehicles. It can also help the government because there is increase in tax collections and it will help them get better revenues from it. Also, I would say for the industry as such because then the industry also benefits in terms of new cars getting replaced by the old cars and that is the way worldwide they have been having these kind of policies in most of the developed countries, and it has been quite successful.
Would you want an incentive-based scrapping policy, why would a customer bring his vehicle to the scrapping centre? Issar: You are right in that sense. Initially anywhere if you see across the country and the world, people are given incentives in the first few years and as things move forward, incentives have been curtailed.
So in India also we believe that needs to be some added advantage for the customers if you want to get things started. But as it moves on, I think the market forces should take over and then basically it should be on its own. So we would request the industry and maybe the support from the government for these kind of incentives.
What kind of an incentive are you looking for from the government at this stage? Issar: What we look at is that when you look at having your old vehicles getting sold, some sort of a goods and services tax benefits on the new vehicles purchased, or something relating to maybe in terms of incentives from government on setting up of these plants. I think that will give a great impetus for the industry to move forward in this direction. Q: What does MSTC bring to the table as far as this partnership goes? Singh: MSTC is into the scrapping business for the last 54 years and we have been in touch with many stakeholders who deal in the scraps. We are also one of the leading e-commerce service providers in the country. So we will bring a very transparent way of procurement of the vehicles. We hope that the vehicles will be purchased through the e-auction platform of MSTC, it is being procured through e-commerce portal of MSTC and we are also purchasing directly from individual owners. So that kind of transparency and the procurement of the purchase of the vehicles will be brought in by the MSTC.
Regarding your earlier question of what kind of incentives people can expect from this policy – you are aware that the voluntary vehicle fleet monetisation programme was envisaged by the minister of road, transport and highways. As per that, there were three things which were being talked about. One was that if the owner of the vehicle brings old vehicle then he will get the scrap value to the tune of 4-5 percent of the new vehicles to be purchased. So that was one incentive that was being talked about. The second one was that the manufacturers will also give discount to the tune of about 4-5 percent of the new vehicles to be purchased and third was in the relaxation or the incentives in the taxes like GST. So these three incentives were being talked about. Now the government has to decide as to what can be offered in the new draft policy, which is going to be announced shortly by the government.
Also the talks are that there will be relaxations in the registration fee of the new vehicles to be purchased. So there are too many incentives, which are being talked about, which is being expected by the people at large. Let us see. However, without incentives I think this sector will not take off fast. So some kind of incentive has to be provided so that this industry takes off very fast.
To speak about the economic potential, you were telling us and this is something Singh also said that this would probably produce 14 million tonnes of steel and will help reduce our import bill as well, but just in terms of generating economic activity employment, do you sense some numbers here, profits that you are looking at in the next five years maybe? Issar: Let us put it like this. If you see, at this stage people will have to look at investing in the next three-four years to building up these kind of collection centres and the shredding plants across the country. So the initial capex, in the first few years will be very high but what it will do in terms of the number game going forward is it will create lots of infrastructure in the country for the cars to get pass to get recycled, which would mean that there will be a lot of employment because for every collection centre there are about 100-200 people, which keep on getting added. The way we would see is India has a potential of at least 400-500 collection centres going forward in the next two-three years depending on how the policy comes. India does have that potential.
With each of these collection centres, there will be a lot of supply chain advantages, which will in turn make sure that a lot of people will get employed directly or indirectly. In terms of revenues, it is going to be the next million dollar industry we would say but the challenge of course would remain in terms of profitability because as you know, the steel margins are quite thin, the scrap margins are quite thin and the initial capital investments in these kind of projects are going to be pretty high.
What has been your own investment in Cero? Issar: While we have not been publically declaring it, we are looking at about Rs 150 crore investments in the next one year kind of a thing in terms of what we have done and what we will do.
However, we do look at scaling it up as we move forward to up to Rs 400-500 crore depending on the market opportunity and also given the kind of policies it bring. For that, of course the policy holds the key I would say and there is going to be a sizeable number, which from both MSTC and Mahindra side will have to put.
How many vehicles have you scrapped at your Greater Noida plant so far? Issar: That is very interesting and before replying to that, at Cero our first plant at Greater Noida we have recycled about 1,500 vehicles but more than that what we have done is we have been able to create an awareness in the northern markets especially the National Capital Region to customers across those markets.
The kind of response we are getting, we get about 3,000 responses from customers on the kind of recycling we have started doing and all put together about 30,000 customers are in touch with us today.So while we are moving forward step by step because we have just productionised our plants, what we expect is in the next one year’s time, we would be recycling about 30,000-40,000 cars maybe by the end of this year or maybe early next year.