Since the liberalisation of trade in India, MMTC has flourished and grown, but the journey to success hasn’t been easy. Marketing director Sunir Khurana explains to Gay Sutton how the company has become the country’s largest non-oil importer and the largest exporter of minerals.
The growth of the Indian economy since 1991—when the first of a series of economic reforms was introduced—has been impressive and spawned many global business giants. By 2007 India was declared the second fastest growing major economy in the world, only surpassed by China, which has been liberalising its economy since 1978.
One of the companies to rise to the challenge of liberalisation is MMTC, which today holds the position of India’s largest international trading company. Originally established in 1963 as the state-owned Minerals and Metals Trading Corporation, the company was responsible for exporting minerals such as iron ore, chrome and mica, and importing non-ferrous metals such as tin, zinc, lead, nickel and aluminium, and it held a monopoly on the trade through India’s canalisation system. In the 1970s, fertilisers and diesel oil were also canalised to import through MMTC, and in the 1980s diamonds and bullion were added to the company’s portfolio.
However, all this changed in 1991 with the beginning of India’s economic reforms. The liberalisation of trade was one of the first acts on the government’s agenda and MMTC was hit hard. Most of its trading markets were decanalised almost overnight and competitors sprung up left, right and centre, all eager to snatch a slice of the cake.
“It was essentially a free-for-all,” explains marketing director Sunir Khurana. “And it caused a sudden and dramatic drop in our turnover in mid-1992. However, we did have a head start in some market areas. We knew the minerals buyers and suppliers and we had good trade relations with most of them.” The company did very well retaining its iron ore trade too, as it had an excellent logistics network capable of moving the iron ore from the producer to the port iron facilities, and exporting it to stable long-term buyers in countries such as Japan.
“What was more difficult for us was where we were importing goods for end-user companies. They could now go directly to the suppliers and import the products without going through us,” Khurana explains. “They didn’t need us any more—it was as simple as that.” And this hit several key trade channels.
The company developed a two pronged strategy to survive in this completely new business environment. Firstly, it began the process of consolidating its existing business by building on its areas of expertise and its market knowledge. And in 1993 it changed its name officially to MMTC Limited. Today, the company is the country’s largest exporter of minerals and pig iron, the largest importer of bullion, non-ferrous metals, agro products and steam coal, and continues to be a major player in the import of fertilisers.
The second prong of the growth plan was to diversify into closely associated industries through a range of joint ventures and linked activities. The first step was to invest in an integrated steel plant in Orissa under the company name Neelachal Ispat Nigam—a joint venture in which MMTC holds over 49 per cent of the shares, the remainder being held by the state of Orissa, the mining company NMDC and various financial institutions. Set up in the mid-1990s largely to produce pig iron (one of MMTC’s major export lines), the venture has been so successful that it is now India’s largest producer of pig iron. “We suffered for the first five or six years while the steel industry was going through a bad phase,” Khurana says. “But at the beginning of the decade it took a turn for the better and the project took off. Steel making facilities are currently being set up at the plant, and should be ready to commission by the beginning of next year.”
In 1994, the company also began to extend its reach in the global marketplace by setting up a 100 per cent wholly owned subsidiary company in Singapore to take advantage of the south-east Asian market, and this step has also been hugely profitable. “As a public sector owned company in India, our hands were literally tied as far as trading was concerned. We felt that a subsidiary in Singapore would have more freedom to operate and take decisions more quickly,” Khurana explains. “We opened the subsidiary with the share capital of $1 million, and it has delivered dividends far in excess of the initial capital. Last year its profits were in the range of $7 million.”
In the intervening years, the company has moved into other joint ventures and public private partnership, and currently has five at various stages of implementation, all of them complementing the company’s core trading channels.
Currently, India only has two ports capable of handling vessels of 110,000 tons, but that is about to change. Ennore near Chennai is being developed as an alternative port for the export of iron ore, and is being expanded to handle vessels of this size. As part of the joint venture partnership undertaking the expansion, MMTC has invested some $7.3 million in the project in return for 26 per cent equity holding, and expects that the port will be operational by the end of August this year. “It will give us many advantages. We will not only use the port for our own exports but also for associate exports, so it should generate significant revenue.”
The company is also in the initial stages of a similar project to double the capacity of the port at Paradeep in Orissa and construct a permanent deep draft iron ore berth. Located some 150 kilometres from the company’s pig iron factory, Paradeep is the plant’s main export port—and when this project reaches completion in 2013, it will support growth in the plant’s output.
The other area of considerable expansion and diversification in recent years has been in bullion, where MMTC leads the field as an importer. Nearing completion is a joint venture with world leading medallion manufacturer, Pamp SA of Switzerland, to set up a medallion manufacturing company in India some 60 kilometres from Delhi. MMTC will hold 26 per cent equity share in the company, and will supply the gold. Civil construction of the manufacturing is almost complete; and commercial production of gold medallions is due to begin in April 2011. Alongside this, the company is also constructing a refinery at the site, which will enable it to import lower purity gold and refine to the required level.
It is, however, another of MMTC’s joint ventures that will change the face of the company throughout India and make it visible to the public for the first time. The company has linked up with India’s leading diamond jewellery retailer, Gitanjali, and is in the process of launching a chain of retail stores selling gold and diamond jewellery, medallions and silverware. Aptly named Shudhi, which means purity, the stores will be located across India, not only in prestigious districts and large cities but also in small towns, making MMTC a household name. At present, the target is to open 63 stores in the next three years, and 14 of these are already operational.
MMTC has also extended its trading capacity by setting up a commodity exchange—Indian Commodity Exchange (ICEX)—as a joint venture with Indiabulls. The fourth of its kind in India, the exchange currently trades in bullion and agro products, but the plan is to extend this to include iron ore.
Looking to the future, there are several projects in the pipeline, all of them linked to existing lines of business. Applications are in place to set up a beneficiation plant to upgrade lower grades of iron ore for export, and a feasibility study is planned for the future.
“The final move is really a feather in our cap,” Khurana says. “We have been allotted a coal block in the main coal producing belt in east India. The coal reserves are estimated to be around 800 million tonnes and are largely of coking coal, which is in short supply in India.”
The block is expected to produce something in the region of two million tonnes a year, which will be a step towards energy independence for a country that currently imports around 30 million tonnes of coking coal annually. Exploration work is now in progress and, providing everything goes well, the company hopes to begin commercial production in around five years’ time.
There are still challenges ahead for MMTC, though—and finding staff with the right skill sets is at the top of the list. With each of the joint venture projects, the relevant skills are supplied by the joint venture partner who has expertise in that area. However, in the core trading activities the company employs over 1,800 people in 20 offices across the country. “And the number of people who can really deliver is just a fraction of that. With the changing economic environment, and the salary scales we can only offer as a public entity—our salary scales are decided centrally by government—we are only able to attract a few with the right talent. It is a problem, and there is no easy solution at the moment.”
However, MMTC has come through economic liberalisation very well. Today, it has a healthy balance sheet, strong backing from the financial institutions and solid plans for future growth. “We hope to end this year with a turnover of around 500,000 million rupees, which is 10 per cent up on the previous year; and our profit margin will be about the same. However, in five years’ time,” Khurana concludes, “our aim is to be able to double this year’s turnover.” www.mmtclimited.com
