JSW Steel, one of the country’s top steelmakers, is planning to set up 19 stockyards across the country to support and push its retail sales through its own retail format – JSW Shoppe.
Around five years ago, the strategy was initiated with the first store in Hubli, Karnataka. The company now has 350 outlets primarily located in Tier II towns.
“Around 23% of our sales are through JSW Shoppe now, and we want to take it up to 40% in the next three years,” said Seshagiri Rao, group chief financial officer.
The company is growing its retail outlet numbers rapidly and would require these stockyards to act as an inventory backbone to support sales as and when required.
JSW Steel has designed three stockyard formats. The first is the classic warehouse, with a capacity of under 5,000 metric tonnes (mt) and spread over an area of one to two acres. There will be around 11 such storehouses across all major Tier II cities in the country.
The second are the big stockyards with capacities ranging between 5000 mt and 20,000 mt and will be spread over an area of three to five acres. These would be in New Delhi, Guwahati, Patna, Chandigarh, Coimbatore and Kochi.
The third category will be hubs, also called large stockyards with a capacity of above 20,000 mt. This will cover an area between seven to 10 acres and will be located in Faridabad and Ghaziabad.
“The formats and the locations have been chosen based on the required accessibility and the cheapest cost of transportation and maintaining the stock,” said Rao.
He said these stockyards will be maintaining an inventory of around 60 days unlike the company itself which tries to maintain its inventory of 10 days as products move faster into the market through retail sales.
However, analysts say by pushing sales through its own retail outlets, the company will be able to eliminate the margins paid to dealer and traders, the move to set up such yards will not impact the numbers significantly.
“The retail outlets have not led to exceptionally better margins for JSW, but yes, that has helped push the sales to some extent,” said an analyst from an international brokerage.
But he expressed doubts that the company will be able to achieve retail sales of 40% in the next three years.
“Karnataka iron ore issue is a very big overhang on the company and unless that is resolved, JSW will lose on several fronts,” this person said.
JSW Steel, which had been scrambling for iron ore after the Supreme Court banned mining in Karnataka in August last year, is currently operating its 13 million tonne steel plant in Vijayanagar, Karnataka at 80% capacity.
While sales have increased every month due to increased capacity from last year, its capacity utilisation has been fluctuating due to uneven supply of iron ore under the e-auction route.
To be sure, the company has recovered from low utilisation rates of 30% seen in December, but 100% utilisation is still a far cry, said analysts.
For May, the company produced 7.24 lakh tonnes of crude steel as against 5.77 lakh tonnes in the same month last year, which is a growth of 25%.