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Trading Sector in India has Also Grown Interview with Malay Sengupta, CMD, MSTC Limited

What is the overall scenario in the trading sector in India?
When I talk of the trading sector, I essentially talk about the sector engaged in trading of industrial inputs and outputs. In India so far, no major trading house has emerged in this area except perhaps the Adani Exports Ltd. and MMTC. However, due to the sudden firming up of the commodity market, many players have entered the field. Nevertheless trade finance would appear to be the main thrust area. Although simultaneously, sourcing from unconventional sources has got a fillip due to the non-availability of the material from traditional sources. However, on the whole outlook for the trading sector would appear to be bullish.

What are the thrust areas for trading business in India?
This varies from business segment to business segment. However, in general, a trader has four functions to discharge -
He should procure material from various sources so that the customer has a choice and buy any mix of the inputs suitable to his requirement.
Value addition
A trader must add value to the commodity whether by way of further processing, giving off-the-shelf delivery thus reducing the lead-time for the customers, or through after sales services or whatever.
Credit arrangement
A trader extends credit to the buyer or advances money to the manufacturer on behalf of the buyer etc.
A trader normally arranges to deliver material at the customer’s place. It may thus be seen that the basic problems of the trading sector is to facilitate the job of manufacturers. In India, all four factors are important. However, trading is yet to take place as a sustained and large scale undertaking except in a few isolated cases. However, both in procurement of inputs and marketing of finished outputs in the industry, the trading sector needs to play a much bigger role.
What are the trends in the global trading business?
Globally two trends are emerging. One set of global trading houses investing in the manufacturing, facilities and taking up marketing rights of products from such industries. Another set is booking material in advance by paying cash margins and also by agreeing to a minimum price and thus taking a position. Logistics in international trade is playing a very important role specially since the freights have gone up significantly due to the non-availability of suitable vessels for bulk cargoes.

What are your views on the future of the Indian trading business?
With industrial growth, trading sector in India has also grown. However, there is a need for a change in the mind set. What is needed is formation of long-term relationship rather than one short transaction. Also VAT needs to be introduced to facilitate trading. Nevertheless, trading has emerged as a need of the market and as the market grows, trading must necessarily grow. However, there is also a growing tendency for consolidation of the market. When there are few producers, they will have in-house trading arms and the role of merchant traders will go down.

What about MSTC’s recent activities?
MSTC has two major portfolios – one is that of disposal agent for scrap etc. In this portfolio, MSTC has launched an e-auction portal, which is doing quite well. Although at present MSTC is disposing off about 10% of its total disposals through e-auction, it hopes to convert most of its disposal business through e-auction within a few years. At present, about 1500 customers are registered with MSTC’s e-auction portal.

<>In the area of marketing, MSTC has been able to increase its turnover to about Rs.3,000 crore. Profit-wise 2002-03 saw a record profit of Rs.9 crore which represented an earning of about Rs.41 per share of Rs.10. This year, i.e., in 2003-04, the company expects to make a profit of more than Rs.14 crore which will represent an earning of roughly Rs.65 per share of Rs.10 each.
What is the strategy your corporation will be adopting to overcome the stiff competition?
Customer service is the only way to build up competitive edge for trading/services and MSTC will do so by adoption of I.T. Computer density in MSTC is already about 35% and by 2004-05, it should exceed 50%. This, together with continuous streamlining of procedures will help MSTC in giving better and quicker services to its customers.

What are the challenges facing MSTC today?
In last six years from 1997-98, profits are expected to grow about 8 times. This will represent a post-tax return on net worth of about 20%. The challenge, therefore, today is one of securing and consolidating the business achieved and then takes another leap forward.

What are the new areas of operation you are looking at?
As mentioned above, at the moment we are looking at consolidating rather than expansion of business. However, if suitable opportunities arise, MSTC will try to tie up with mines owners/manufacturers in the area of iron and steel for marketing of their products. This may take a few years to take off. However, as a trading house, we are looking at this direction. We are also looking at building up our strength in the area of logistics.

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