Our experience of Making in India

Sharing our experience of

Making in India

JUNE 2014

16 Oct 2014

Sridhar Krishnamoorthy, Managing Director, Gerdau India

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Agenda

Gerdau

Who are we?

Our investments in India

Gerdau Steel India Limited, Andhra Pradesh

Challenges faced & how we resolved it Example 1 - Electricity Example 2 – IT & Telecommunications

Key Takeaways

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Agenda

Gerdau

Who are we?

Our investments in India

Gerdau Steel India Limited, Andhra Pradesh

Challenges faced & how we resolved it Example 1 - Electricity Example 2 – IT & Telecommunications

Key Takeaways

Global Presence

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Gerdau around the world

Headquartered in Brazil, one of the largest steel producers in the world

Head Office

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Gerdau in Numbers

113 years of history; started in 1901; HQ in Porto Alegre, Brazil

Operations in Americas, Europe & Asia (in 14 countries)

45,000 employees / ~120,000 customers / ~140,000 shareholders

Installed capacity ~ 25 M tons of steel / year; Globally 15th largest steel producer

Listed on São Paulo, New York, and Madrid Stock Exchanges

Turnover USD 20 Billion, Produced 20 Million tons of Steel 2013

Iron ore operations in Brazil - By 2022 to produce 24 M tons

Major worldwide supplier of special long steel to transportation and energy sectors

First footprint in Asia is in India

Investing in Andhra Pradesh, India, since 2007 – first footprint in Asia

Started operating from 2013

Products and End Use Segments

• Billets, Blooms & Slabs

• Merchant bars

• SBQ

• Wire-rod

• Rebars

• Fabricated steel

• Heavy structural shapes

• Nails

• Wires

• Housing

• Infrastructure

• Agricultural sector

• Automotive industry

• Oil and gas sector

• Shipbuilding

• Wind power generation

• Mining

• Other industrial sectors

Aplicação do produtoSpecial Steel Products Applications

Infrastructure and Buildings

Special steel – Automotive products

Special steel – Energy products

Gerdau Steel India Limited (GSIL)

Jambalapadu Village, Tadipatri, Ananthpur District, Andhra Pradesh

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Gerdau Steel India Ltd.

Company Name: Gerdau Steel India Ltd. Company Type: Public Ltd. Steel Plant Tadipatri, Andhra Pradesh Corporate Office Bangalore Product Portfolio: Special Steel Bars

General Info

Tadipatri, Ananthapur District, AP

• Crude Steel Capacity:

• Rolled Steel Capacity:

Steel Mill

300,000 t

300,000 t

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One of the most under developed regions in AP

Investments till date: INR 2700 Crores

Jobs created: 3000

Multiplier effect in the local economy

Andhra Pradesh

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We are spending INR 1.5-2 Crores during 2012-13 and 2013-14

CSR Activities

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Ananthapur DistrictReasonable GDP but not the highest in AP; less of a manufacturing hub and more agriculture / live stock

Source: Government of AP

in INR Crores

Ananthapur District

State of Andhra Pradesh

Share in State %

Agriculture 7,329 114,492 6%Industry 12,192 96,563 13%Services 14,966 208,366 7%TOTAL 34,487 419,421 Source: AP Government Papers

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Agenda

Gerdau

Who are we?

Our investments in India

Gerdau Steel India Limited, Andhra Pradesh

Challenges faced & how we resolved it Example 1 - Electricity Example 2 – IT & Telecommunications

Key Takeaways

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Infrastructure Needs

Gerdau Tadipatri

Mill

Water

Ports

Road Network

Rail Network

Skilled Workforce

IT & Telecom

Social Amenities

Electricity

2500 m3 per day

35 MW

ERP, multi-location operation

For import of raw materials

Raw materials and shipment of finished goods

~ 3000 employees

Employee attraction and retention

Will focus on 2 examples

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2

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Impact of deteriorating power situation on our operations

Power Deficit in the state - lower capacity utilization, high transmission losses,

lack of coal in thermal power stations, priority for crops

Power Holidays – announced without much notice (sometimes over a SMS)

created huge challenges…cannot shut down a furnace operating at 1600 deg C

Too many organizations to interact with – Electricity Regulatory Commission,

Transco, Generation companies and getting NOCs etc every month

Lost value in our operations: We had to optimize and even shut down those

parts of the plant that could be shut, to reduce power consumption

Political Factors: Pro- & Anti- Telengana movements and various bandhs

interrupted our operations numerous occasions throughout from 2010-elections

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Str

ateg

y to

mee

t E

nerg

y D

eman

dOpen Access

Thru’ IEX

Open Access Bilateral Contract

Open Access for Incremental 5 MVA

New Dedicated 132 KV Feeder

Enhance CMD from 17 MVA to 35 MVA

Optimize Consumption using Demand Controls

Captive Power Plant 6 MW

Captive Power Plant 15 MW

Purchased power through open access during power holidays

Commercially not workable

• Built 132 KV line (7.5 km) costing $1.765 M• Access negotiations thru 22 private lands• Took 21 months; 60 jobs

Option not exercised yet and will be possible after the dedicated feeder is ready

• Uses by-product Blast Furnace gas• Capex $ 8 M; Took 36 months; 80 jobs

• Currently under construction• Uses waste heat recovery• Capex $ 14 M; 5 years; 125 jobs

Our Approach to Resolve Electricity Infrastructure Issues 1

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Existing 132kV Future 132kV

12 3

4 56

7

8

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0

21 2

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4

25

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Gerdau Steel India Limited

Construction of the 132 KV Line

Key Data

Distance: 7.5 kms

No of Towers: 28

Start date Dec 2012

Finish date Oct 2014

Capex : USD 1.8 MM

No of jobs: 60

Got excellent cooperation from AP Transco but faced challenges during access negotiations with

various private landowners, getting suitable experienced contractors to work in such remote areas,

managing the construction with little power equipment like cranes, meeting a tight timeline and budget

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i. Frequent Damage / Disruption to OFC cause Tadipatri plant to isolate from rest

of Gerdau (PRI / WAN Disconnection)

ii. High Attrition due to poor social life and amenities in /around Tadipatri

iii. Power Outages and High range Power fluctuation causes risk to Data center

and Critical and Sensitive Equipments

iv. Shipment delays affecting projects schedule since almost all courier companies

do not deliver in Tadipatri

v. Communication – having 1 communication channel for Gerdau India– VoIP

vii. Most vendor do not find it attractive to take up Annual Maintenance contract

and services at Tadipatri due to long distance from Bangalore or Hyd.

viii. Big challenge to find vendors to do small work - high freight & high travel cost

IT and Telecommunication Challenges 2

Infrastructure Challenges IT & Telecommunications

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Long distance

WIRELESS point to Point

Helps avoid Civil Work and reduces the

lead time for implementation

Load Balancing and Failover for WAN and

Internet for high availability

Visitor, Contractor and Attendance management and Face Recognition system

Automation IT Infrastructure readiness to support QMOS Phase 1 SMS

Pan India Wide Area Network - better communication and collaboration and access to SAP

E Approval for fast approval cycle

and paperless office

Outsourcing of critical to overcome Local talent scarcity and

Attrition

Desktop Virtualization Project ; Better GovernanceBetter Data securityLower TCO

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Our Infrastructure Spend

Gerdau Tadipatri Mill

Water

Ports

Road Network

Rail Network

Skilled Workforce

IT & Telecom

Social Amenities

Electricity

$ 22 M

$ 29 M

$ 0.5 M

None

$ 2 M

$ 10.5 M

$ 1 M

Total Investment INR 2700 CroresOn infrastructure INR 360 Crores

$ 65 Million ~ 15% of our total investment

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Agenda

Gerdau

Who are we?

Our investments in India

Gerdau Steel India Limited, Andhra Pradesh

Challenges faced & how we resolved it Example 1 - Electricity Example 2 – IT & Telecommunications

Key Takeaways

The automotive and transportation market in general is poised for strong growth – Make in India initiatives, high speed rail, growing auto sector, smart cities

Also seeing potential for construction sector to grow as the economy picks up

The new state of Andhra Pradesh is also expected to invest in development of new cities and develop infrastructure in ports, airports, rail networks, & transportation

Infrastructure companies can piggyback manufacturers & provide outsourced solutions; build & manage Water infrastructure for manufacturers Social amenities such as townships, canteens And offer energy solutions to serve the needs of manufacturers

Opportunities in engineering and consulting

Opportunity to tap into Indian R&D skills

Key Takeaways - Our experience so farChallenges exist but so do opportunities

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