Tronix India Ltd is a venture to manufacture, sell and provide services to regenerate the spent acid used for pickling. It is expected to revolutionize the iron and steel industry in India. The venture has developed a process called ‘ Clean ’ to recycle and use for productive purposes the acids used in the iron and steel industry during the different stages of processing. At present, the iron and steel industry completely discharges the spent acid used for pickling a batch of steel, which causes environmental hazards. The major costs in pickling are due to the acid used and its treatment before discharging it. Small and medium companies in the sector, because of very thin margins, prefer to dispose it of without treating it, thus contaminating the environment. At times, these units may be forced to close down because of regulatory pressures from environmental authorities.
The company has developed a system called Clean , which involves a simple mechanical and chemical process to regenerate hydrochloric acid from the chemical waste at minimum operational cost. The process helps in minimizing waste treatment and helps in getting a value-added product—hydrochloric acid—while reducing dramatically the treatment cost along. It helps in reducing not only the treatment cost but also the requirement of hydrochloric acid by these companies to the extent of almost 80 per cent. This process is also producing ferric acid, which can be sold in the market. The team has won a number of business plan competitions in India, which has reinforced the confidence and courage in the team to take it to a scaleable level. The team involved has already filed a provisional application for seeking the patent, which gives it an edge over others in terms of priority. It is also confident of filing the complete specifications within four to five months. A full-scale design of the system will enable proper testing, ensuring that it delivers tested performance and output as envisaged.
Market analysis reveals that the re-rolling sector mainly consists of small and medium units. A survey undertaken by the Development Commissioner for Iron & Steel (DCI&S) reveals that small-scale units with an average capacity of 11,550 tonnes per annum account for around 53 per cent share of the total capacity of the industry. A quick market research undertaken around the national capital region, including part of Delhi, with more than 35 companies, reveals that around 30 companies will be interested in buying it because of its inbuilt advantages.
Clean promises to be cost effective and environment friendly compared with the present pickling method used. A majority of companies neutralize the spent liquor with lime and dispose of the neutralized waste to landfills. Clean can be set up onsite and thus will help even in reducing transportation of waste. The associated benefits are reduction of the demand for virgin acids and elimination of chemicals to neutralize waste acid and energy and cost savings associated with transportation and disposal.
Some of the key features and associated benefits are as follows:
The company will be mainly targeting small- and medium-scale industries having a processing capacity of less than 200 tonnes per day. The units that would benefit from the introduction of this technology include one involved in processing finished steel plates, HR sheets and HR coils. Although there is widespread market in different parts of the country, Tronix proposes to start with the national capital region mainly because of greater concentration of steel pickling factories in the region. The marketing strategy of Tronix would focus on personal selling, direct mailing, making business calls to targeted customers and showcasing the process in trade fairs.
The Tronix team is a unique team with well-balanced technical, marketing and financial expertise. As such, the team came together from their college days when three of them, Tankit, Kritik and Gaurav, were studying together in one of the prestigious institutions. All of them have gone through certain professional experiences after completing their studies. The team has won a number of business plan competitions in India and abroad. As such, during presentations before venture capitalists, while participating in business plan competitions, the team got a favourable response from some venture capitalists in funding the venture after full proof of the process and the test stage was over. The team has the good fortune of having two mentors. One of them is K. K. Dhaiya, who has more than 30 years of teaching and research experience and has given consulting services to a number of metal processing industries. The provisional application for patent has been jointly filed by Dhaiya and Tankit. The team has also been getting mentoring support from K. K. Agarwal, Tankit’s uncle, one of the industrialists involved in running his own company in the national capital region, which is working in the iron and steel industry. The team proposes to undertake all its testing and development along with him at his company.
Tankit has done his BE in Mechanical Engineering from IIT Delhi and MBA from FMS, Delhi. After completing his education, he served for more than three years in a medium-sized steel company, where he got an idea to take further his business plan that he had conceived along with his other friends who were studying with him at IIT Delhi. He is highly innovative, which was evident from his winning a number of awards and prizes in different innovative competitions organized by prestigious organizations. His team won a few business plan competitions organized by reputed institutions such as IIT Mumbai, IIIT Allahabad, SRM University and Rice University. He will be the Chief Executive Officer and would hold 62 per cent of the equity stake in the company.
Kritik will be the Chief Financial Officer. He did his B.E. in Metallurgy from IIT Delhi and thereafter pursued his CA. He has served as Finance Officer with a large engineering company located in Kota having its corporate office in New Delhi. His experience in managing financial matters, including fund-raising and accounting aspects would be highly valuable for the venture. Kritik has agreed to have 20 per cent equity stake in the company.
Gaurav also did his B.E. in Mechanical Engineering from IIT Delhi and was placed with Tata Motors during his campus placements. The company, keeping in view his profile, had deployed him in the marketing department and had associated him directly with the Assistant Vice President Marketing, where he gained five years of experience in marketing. He was always eager to start his own venture. Tankit, CEO, asked him to join his team for the venture and proposed to give him 8 per cent share in the equity. Gaurav readily agreed to become part of the team. The remaining equity is proposed to be given to K. K. Agarwal, mentor for the venture, who has been closely associated with Tronix from its conception, when the founders were studying in IIT Delhi, continuing into the subsequent phase, when they were deliberating on the idea while being in employment or engaged in further studies.
Risks associated with the venture are the emergence of more advanced technologies that are more cost-effective. There are also intellectual property right risks that are associated with the venture. Other promoters having more money power may copy the process and with a subtle difference provide solutions to the iron and steel industry. Promoters are aware that it is not worth pursuing legal hassles, especially in an area where technological solution to a problem may keep coming up quickly. It is likely to face strong opposition from acid manufacturing companies who see that demand from these companies is likely to reduce dramatically. It is also important to keep in mind the fact that steel re-rolling mills operate on a very thin margin and therefore may have certain resistance in the beginning to accept new changes which would come in the way of promoting sales.
A capital expenditure to the tune of `1.5 crores is required to take care of the start-up machinery cost, other fixed assets, lease rentals for plot in the industrial estate and the initial shed construction cost. An initial operating expenditure to the tune of `2.5 lakhs per month for the first three years is the additional requirement. The initial investment is proposed to be inducted by way of equity contribution by the promoters. At a conservative sales estimate, it is expected that break-even would be achieved in the 15th month from the date of launching the business.
1. What do you think is the weak link in a venture based on the information given?
2. Comment critically on the strengths and weaknesses of the team to convert this venture into reality.
3. If you, as an angel investor, have to assess the team strength, in what areas, if any, would you like it to get further strengthened to have confidence for funding?