Market Analysis: Is There Demand for TMT Bars in Your Region?
Thermo Mechanically Treated bars or TMT bars as they are commonly known forms the most important material in any construction project along with cement and sand. The specification and quality of the TMT is derived from the civil and architectural design of the project. While, they are available in almost every market, the buyer's decision is guided by recommendations of the civil contractor and architect. The buyers in general are also influenced by price and brand recall.
Now imagine that you are not the buyer. Rather you are an entrepreneur planning to set up a facility to manufacture TMT or taking dealership of a TMT manufacturer. In both the cases, you will start thinking about (i) market acceptance perspective and (ii) demand perspective. Though technology is an important planning criterion in such a case, this will be applicable if you are planning to be a manufacturer. Further, TMT technology is proven, hence there is not any concern in this area of project implementation.
Hence, the most important aspect prior to project planning is, assessing the market demand perspective and what methodology you should follow to assess demand. In doing so, you also need to understand your competitors and their reputation. Knowing your competitors better will help you plan your strategy.
For example, you may find that there is very respectable TMT supplier in one catchments zone. But, supply from that supplier is infrequent, which forces buyers from that zone to rely on alternatives. This or information of similar nature will be of immense importance for you. Irrespective of the fact that you may be a manufacturer or a distributer, you must assess the market thoroughly.
Before going into detailing, I would first try to define the fundamental differences between the two models of business i.e., setting up a manufacturing facility and taking dealerships.
In the second case, your investment is less, primarily limited to the working capital. The manpower requirement will be limited to sales force and a bit of stores management. Sales will be the core function of your business. Your sales targets can be limited as there may be multiple other dealers/ distributors in the area and that area or catchments area will also be small, say 100 sq. Km. Your sales may largely be depending on the marketing/ promotional activities carried out by the manufacturer and your sales networking in the area. Your exit from the market is simple. The major risk will be the blocking of working capital.
However, in the first case, you are going for a larger investment in creating the facility and physical infrastructure. Your plant capacity should be over and above the critical capacity to ensure lower overhead cost. Because of higher capacity, you have to look for a bigger catchments area, many times bigger than the catchment area of a dealer / distributor. You will have other obligations like, managing manpower, compliances etc. All these would make your exit difficult and as a result, you need long term strategy and, a thorough understanding of the market remains primary criterion.
Due to the basic differences between the two business models, there will be some structural differences in the demand analysis. But for all practical purpose the methodology for assessment should remain similar. In the following write up, I have tried to explain demand assessment methodology on a broader level.
| Assessment Type | Methodology | Narration |
|---|---|---|
| Assessing the demographic profile in the catchments area | Primary & Secondary Research | A study of demographic profile in the catchments area, primarily population, growth trend, income etc, provides rich information about purchasing power in the jurisdiction. A combination of secondary research supported by primary research should help. |
| Understanding area development plans | Secondary & Primary Research | It is important to understand the developmental plans in the catchments area, which may be available from the state / district development plans of the zone. Primarily, secondary research should be adequate. Sometimes interaction with local bodies and municipalities to understand the development plans may be required. |
| Assessing the quantum of construction activity happening in the catchments area | Primary Research | Since, the primary use of TMT bars is in the RCC (Reinforced Concrete Work) work, the first step in establishing demand is to find out the extent of construction activity happening in the catchments area. Typically, your catchments area will be around 250 Kms radius, in case you are a manufacturer. If you are a trader, the catchments may be narrow. On the basis of thumb rule, the consumption of TMT per cubic meter of construction is as follows, ● Civil Construction / Heavy Industrial Construction = 130 kg/m3 ● Commercial Construction = 100 kg/m3 ● Institutional Construction = 90 kg/m3 ● Residential Construction = 85 kg/m3 In building construction approximately 4 kg of steel is used per square ft of built-up area. If you can have a general understanding on the amount of construction happening in the zone, calculating the maximum and minimum requirement in the zone will be easy. |
| Survey with the dealer distributor network | Primary Research | You may prepare a detailed checklist to collect information from the dealers and distributors in the location. Remember that in addition to large quantity of demand in case of large construction projects, good amount of TMT demand emanates from small individual builders. Such localised information can be collected during this survey. |
| Knowing about other manufacturers in the zone. | Primary and Secondary Research | You may access such information through secondary research. Websites of these manufacturers may give you goo idea about their capacity and from their geographic location, you may create your own assumption on their markets. |
Compilation and conclusion
Once such data is available, they can be compiled to arrive at the total demand and supply in the area & the gap between demand and supply will help you understand if there is sufficient demand.