Tata Projects reworks bidding plan, risk management to boost profitability

At Rs 861.90 crore, Tata Projects is the winning bidder for a new complex that will house the country's legislative wing

Tata Projects’ winning bid to construct the new Parliament building has added to its impressive order line-up. The company has also been re-working its bidding strategy since last year, to improve profitability.
 
At Rs 862 crore, the firm won the bid by a narrow margin of Rs 3 crore. The low winning margin shows the company did not bid too aggressively. “The company has a good order book but the project wins are not a result of aggressive bidding. They have an advantage of resources, strong manpower, and execution capabilities,” said an analyst.
 
Cash flows for the company, however, have been of concern primarily because of some projects. “Recent order wins have been good but the firm has been struggling on cash flows and balance sheet owing to heavy losses in the western dedicated freight corridor and other projects,” said another analyst.
 
India Ratings had, in June, said that the firm had informed it “has revised its bidding strategy and improved pre-bid risk management practices, in which cash flow management was prioritised in the past 12 months along with a focus on continuously improving overall profitability”.
 
An email query sent to Tata Projects on Friday, regarding the fall in revenue, new orders, and a rise in debt remained unanswered. The firm has not yet disclosed the Parliament order win.
 
Further, projects have not come easy without a consortium partner for the firm, owing to cash flow concerns.
 
At the same time, the Parliament project bid strategy lends merit to the case for breaking away from the model. Other significant projects the company is executing, or has executed in the past, include parts of the dedicated freight corridor (DFC), Mumbai Trans-Harbour Link (MTHL), and the BDD Chawl Redevelopment Project in Mumbai. 

For MTHL, DFC, and the BDD redevelopment project, the company had formed joint ventures. The MTHL project, for instance, was in partnership with Daewoo and BDD Chawl Redevelopment with Capacit’e Infraprojects and CITIC Group. “We expect Tata Projects to independently avail of pre-qualification for most projects in which the company used to previously tie up with JV partners,” said an India Ratings note.
 
This change in bidding strategy will help improve margins, it added. “The agency believes this pre-qualification along with high-margin orders secured in the last 12 months will help the company expand its margins through FY21-23.” However, performance for the last year was not impressive. According to the annual report, total income stood at Rs 10,514 crore, down from Rs 13,230 crore in FY19, while consolidated net profit also came in lower at Rs 108.43 crore against Rs 244.45 crore.
 
Standalone net debt rose to Rs 2,288 crore from Rs 1,837 crore in FY19. Order booking in FY20 stood at Rs 12,944 crore, lower from Rs 28,190 crore in the previous year, though the total order backlog is robust at Rs 53,194 crore.