Q&A: Ajit Gulabchand, CMD, Hindustan Construction

'Infrastructure sector is going through a lull'

Any engagement with the global business community cannot be complete without a reference to the country’s infrastructure constraints. In an interview with Mihir Mishra and Jyoti Mukul, Ajit Gulabchand, Co-Chair at the India Economic Summit and Chairman and Managing Director of Hindustan Construction Company, points out that the challenge lies in convincing bankers to finance road projects. Edited Excerpts:

Being one of the biggest contractors in the road sector, do you think the sector has bounced back after the slowdown?
As far as the road sector is concerned, a lot of improvement took place after the minister (Kamal Nath) took over last year and had dialogues with all stakeholders and initiated many reforms, trying to improve the process by which Public Private Partnerships can go forward. However, it is taking a little longer than they expected because some of the total project cost estimates done still need improvement. The next tranche of big projects is slightly delayed and I expect it to come by this calendar year-end.

 

What are the reasons for the slower growth in the sector?
One of the bigger problems is that the total project cost as estimated by the National Highways Authority of India is much different from the actual project cost. In some cases it goes up to 40 per cent. This is making bankers averse to lending to such projects. Making the two similar is not easy to achieve. If you want foreigners to come and bid for your projects, it has to be made sure there is no difference between the project cost and actual cost. Land acquisition is another problem, though the requirement is less for road projects. The problem is that land belongs to the state and so the process is often slow.

Broadly, what are the challenges in the infrastructure sector?
All infrastructure projects in the country are in problems. In the power sector, there is a slowdown because many hydro projects are embroiled in controversy with the environment ministry. Similarly, there is a lull in thermal power plants. Nothing is happening in ports and airports. So, infrastructure is going through a lull. I would not call it a slowdown. The government should plan more for the future so that this lull does not happen.

Are companies like yours facing capacity constraints? Is there over-exposure by some companies, especially power companies, which is leading to capacity constraints?
Capacity is a problem, as well as not a problem. It is a problem in the sense that in future we need to build a lot more capacity. If you ask if it will be built, yes of course, it will be built. Take the example of power. We will be adding 65,000 Mw in the current Plan. One can think that it is low but 65,000 Mw is more than what we have ever achieved in any other Plan. So, to that extent there is no capacity constraint, but there are constraints of skilled labour and sufficient number of engineers being available, but it is not holding up work.

What is the outlook for your company for the coming five years?
In the next five years, I would like see the turnover of the company grow two-and-a- half times to '12,000-15,000 crore, and our orders to around '50,000 crore. We have already positioned ourselves by moving into more value-added work by adding technological capabilities and increasing training for our engineers. We are creating more partnerships. By all this, we are building capacities to scale up.

Where will this growth come from?
We will continue in whatever areas we are, but we will now move more into factories like processed plants, thermal power plants and buildings. We will get into project-based partnerships. All the big deliveries will require consortiums.

We recently acquired a company in Switzerland called Steiner AG with a view that it will expand in their country and also add one more vertical in the country. We have begun the process of forming a new vertical and not decided whether the company will be a subsidiary of the Steiner brand or a different company. But, we would like to keep the Steiner brand for green buildings.

Are you looking at tie-ups and acquisitions?
We are looking at both international and domestic tie-ups. Internationally, we are looking at Europe, which has lot of capacity but is going through a lull. We are looking for buy-outs in engineering design in Europe.