Amritha Pillay (ML): At what stage are your 26 Build-Operate-Transfer (BOT) road projects? Satish Parakh (SP): Out of these26 BOT projects, six huge projects are under construction, 17 projects are already operational and three have been handed back (which were on a concession period of seven to eight years). The six projects under construction are expected to be completed by 2011.
ML: What is the break-even point on an average for your BOT projects? SP: Generally, as it is a sector which involves high debt, we see negative profits for the first six years. This period is for projects with a concession period of 12 to 15 years.
ML: You have handed over three projects, what is the ROI for these? SP: We witness an ROI of 16% to 22% on small projects like the three we have handed over.
ML: How many projects do you have at the bidding stage presently? SP: Currently, we have no projects that we have bid for, but we are in the bidding process for a number of them. We expect by November-end, bidding for projects will start and we plan to bid for a number of them. We have already identified a few projects, and we have prequalified for a few projects too. The road sector is a promising one and there is a lot of work coming up.
ML: What does your current order book look like? SP: Our current order book stands at Rs1,785 crore, inclusive of power and road projects. Our Engineering Procurement & Construction (EPC) division recently received a Rs1,000crore order from the power distribution sector with orders from Maharashtra State Electricity Distribution Company Ltd. ML: Your company also deals in commercial supply of ready mix cement (RMC). How do you expect the fall in cement prices to affect the RMC segment? SP: As far ascement supply is concerned, we are in a good position right now. We are less dependent on our vendors. Generally our margin for RMC remains untouched. The market prices for cement will come down, so everyone will have to revise the sale price. Thus, our margins remain constant; the fall in prices for RMC is covered by the cost saved on the purchase of cement as raw material.
ML: Could this prove beneficial for your infrastructure projects? SP: On the infrastructure part, as we will be able to save on the commodity expense, we will be able to save a little on the construction cost. But, over so many years of building experience we have seen if prices of certain raw materials rise, prices of a couple of others fall, and we end up with a 5% to 10% of escalation in cost.
ML: How do you expect the company to be affected due to rise in the prices of other raw materials? SP: The contingency planned at the beginning of each and every project has a small kitty kept (aside) for escalation costs.
ML: What are your current debts and your fund deployment plans? SP: We have debts worth Rs640 crore as we are highly project-intensive. Around Rs300crore to Rs350 crore is from debts on the projects under recent construction. We have filed for our initial public offering (IPO), the immediate deployment would be for capital funding and some amount would be for debt repayment. Our estimate is to raise around Rs225 crore.
ML: Due you see availability of skilled manpower as a problem in the coming years? Will manpower supply keep up with the speed of construction of infrastructure projects in India? SP: We have our own EPC division in place. What a Malaysian or a Chinese or European company can bring in is just the money. However, the construction abilities and the way Indian road construction sector works is something we have learnt over the decades. There won’t be a direct threat. We will continue to enjoy our core strengths that we have.