The Hindu Business Line : `We hope to achieve Rs 1,200 cr turnover this year'

IVRCL Infrastructures & Projects expanded its equity base six months ago and proposes to come out with a public issue early next year to infuse fresh capital. The company has orders on hand worth Rs 2,500 crore and has targeted to achieve a turnover of Rs 1,200 crore in the current fiscal as against Rs 775.5 crore in the previous year.

The IVRCL Managing Director, Mr E. Sudhir Reddy, said that it was essential to improve the company's net worth as it is being accorded 30 per cent weightage in the pre-qualification process. In an interview with Business Line, he answered a range of questions on his company's growth, plans and the industry trends. Excerpts from the interview:

You are expanding your equity base continuously. What are the reasons?

In my kind of business, we go for something called pre-qualification process. The larger the works, the higher net worth needed. In fact, the basic net worth is now being given almost 30 per cent of marks in pre-qualification while technical expertise account for 30 per cent of the marks and successful execution of similar projects in the past carry 40 per cent marks.

So it is necessary for us to increase our net worth. The whole idea is also to get into more of build, operate and transfer (BOT) projects and bid for large ticket jobs.

How much fresh capital has been infused into IVRCL in the past one year and what will be the company's equity base after the proposed public issue?

As of today, our equity base is close to Rs 17 crore. Six months ago we raised about Rs 125 crore. Now we want raise up to Rs 140-150 crore through the public issue. IVRCL's net worth today is about Rs 210 croreand we want to add about Rs 70 crore to it this year. But for a company that is going to achieve a turnover of over Rs 1,000 crore this year, we felt that Rs 400 crore net worth should be imperative to take up large projects. So we are planning to raise the balance amount through a public issue. Following this, there will be no need for me to approach the markets in the next three to four years.

The public issue money will be utilised for retiring the debt and for investing more on capital equipment. At present, we have about Rs 110 crore worth of capital equipment. Another Rs 40 crore-50 crore worth of equipment would be added. Once we keep all these parameters in place, we can complete any major project in two years' time. Even if it is a Rs 500-crore project, we can complete in one-and-a-half years.

How transparent are the accounts or the annual reports of the infrastructure companies in the country?

If you are talking about corruption levels and things like that, there is no scope for such things today. We now have a pre-qualification system and very clear-cut guidelines from the Supreme Court with regard to allotment of projects. Once you are pre-qualified, the lowest cost bidder is given the work. There is no favouritism involved in this process. Consequently, there is no point in somebody going across to somebody and saying that we are willing to give money because the next guy who is in the race has law on his side. The financial reports are very transparent. Many infrastructure companies including IVRCL have top firms as our auditors.

This seems to be boom time for infrastructure companies. How long will this boom continue?

Rather than a boom time, this seems to be the need of the hour. People have become conscious about the necessity of good infrastructure for which they are willing to pay. For example, we have an I-Max theatre in Hyderabad where people are paying Rs 70-80 to see a movie while they can see the same movie in other theatres in the city at Rs 40. This means that people are willing to pay an extra Rs 30-40 for good ambience and quality. The same theory applies for good roads, quality water and quality power.

However, the infrastructure business of $25 billion happening in the country today is the lowest among the developing countries. Even as per the Rakesh Mohan Committee, the infrastructure shortfall in the country is enormous and has to be developed. But our country has less money and more areas to cover. Because the Central and the State Governments have less money we are trying to build a facility, which could be inadequate in future. For instance, where we need a four-lane road, we are building a two-lane road. This indicates that we have to revisit these facilities in future, probably by 2010, by then the road usage might go up so much that the Government will be forced to expand it.

Are you also taking up projects in other countries?

We have started executing projects abroad, particularly in the West Asia. We are mainly concentrating on executing water projects in other countries. With regard to water operation and maintenance projects, we entered into a joint venture agreement with SMEC and also Brisbane City Enterprises Pty Ltd of Australia.

What is the future outlook of IVRCL in terms of turnover?

At present, we are holding more than Rs 2,500 crore worth of orders on hand. We hope to achieve a turnover of Rs 1,200 crore this year.

Has the reduction in bank interest rates helped the construction industry?

Definitely, that has been helpful. It led to a healthy growth in the bottomlines of the infrastructure companies. However, a low interest per se is not really a catalyst for the growth. At the end of the day, I will not bear the higher interest cost. I am going to pass it on to the Government that allots the work.

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