Financial Daily from THE HINDU group of publications
Sunday, Oct 27, 2002

Investment World
Port Info

Group Sites

Investment World - Industry Analysis
Industry & Economy - Real Estate & Construction

Shaky structure abroad

Sowmya Krishnan

INDIAN construction companies have primarily been catering to the domestic market. According to a CIDC (Construction Industry Development Council) report, India's share in the global trade of construction, architectural and engineering services is less than 1 per cent. Though projects exports from India have increased almost four fold over the past five years, it still constitutes a miniscule portion of the total revenue generated by the domestic construction industry . Consider this. While the industry serves projects worth Rs 2,40,000 crore (according to L&T's annual report), projects exports contribute a mere Rs 1,225 crore (as per data provided by Overseas Construction Council of India).

Only a few companies, such as L&T, Hindustan Construction and Tata Projects, have been successful in tapping opportunities abroad. This is because of various internal and external factors.

One, world over, there is shift towards turnkey projects, whereby a company is expected to provide a range of services right from designing engineering, construction, maintenance, management and financing. Only few Indian companies are capable of providing such a wide range of services.

Two, domestic firms do not have the technical and financial muscle to bid for big contracts on a stand-alone basis. The lack of funds to explore opportunities abroad, conduct feasibility studies, provide for security deposits and buy necessary equipment and machinery limits the scope of individual companies to bid for high-value international projects. Often companies compete with one another for the same project and lose out. Therefore, if Indian companies form consortiums and bid for projects, there is a greater chance for bagging export orders.

Three, the cumbersome and time-consuming process of getting approvals form various organisations before submitting a bid make the bidding process very expensive. Granting industry status to the construction sector will provide some relief to companies, as they will then get access to cheap funds from banks and financial institutions. This will ease the financial pressure to some extent.

When competing on a global platform, Indian companies lose out on quality and efficiency. The general view is that Indian companies fail to comply with quality standards and complete projects on time. This leads to cost escalation and pressure on the scarce finances.

Given these restrictions, the performance of project exports has been poor. But companies such as L&T and Hindustan construction are increasingly exploring overseas markets. The revenues from project exports jumped 60 per cent to Rs 848 crore in 2002 for L&T, while that of Hindustan Construction zoomed 65 per cent to Rs 17.8 crore.

Send this article to Friends by E-Mail
Comment on this article to

Stories in this Section
Indal: Smelt the metal

Construction: Much to build on
Shaky structure abroad
Laying the finance foundation
Building blocks of the world
Templeton India Growth Fund: Invest
Product differentiation: Greater clarity needed
Short-term flows dominate in September
Zurich High Interest Fund: Hold
Birla Advantage: Hold/Avoid fresh exposures
Acquisitions need more regulation
Zee Telefilms: Move out of the show
Clariant India: Hold/Buy on declines
Glenmark Pharma: Hold
TVS Motor Company: Hold/Buy on declines
HLL: Buy
Satyam Computers: Hold
Market-linked insurance plans — Have your cake and eat it too
Lower premium rates
What is rationality?
Tech stocks dominate
Covered call, put
Options guide
Futures guide
Beware of e-Gold
REC infrastructure bonds: No shocks
Drivesmart from ICICI Bank
Debit card from IDBI Bank
Kotak Mahindra Finance: Money in bank
`Outsourcing, right mix for offshore deals' — Mr Gerhard Watzinger, CEO, Mascot Systems
Encouraging trend in ITC, Grasim
ONGC may seek lower levels
Sustained weakness in HLL
MTNL down 10.8%
Nasdaq: Buoyant mood
NRI investments & provident fund: Dealing with NRI investments
Allahabad Bank: Unattractive
Decade of SEBI regulations — When will they start biting?
Secondary market — Sound structure, weak surveillance
Mutual funds: Expanding assets, shrinking options
Driven by domestic sales
It Adds Up!

The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | Home |

Copyright 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line