After making it big in India, AP infra entrepreneurs go global

V. Rishi KumarM. Somasekhar Hyderabad | Updated on June 26, 2012

Growing opportunities: Infrastructure spends for the 12thPlan period are pegged at $1 trillion. This shows that thescope for infra companies is unlimited.


Cluster theory is well known in management. But rarely has it been seen in the form apparent in the State

Psst… don't tell anyone, but Andhra Pradesh's infrastructure entrepreneurs, not content with dominating India's infrastructure sector, are going global now. They have started acquiring assets in emerging markets.

GVK and Lanco acquired mining assets in Australia while NCC has more than 10 per cent of its revenue coming from West Asia.

In India, Andhra Pradesh-based firms span irrigation projects, roads, airports and power, having outbid established players and outpaced them in growth. In fact, India's four best airports — Hyderabad, Bangalore, Mumbai and Delhi — are all managed by AP entrepreneurs.

Most of these entrepreneurs come from agricultural backgrounds and are rooted in contract engineering. They are familiar with taking up their own work for agriculture requirements be it local borewell or a canal.

The other important aspect is the drought-prone parts of the State such as Mahaboobnagar, Nalgonda and Ongole. These have traditionally provided a very robust migrant labour pool to back infrastructure works.

The political push

The real trigger for entrepreneurship came when large multi-purpose dams such as Nagarjunasagar and Srisailam, and projects such as Vizag Steel Plant and NTPC Ramagundam were developed in the 1960s, 70s and 80s.

The strong political strength of Andhra Pradesh also gave a big push to the growth of infrastructure companies. Both during the time of Mr N. Chandrababu Naidu, whose Telugu Desam Party was a key player in the United Front and later NDA Government at the Centre, as well as Dr Y.S. Rajasekhara Reddy's Congress Government, this entrepreneurship flourished.

Several companies like IVRCL, GMR, GVK, NCC and Ramki Infra have grown to a size, some of them past the billion-dollar mark, bagging huge contracts across the country in roads, bridges and airports. On the home turf, mega projects such as Jalayagnam, Indiramma Housing (irrigation and housing), gave the initial contracts to go bigger for some of these companies.

The close links can be seen in the form of some of the promoters either being politicians like Mr T. Subbarami Reddy or later turned politicians like Mr Nama Nageswara Rao and Mr Lagadapati Rajagopal. How this linkage helped in their growth is anybody's guess.

Mr L. Madhusudhan Rao, Executive Chairman of Lanco Infratech, said the turning point for AP was in 1980s when the local pride was triggered due to a changed political scenario. This also coincided with the opening up of the economy providing new opportunities for entrepreneurship.

“This is just a tip of the iceberg. If the XI Plan estimation for infrastructure spends was about $500 billion, it has now been pegged at $1 trillion for the XII Plan. This only shows that the scope for infra companies is unlimited. All construction companies have transformed themselves to infrastructure companies as a logical extension,” Mr Rao said.

Mr E. Sudhir Reddy, Chairman and Managing Director of IVRCL, said that the construction of the country's largest masonry dam (Nagarjunasagar) was a major trigger for contractors coming into play. It needed thousands of workers and scores of contractors. To execute projects of such large proportions, a large migrant work force was deployed.

“Several of the infra company owners now started as small contractors. Sensing opportunity they diversified and stepped up their presence. This is one area which did not require much upfront investments as they were based on cash contracts,” Mr Reddy said.

Mr A. Ayodhya Rami Reddy, Chairman of Ramky Group, said that the irrigation works on Krishna, Godavari river system and their deltas triggered a major wave for construction players in the State. Most of the entrepreneurs are agriculturists-turned contractor-entrepreneurs.

“Most of them started small with cash contracts, scaled up to EPC deals and graduated into asset building. This was a natural transition. With the Government presenting opportunities to work on build, operate and transfer (BOT) projects through public-private partnership (PPP) mode, the opportunities are unlimited,” Mr Rami Reddy explained.

Mr Nama Nageswara Rao, Member of Parliament and Founder-Chairman of Madhucon Projects, said AP companies began playing a role in infrastructure development in the last 30 years, taking up large projects as sub-contractors and graduating to be big players.

Their stamp could be seen even in the country's prestigious Konkan Railways project, where more than 50 per cent work was handled by AP entrepreneurs.

Start local, go global

Local companies have grown in size and stature bagging projects from across the country. An analysis of road contracts awarded thus far shows nearly 30 per cent of the projects have been bagged by AP infrastructure companies. “I believe this is also because of the inherent risk taking appetite which has made a difference,” Mr Nageswara Rao explained.

While there are about half a dozen well-known infra companies such as the GVK, GMR, Lanco, IVRCL, NCC, Ramky Group, and scam-hit Maytas Infra, now IL&FS Engineering, there are few other privately-held ones with significant presence. Some of the entities such as Navayuga Engineering are bigger than some listed ones.

Mr Madhusudhan Rao said, “Opportunities abound in infra sector. It is now a matter of consolidation on the platform most of the companies have created over the years. We now have several companies who are over 25-years-old. Significantly, they are all looking at opportunities in emerging markets.”

Gayatri Projects, a company promoted by Congress leader Mr T. Subbarami Reddy and now managed by his son Mr T.V.Sandeep Reddy, was founded in 1962. From taking up irrigation projects, it has diversified into roads, railways, and lately into power projects. It is executing three power projects through joint ventures.

Of late, infrastructure firms have diversified into new areas carving out a niche for themselves . “We have taken to environment management, an uncharted path in India and developing walk-to-work integrated townships. Both of them hold promise. We entered the road sector relatively late consciously as we wanted various issues in the sector to settle down,” Mr Rami Reddy said.

Published on April 22, 2012

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