Clean sweep of facility support services

Raghunandana Tangirala sees his recent buy out of ICICI Ventures’ 42 per cent stake in his company as a reflection of the confidence he has in the business and a milestone in his journey as an entrepreneur.

“I am buying it because I see growth. I see it as a good asset to own,” he says, sitting in his office just off Chennai’s IT corridor, the Old Mahabalipuram Road.

ICICI Ventures had bought this stake in Updater Services (P) Ltd, a facilities management company, for about ₹100 crore in 2007-08, from New Vernon Capital, at the height of an investment boom when valuations were high.

Raghu, 54, says the high pricing deterred him from attempting to buy shares when New Vernon wanted to sell. He declines to disclose details of the deal with ICICI, beyond saying that ICICI Ventures got a return on its investment. ICICI had been looking to sell its stake given that it was time to exit its investment in UDS. Since the promoter himself was buying back the stake, the deal happened quickly and worked to the advantage of both.

“It was a unique thing which we did,” says Raghu, of his buying back ICICI Ventures’ stake in his company. “You will do it only when you know and you are confident that the business will grow. You are paying a future price.” UDS, says Raghu, hopes to end the financial year closing March 31, with a top-line of ₹650 crore. “We are looking at 25 per cent growth in the next three years,” he adds.

Raghu, a first-generation entrepreneur who started UDS nearly 30 years ago, had sold the stake to New Vernon in 2005 for about ₹40 crore, and invested in real estate. This is what has partially helped him buy back the shares now. He is confident that he will not need to raise fresh funds for the growth. The business will generate enough cash for organic growth and even for the planned global expansion, but if UDS were to look at acquisitions, it will need external funding. There are no plans to buy out any company now. The business has been profitable for long and it will have 7-8 per cent margin at the EBIDTA level.

Where does he see the growth coming from? From the same sectors that the company operates in now – managing large commercial buildings, airports and other such facilities, says Raghu. UDS provides engineering services and cleaning and soft services at the Hyderabad and Bengaluru airports and was till recently handling a part of the work at Delhi’s T3 terminal.

It provides support services on the assembly line in Hyundai Motor India’s car plant and warehouse operations at Saint-Gobain Glass India’s plant, both on the western outskirts of Chennai at Sriperumbudur. It was also providing manufacturing support services at Nokia and Foxconn, both of which have closed their Chennai operations now.

According to Raghu, IT/ITeS, banking and financial services, manufacturing and other sectors give nearly 70 per cent of its revenues. Besides, UDS handles one-off events like IPL, Formula 1, the Indian Football League and the tennis league, where it is responsible for stadia maintenance, ticketing, hospitality and full event management in terms of security. Almost 65 per cent of its business comes from the South and the balance equally from the North and the West.

Raghu expects the government business to open up significantly in the years to come; UDS now handles the cleaning and maintenance at the Andhra Pradesh Secretariat.

With State governments looking for improved maintenance of facilities, Raghu hopes UDS will be able to tap into opportunities thrown up by hospitals, metro rail stations and other government buildings. Right now, price is a major barrier, but Raghu believes it is a matter of time before State governments increase the price they are prepared to pay. Likewise, large integrated residential townships are another opportunity.

According to him, he is looking to start operations in West Asia, following the same model that UDS adopts in India. “You go with bag and baggage. You take even the labour from India,” he says. He wants to establish a boutique company in West Asia in about a year and in three years, increase UDS’ footprint to more developed markets such as Singapore and Hong Kong or even the US and Europe, by giving technology for facilities management.

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