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[ Source - ICRA , Dated - June 2008 ]
Infrastructure companies
A crack in the wall?
Infrastructure Supplement
AFCONS Eyeing overseas projects.
AFCONS Infrastructure, part of the $500-million Shapoorji Pallonji group, is foraying into specialized bridges, ports, overseas operations, BOT roads and offshore oil and gas, while retaining its focus on marine projects. The company is sure of remaining in the fast lane in the coming years.
AFCONS Infrastructure, a leading professionally managed company in the areas of marine works, highways, bridges, power houses, tunnels and other general civil engineering projects, is confident of maintaining the growth rate of 50 per cent witnessed in the last two years. Part of the $500-million Shapoorji Pallonji group, AFCONS is engaged in executing large and complicated civil engineering projects in India and abroad, with emphasis on jetties, docks, harbours, roads, bridges & special foundations. Over the last five decades, since its establishment in 1959, the company has played a pivotal role and led the growth of construction industry.
Some of the remarkable projects carried out by the company include the Delhi Metro Rail (DMR) project at underground Barakhamba station (done for the first time by any Indian co. value Rs 150 crore); Two major projects at Reliance re¬finery at Jamnagar (project value Rs 750/ Rs 800 crore) and a Greenfield cement plant in Yemen (project value Rs 125 crore).
The company has tie-ups with global infrastructures giants of the US, UK, Germany, Japan, Holland, Denmark, South Korea, etc. It began spreading its wings across the globe in 1971 striking success with major assignments in the Middle East. It has completed projects in Iraq, Saudi Arabia, Ethiopia, Oman, Sri Lanka and Nepal. It is currently executing major marine works in Aden, Yemen and Qatar. It is also actively pursuing entry into new and developing markets such as Middle East, Africa and Central Asia.
Outlining the business strategy of the company, Mr. K. Subrahmanian, managing director, says, "AFCONS' strength lies in its ability to innovate in all facets of construction management. This coupled with the support from Shapoorji Pallonji group on the commercial and finance side should enable AFCONS to scale greater heights. We will be focusing in our specialization of marine projects keeping it as a global vertical while for laying into other segments such as hydro and tunnels, specialized bridges, ports, overseas operations, BOT roads, etc., in the next two years. It has also plans to go for offshore market in the oil and gas sector."
"AFCONS is very selective in applying for contracts. It is attracted by jobs that are challenging and rewarding. Among the tenders it has currently submitted, it is optimistic is Rohtang Pass (HP) contract worth Rs. 1,500 crore. There is consortium for this project and AFCONS share is 40 per cent. This is the biggest underground contract to be awarded in India," he says.
The inflationary pressures and the credit control measures to contain these pressures may lead to a slowdown in industry and infrastructure development. However, that will only be a temporary, short-term phenomenon. "In the medium to long run, the infrastructure sector is set to accelerate, backed by greater private sector participation and improved finances of the government. India's infrastructure spending accounts for the just 4% of GDP compared to China's 9% and is, therefore, highly inadequate. India's high economic growth has also put massive strain on existing infrastructure, which has not kept pace with developments. Further there is more than 20% tax revenue growth over the past four years, central and state government finances are in better shape to support infrastructure expenditure plans. Hence medium-and long-term prospects for infrastructure sector are very good," he explains.
Mr. Subrahmanian believes that the engineering and contracting companies have huge growth potential. "They have a substantial amount of work on hand. In fact, time has now come that they are dictating terms and do not surrender to unreasonable and impractical terms of companies as well as governments", he adds.
"Our focus on overseas jobs, especially when jobs are available in the Indian markets is a strategy to de-risk the company and sustain the growth even in periods of slower growth in India. We feel that we have developed a sustainable growth model, the only key constraint, remaining universal to everybody, is the 'human resource,'" he says.
The company has been growing at a compound annual growth rate of about 50 per cent. Its turnover shot up from Rs. 1100 crore in 2006-07 to Rs. 1700 crore 2007-08 and is likely to touch Rs 2500 crore in the current year. Significantly, its order book also increased from Rs. 3000 crore at the end of 2006-07 to Rs. 3250 crore by 2007-08 end and may swell to Rs. 6000 crore by the end of the current year.
According to Mr. Subrahmanian, there are two factors that can act as constraint on the rapid growth of this sector. First is the problem of land acquisition. Many ongoing and upcoming projects are embroiled in litigation entailing delays and cost overruns. It seems the government agencies are just incapable of coping with so many projects at the same time. What is required is practical approach, delegation of powers within government.
Secondly, the unprecedented boom across all sectors of infrastructure has led to an acute shortage of trained manpower. The companies are setting up their own training insti¬tutes in an effort to solve this problem.
AFCONS is fully geared to avail of the opportunities thrown up by the massive infrastructure spending underway. The company owns major construction equipment such as cranes; equipment for piling and diaphragm wall, drilling and grounding, earthmoving, transport, road construction; and marine flotilla including jack-up platforms, barges, pontoons etc. In its state-of-art workshop at Nagpur, which manufactures and produces virtually everything in-house from drill bits to specially manufactured and purpose-made equipment like hydraulic floating cranes, tunnel placers, it has 5,000 dedicated personnel, which includes 1,000 engineers and management personnel.
