Description
This document talks about Industry Trends of construction and housing industry, PEST Analysis of Industry, Competitor Analysis, SWOT analysis, Company Description, General Information IVRCL Infrastructures, it's Finance performance, SWOT analysis of IVRCL Infrastructures and Various Strategies employed.
IVRCL Infrastructures & Projects Ltd – Company Analysis
INDUSTRY OVERVIEW
India the second most populated country in the world has clearly emerged as one of the fastest growing economies with a projected GDP growth rate of 6.5% for the year 2003-04. Physical incentives are being provided for projects in these sectors and private participation is also sought for bringing in state-of-art technology, efficient management and adequate financial resources to set up new capacities as well as up-gradation of the existing infrastructure base. A brief overview of each of the sectors and associated opportunities are being presented. WATER: The annual per capita availability of freshwater in 1951 was 5,177 cubic metres that declined to 1,869 cubic metres in 2001. It is likely to fall further to 1,341 cubic metres in 2025, and in 2050, it will be 1,140 cubic metres. It is generally presumed that if per capita level falls to 1,000 cubic metres, it could seriously affect the health and economic activity of the entire country. At this level, in the forceable future water crisis will be seen in more than 25 per cent of India's geographical area affecting 21 per cent of the total population. Already 5.5 per cent of the country's geographical area and 7.6 per cent of the population are facing acute water shortage, with availability less than 500 cubic metres. The total investment requirements for water and sanitation in India based on various reports indicate that an investment of over Rs.260 billion is required for 100% coverage for Urban Water and Sanitation. Consequently there is a broad realization that private sector financing and management is now needed in India. The average annual investment on operations and maintenance of Urban Water Supply and anitation Systems has been estimated at approximately Rs.25 billion. IVRCL sees a huge untapped potential in this high demand infrastructure sector which calls for a single point responsibility for implementing contracts to include design supply, construction, commissioning operating and maintaining water supply systems on a Lump sum Turn Key basis. HIGHWAYS: National Highways Authority of India is currently implementing a National Highway Development Project valued at USD 12 billion. Build-Own-Transfer Projects and Annuity projects are already underway and a number of them has been financially closed and successfully implemented. The anticipated investment for development of roads in the National Highways as well as the State Highways put together up to the year 2010, is approximately US$ 55.47 billion. POWER: The Government of India has come with the comprehensive Compiled by: Asian CERC Information Technology Ltd legislation to put together in one place all measures required to push
this sector into a trajectory of sound commercial growth. It takes into account a move towards a competitive scenario where regulators on the one hand and private power utilities on the other shall play increasingly significant roles. Generation is to be de-licensed and captive generation freely permitted. The states governments have flexibility to un-bundle the state electricity boards of continue with them as distribution licenses and state transmission utility. The accelerated power development and reform programme have been structured in the areas of distribution reforms to achieve 100% metering, energy audit, better PF ratio ,replacement of distribution transformers, IT Solutions relating to power flow at critical points to ensure accountability at all levels. This should raise the level of satisfaction of the consumers besides improving revenue realization for the utilities. There is no ceiling on foreign equity participation in the power sector. FDI is encouraged in transmission via joint ventures and independent power transmission companies. Specific transmission lines / schemes have been identified for execution through these routes. Transmission projects have been identified and in some cases, have commenced execution. The objective is to ensure that the inter-regional power transmission capability increases from the present level of 4,850 MW to 30,000 MW by the year 2012.Funds are getting allotted on a priority basis from Government budgetary allocations for numerous infrastructure development projects. Further, funding from multilateral agencies such as the World Bank ADB, OECF, etc., is also being canalized. All the infrastructure construction service companies presently have huge order book positions to be completed in next 18 to 24 months. This is expected to grow at a CAGR of at least 25%, over next five years. RAILWAYS: One of the largest railway systems in the world, the Indian Railways (IR) has a network of 63,140 route km. It turns about 14,000 trains every day to transport 13 million passengers and 1.3 million tons of freight about 40 percent of the total freight traffic in the country. Indian Railways has played an important role in changing the social and economic landscape of the country. It contributes 1 per cent to the GDP and is the largest employer in the country. It supports a work force of about 1.6 million, constituting 6 per cent of the 27 million people employed in the organized sector. Indian Railways operates three of the largest suburban services in the world - in Mumbai, Chennai and Kolkata. Indian Railways has also formed two special purpose vehicles- Gujarat Pipavav Port Limited, for improved rail connectivity to ports, and Rail Vikas Nigam Limited (RVNL), to spear head and implement projects such as the Golden Quadrilateral and port connectivity. The National Rail Vikas Yojana announced by the Prime Minister calls for an investment initiatives of over Rs.150billions.
PEST ANALYSIS OF INDUSTRY Political Factors The political factors affecting the construction and housing industry mostly consists of documentation’s and permits that has to be obtained during the various phases of construction of a structure and its sale.
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Building Commencement Certificate: Construction of a building or any such structure cannot take place unless and until the builder or the company secures a commencement certificate from the authority, in case of Mumbai it is the BMC who gives IOD&CCIntimation of Disapproval & Commencement Certificate.
§ Floor Space Index (FSI): FSI is basically a ratio, which determines how tall can buildings or a structure can be constructed on a particular plot. The local authority issues it. § Occupation Certificate: After the completion of construction work of a building, the builder or the company has to secure an Occupation Certificate without which the flats in the building cannot be occupied for residential or commercial purposes.
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Brihan Mumbai Corporation [BMC] Developing Plans: BMC’s developing plans form the most basic criteria in selecting a site. These developing plans chart out predefined areas, which the BMC has already allocated for certain purposes.
E.g. In a given area, some land is reserved for plantation/farming, some piece is kept for industrial establishments like the MIDC area and the other one reserved for residential purposes. So the Builder finds out the type of land, which is suitable for his purpose, i.e.; if he wants to build up a residential complex, then he has to do so in the area reserved for residential purposes; as per the BMC’s developing plans. · CRZ (Coastal Recovery Zone): According to this rule a builder cannot carry out any construction within the radius of half kilometer from sea. § TDR (Transfer of Development Right): This right is available to a builder for utilizing the additional FSI. Normally TDR is given by the local Municipal Authority who acquires the portion of land of builders either for the purpose of constructing road or for making gardens.
§ Others: Apart from the above mentioned points there is also tax exemption that is given for the construction of building on the land having area of more than 1 acre. Economic Factors § Fluctuations in prices of inputs: Many builders tend to stop work when the prices of inputs like cement, iron etc goes up so as to wait for the time when they expect the prices will come down. This result in unnecessary delay in the work and the cost of wasting time would actually be more than the increase in price. § Changes in demand: Changes in demand due to factors like changes in disposable income of prospective buyers and inflation. Also with the easy availability of housing loans and tax exemption on loans the demand for houses is rising. § Future Growth & Resale Value: Any project must be located in an area that if not fully developed must at least be on the way. This is because people prefer those areas having high resale value and will fetch them a good amount of gain. § Stamp Duty & Registration: Payments of Stamp duty followed by the registration of the agreement are two important acts when one enters into an agreement with a developer/seller. With the decrease in the stamp duty by 50% it is considered as a good sign for Construction Sector. Social Factors
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Credibility of the company/firm: People don’t know what kind of materials has been used in the construction of a building or a structure. Credibility of a builder or the company plays an important role in convincing the buyer to buy the house and be sure of the quality of construction work done. A low credibility or image can lead to poor financial performance. A good image is not just built in a day, it takes years of servicing the society through following high standards of work in the process of construction and sale.
§ Perceived Image of the property developed: A flat in a so-called “posh― area may cost much more than a one in a “not so posh― area. This factor can also determine the success of failure of a project. A flat is selected on the basis of infrastructure facilities like water availability, transport facilities, nearness to schools, colleges, hospitals, shopping complexes, leisure centers, etc. § Building Facilities: The builders may offer buildings that have swimming pools, health-clubs, gyms & parks.
Technical Factors Due to technical nature of the construction process, the technical environment keeps on changing every day. There are developments in techniques used, materials used and various other such aspects of the construction business. A few of such developments are as follows
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?
?
Pre-structured Concrete Blocks: These are blocks of concrete, which are made in the factories according to the dimensions of the building or structure to be built. It is just like a jigsaw puzzle where these blocks are put together using a huge crane and joined together using mortar by workers. This enables quick completion of work and also economies of scale. Mixture of Cement and Sand: nowadays in order to save time the constructor can order the mixture of sand and cement directly from the suppliers as against the traditional way of ordering cement and sand separately and then filtering them and then mixing it. Other Equipments: other modern machines that are used in construction are the use of huge drilling type of machines to dig the ground, which was before done by workers.
COMPETITION TO IVRCL
The Indian Infrastructure Industry is very competitive with a large number of players. We face competition from big players such as international companies and major domestic construction companies who operate at the national level, to numerous smaller localized contractors /companies. We bid from contracts based n bidding process and the one who quotes the lowest is awarded the contract. We have strategy in place to deal with this competition Leverage specialization to tap growth in related areas such as water road, power and building projects. Gain access to more complex project roles by building our in-house design capabilities, enhancing our internal capabilities and PPP type projects for infrastructure and working with specialized project consultants to enable us to assess project risks for BOT/BOOT projects. l Strengthen pre-qualifications. l Build execution Capability l Growth through inorganic means including acquisitions of companies that have: n Pre qualifications in niche areas n Excellent execution capabilities in related areas
n Complementary geographical locations In infrastructure development none of the global majors are participating in infrastructure projects. There are many reasons to this nonparticipation, one of the main being delay in decision making. This might change and the same global majors might start participating in the bidding process. With them they bring great strength in terms of technology, experience and financial resources. They pose great threat to the domestic players like IVRCL. IVRCL considers this and hence has tied up with global majors in areas where it lacks skill sets, as an entry strategy into new areas of infrastructure, the Company has already started executing small work orders, so that it can build critical mass for obtaining pre-qualification to participate in future big orders (eg:Hyderabad airport work), it has initiated action in the direction of reducing its cost of funds. These steps and prudent corporate governance in place should enable IVRCL to face any onslaught from global majors
Company summary:
IVRCL Infrastructures & Projects Ltd., (formerly IVR Constructions Limited) commenced operation in 1990 with building construction as Class I Contractor-firm in 1987, IVRCL forayed into various social infrastructure sectors like water transmission, treatment, solid waste management, roads and high-ways, bridges, power transmission lines with attendant engineering capabilities and was graded as one of the best Developer Companies by State and Central Governments and could achieve a turnover of Rs. 1055 crors during the financial year 2004-05.
Started in 1990, IVRCL has become a leading player in EPC and LSTK contract implementation in India • Strong presence in Water, Transportation, Building & Industrial Structures and Power sector • Current order book of Rs. 233,750 mn (US$4.9 bn) with revenue of Rs.55,100 mn (US$ 1,148mn) for the year 2009-10 • Proven Project Execution Skills and presence across 21 states in India • Undertaking BOT/ BOOT / DBOOT Type Public Private Partnership (PPP) projects • Highly qualified and well trained human resource base • Listed in 1995, proven dividend paying track record • Company has grown at 43% CAGR in terms of revenues over the last three years
General Information:
HISTORY : Company was incorporated on November 16, 1987 as I. Venku Reddy
Constructions Pvt Ltd., and were converted into a public limited Company on September 29, 1994. Subsequently name was changed to IVRCL Infrastructures & Projects Ltd., reflecting operations in the infrastructure sector. Headquarters of company is in Hydrabad and has more than 5000 employees with 5, 845 full time staff And Over 15,000 temporary staff including skilled and unskilled manpower
MANAGEMENT Board Of directors E. Sudhir Reddy E. Sunil Reddy R. Balarami Reddy K. Ashok Reddy E. Ella Reddy T. N. Chaturvedi T.R.C. Bose P. R. Tripathi S. K. Gupta Chairman and Managing Director Director ED – Finance and Group CFO Executive Director Director Director Director Director Director
Key Mnagement Key D D Rao Director – Technical S. Ramachandran Director – Business Development & Corporate Strategy SHARE HOLDING PATTERN
Particular Promoter Holding
N
f Shares
Percent Shares(%)
Indian Promoters 25417184 Foreign Promoters 0 Non-Promoter holdings (Other than Public)
9.52 0.00
Financial Institutions/Banks 2009028 FII/Foreign Fin Inst/Foreign Bank 128976517 Corporate Bodies 55456425 Government Holdings 0 OCB 3428 NRI 0 Mutual Funds 8687624 Other Foreign Holdings 2526963 General Public Individual Holding Upto Rs. 1 lakh 39548152 Individual Holding Excess of Rs. 1 lakh 3554121 Others 830416 Total 267009858
0.76 48.30 20.77 0.00 0.00 0.00 3.25 0.95 14.81 1.33 0.31 100.00
Financial Performance:
Water:
ProjectsTransmission Mains, Distribution Systems, Pumping & Re-circulation Systems, O&M, Irrigation Works and Canal Works. Environmental Projects Sewage systems, Water/Sewage treatment plants, Solid waste recycling plant Key Ongoing Projects:Indira Sagar Project Rs. 4,780mn (US$ 100mn) MCGM Tansa Pipeline Project Rs. 3,581mn(US$ 17.77 mn) Construction of Tunnel from Gundovli to Bhandup Rs.5,729mn(US$ 119.35 mn) Punasa Lift Irrigagtion Rs.4,185 mn (US$ 87.18 mn) BOOT ProjectChennai Water Desalination Plant Rs. 4,901mn (US$ 102.10mn)
Transportation (Road, Railways):
Road Projects include National Highways/Expressways, State Highways, Internal Roads and rural roads, Airport Runway, Integrated Toll Collection. Other projects include Bridges, Railways and tunnels
Key Ongoing Projects:Bhogpur to Mukerian (NH – 1A) Rs. 3,600mn (US$ 75mn) Vivekananda Flyover Rs.1,646mn (US$ 34.29mn) BOT ProjectsIndore – Jabua – Gujarat Rs. 12,970mn (US$270.21 mn) Bharamati – Phaltan Rs. 3,280mn (US$ 68.33 mn) Chengampally – Walayar 8,520mn (US$ 177.50 mn)
Buildings and industrial structure:
Building Projects including Residential, Commercial and Industrial construction Other Infrastructure projects include Storm water drains, underground drains, layout formation and overburden removal Key Ongoing Projects: Dahej Petro Commercial Project – Rs. 8,376 mn (US$ 174.50 mn) IOTL Tankages – Rs. 6,000 mn (US$ 125mn) Bangalore Metro Railway Stations – Rs. 2,390 mn (US$ 49.79 mn) Gurugobind Sing h Refinery Project
Power Transmission And Distribution:
Power Projects include Transmission Lines, High Voltage Direct Current, Distribution and Substations Key Ongoing Projects:Rural Electrification Projects Rs. 3,823mn (US$ 84.96 mn) 220/120 KV Substation Projects Rs. 558 million (US$ 12.4 mn) 400 KV Transmission lines Rs. 221million (US$ 4.91 mn) 765 KV Substation at Sipat for Alstom Rs. 145.3 (US$ 3.22 mn)
TUNOVER:
NET PROFIT:
OVERALL PERFORMANCE:
SWOT ANALYSIS:
IVRCL has made a critical analysis of its strengths, weaknesses, opportunities and threats and has chartered the course of its operations to get over these and attain the targeted growth rates, as detailed hereunder: STRENGTHS • A fully integrated infrastructure company with frontend designing skills and Lum sum Turnkey Implementation capabilities. • Technical tie-ups and partnership with leaders’ indifferent infrastructure segments. • IVRCL has attained a critical mass in terms of resources, technology and manpower skill sets. This enables it to re-qualify for major works in India in public, private sector and international tenders. • The Company has a diversified servicing capability, interms of industry segment within the infrastructure industry. IVRCL has expertise in Water Management, Waste water drains, Laying of Power transmission lines, Construction of Roads, Housing, etc.• IVRCL is the largest player in Water management in India. • Back up of sub-contractors with proven track record. WEAKNESSES I. Success rate of bagging high value works: Current success rate of the Company in bagging the orders is only 16% - 18%. Main drivers to improve the success rate: 1. Pre-Qualification: The pre-qualification is essential for participating in high value tenders at the bid stage. Based on the present value of the order position the company has targeted a turnover of Rs. 8,000million. This will further improve prequalification for bidding high value projects. 2. Cost of Funds: The lowest bidder generally bags the tender. This particular phenomenon has also led to company's working on thin margins with competitors adopting price-cutting. Hence prudent cost management along with identification of niche and unexplored segments of infrastructure industry help maintain the profitability margins. 3. Technology development in the Infrastructure industry: Technology and management of project sites is posing a challenge to infrastructure companies and to overcome this aspect the Company has implemented a comprehensive corporate governance system. In respect of technology the Company has entered into technology tie ups with global leaders as explained earlier. II. Payment Schedule: The biggest paymaster for infrastructure projects has been government body (State/Central). The payment is according to the availability of budgetary allocations. Hence, in some cases the payment gets delayed beyond the average of two months. IVRCL has developed over a period of last ten years a network of sub-contractors, whom it gives back-to back orders. These agreements allow IVRCL to make payment to the sub-contractors only after IVRCL receives the payments from its customers. These arrangement immunes IVRCL from any payment delays and the Company is never out of pocket on such projects.
OPPORTUNITIES: • Global Market The company's past growth has been mainly driven by its activity in the domestic market. It has already attained credibility by being rated as the second fastest growing construction company in India. (CONSTRUCTIONWORLD, Annual issue 2002).IVRCL has already chalked out a global plan to tap emerging markets. It has identified countries like, Mauritius & Middle East countries, as a prospective market. • Indian infrastructure industry is projected to be worth71 billion pounds by 2010. Standard & Poor' s global survey and forecast made in the year 1999, ranks India6th in the global list of 10 fastest growing construction markets during 99 - 04 with an average annual growth rate of 10.4%. This provides great opportunity for IVRCL in the domestic market where it has already proved it credibility.
Threats: • Any changes in political environment and economic policies Governments drive infrastructure investment and any change in governments poses a threat with respect to their commitment towards Infrastructure development. Subsequent to the initiation of integrating the Indian economy with the global economy, since 1991,successive governments have only taken forward the agenda of globalisation of the Indian economy. Despite14Compiled by: Asian CERC Information Technology Ltd STRATEGY: In addition to taking necessary steps in our quest for positioning the Company as a leader in the water sector in the country, we propose to expand the business volume in our current core competency areas of roads and bridges as well as superstructure / integrated townships. The company proposes to forge ahead to increase its presence in the power sector through execution of contracts relating to power transmission lines substations and switchyards. NEW FOCUS AREAS: The Company is increasingly aware of the challenges posed to it to sustain the consistent growth which has been happening during the recent five years of operations. New focus areas in infrastructure such as:• Railway sector business. • Hydel power plant construction services. • Port Development, Dredging. • International Infrastructure Market which throws open a vast opportunity to the Company. The Company proposes to enter into these sectors and has already made headway in each of these sectors through the following steps. i) The Company incorporated a joint venture company M/s.Prodrabena Sdn. Bhd., Malaysia to bid for the Double Tracking of Railways in Malaysia. ii) The Company has formed an association with a John Laing International, UK and MNG of Turkey to bid for Dam Construction work related to Hydel Power Plants iii) The Company has formed a joint venture with Laing Construction of UK and submitted the papers for prequalifications in the ADB funded project called of Rail Vikas Nigam Ltd., a 100% subsidiary of the Indian Railways.
iv) The Company has signed a joint venture with M/s. DRAGOMAR INTERNATIONAL AG ITALY for participating in tenders relating to • Dredging • Port Development • Coastal Protection • Break-water Joint Ventures The multinationals with whom they have ventured to associate are reputed in the specific sectors of water, power, railways and transportation systems. Brief profiles of these partners are presented below: STRATECH SYSTEMS LIMITED - SINGAPORE: Stratech is a Consulting Agency, established in the year 1989 has main vision is to develop and deliver globally, innovative, world-class, technology intensive solutions, products and services to the commercial and public sectors, focussing on high-growth market segments, including Transportation, Healthcare, Defence / Aerospace, Security, e-Governance and e-Business. Their core competencies are:1. 3D Computer Vision. 2. Large-scale real-time mission critical systems for e-Governance. \ REEN ARM CO., LTD - JAPAN : Green Arm is a Japan based company, Their business is to manufacturing on commission, sales and leasing of road construction machineries and others. Recently a formal consortium arrangement has taken place between Green Arm- HitachiTelcon-IVRCL to take up Hot inplace Recycling Work of Bituminous Road Surface in India. HITACHI CONSTRUCTION MACHINERY CO., LTD. - JAPAN: Hitachi is a Japan based company, established in 1970, at Tokyo the construction machinery division of Hitachi, Ltd., was spun off to establish Hitachi Construction Machinery Co., Ltd., as part of Hitachi, HCM was involved in the production of Japan's first mechanical excavator more than 50 years ago. In addition to manufacturing of Hydraulic Excavators, they undertake marketing of Wheel Loaders, Crawler Cranes, Shield machines, Off-Road Dump Trucks and other such products made by HCM Group companies TELCO CONSTRUCTION EQUIPMENT CO., LTD - INDIA: Telcon is a leading manufacturer of Earth Moving and Construction equipment in India since 1961. It is a joint venture between Tata Engineering and Hitachi Construction Machinery Co. Ltd., Japan. Telcon is part of the globally renowned TATA Conglomerate and has experience of manufacturing and selling Earth Moving and Construction Machinery with latest technology. DRAGOMAR INTERNATIONAL AG - ITALY: Dragomar is an Italy based company. Dragomar, together with its affiliated companies, and with thirty years of experience is a highly specialized leader in the field of marine construction and dredging.
PRODRABENA Sdn. Bhd. - MALAYSIA: Prodrabena Sdn. Bhd., is incorporated in Malaysia and implements projects in a wide spectrum of sectors such as road works, building work. Sewerage, Resevoir Treatment,Bridge and earth works with experienced management, supporting skilled technical and committed staff. The company's mission is to sustain business growth by retaining customers satisfaction in providing quality works and timely completion
doc_119273926.docx
This document talks about Industry Trends of construction and housing industry, PEST Analysis of Industry, Competitor Analysis, SWOT analysis, Company Description, General Information IVRCL Infrastructures, it's Finance performance, SWOT analysis of IVRCL Infrastructures and Various Strategies employed.
IVRCL Infrastructures & Projects Ltd – Company Analysis
INDUSTRY OVERVIEW
India the second most populated country in the world has clearly emerged as one of the fastest growing economies with a projected GDP growth rate of 6.5% for the year 2003-04. Physical incentives are being provided for projects in these sectors and private participation is also sought for bringing in state-of-art technology, efficient management and adequate financial resources to set up new capacities as well as up-gradation of the existing infrastructure base. A brief overview of each of the sectors and associated opportunities are being presented. WATER: The annual per capita availability of freshwater in 1951 was 5,177 cubic metres that declined to 1,869 cubic metres in 2001. It is likely to fall further to 1,341 cubic metres in 2025, and in 2050, it will be 1,140 cubic metres. It is generally presumed that if per capita level falls to 1,000 cubic metres, it could seriously affect the health and economic activity of the entire country. At this level, in the forceable future water crisis will be seen in more than 25 per cent of India's geographical area affecting 21 per cent of the total population. Already 5.5 per cent of the country's geographical area and 7.6 per cent of the population are facing acute water shortage, with availability less than 500 cubic metres. The total investment requirements for water and sanitation in India based on various reports indicate that an investment of over Rs.260 billion is required for 100% coverage for Urban Water and Sanitation. Consequently there is a broad realization that private sector financing and management is now needed in India. The average annual investment on operations and maintenance of Urban Water Supply and anitation Systems has been estimated at approximately Rs.25 billion. IVRCL sees a huge untapped potential in this high demand infrastructure sector which calls for a single point responsibility for implementing contracts to include design supply, construction, commissioning operating and maintaining water supply systems on a Lump sum Turn Key basis. HIGHWAYS: National Highways Authority of India is currently implementing a National Highway Development Project valued at USD 12 billion. Build-Own-Transfer Projects and Annuity projects are already underway and a number of them has been financially closed and successfully implemented. The anticipated investment for development of roads in the National Highways as well as the State Highways put together up to the year 2010, is approximately US$ 55.47 billion. POWER: The Government of India has come with the comprehensive Compiled by: Asian CERC Information Technology Ltd legislation to put together in one place all measures required to push
this sector into a trajectory of sound commercial growth. It takes into account a move towards a competitive scenario where regulators on the one hand and private power utilities on the other shall play increasingly significant roles. Generation is to be de-licensed and captive generation freely permitted. The states governments have flexibility to un-bundle the state electricity boards of continue with them as distribution licenses and state transmission utility. The accelerated power development and reform programme have been structured in the areas of distribution reforms to achieve 100% metering, energy audit, better PF ratio ,replacement of distribution transformers, IT Solutions relating to power flow at critical points to ensure accountability at all levels. This should raise the level of satisfaction of the consumers besides improving revenue realization for the utilities. There is no ceiling on foreign equity participation in the power sector. FDI is encouraged in transmission via joint ventures and independent power transmission companies. Specific transmission lines / schemes have been identified for execution through these routes. Transmission projects have been identified and in some cases, have commenced execution. The objective is to ensure that the inter-regional power transmission capability increases from the present level of 4,850 MW to 30,000 MW by the year 2012.Funds are getting allotted on a priority basis from Government budgetary allocations for numerous infrastructure development projects. Further, funding from multilateral agencies such as the World Bank ADB, OECF, etc., is also being canalized. All the infrastructure construction service companies presently have huge order book positions to be completed in next 18 to 24 months. This is expected to grow at a CAGR of at least 25%, over next five years. RAILWAYS: One of the largest railway systems in the world, the Indian Railways (IR) has a network of 63,140 route km. It turns about 14,000 trains every day to transport 13 million passengers and 1.3 million tons of freight about 40 percent of the total freight traffic in the country. Indian Railways has played an important role in changing the social and economic landscape of the country. It contributes 1 per cent to the GDP and is the largest employer in the country. It supports a work force of about 1.6 million, constituting 6 per cent of the 27 million people employed in the organized sector. Indian Railways operates three of the largest suburban services in the world - in Mumbai, Chennai and Kolkata. Indian Railways has also formed two special purpose vehicles- Gujarat Pipavav Port Limited, for improved rail connectivity to ports, and Rail Vikas Nigam Limited (RVNL), to spear head and implement projects such as the Golden Quadrilateral and port connectivity. The National Rail Vikas Yojana announced by the Prime Minister calls for an investment initiatives of over Rs.150billions.
PEST ANALYSIS OF INDUSTRY Political Factors The political factors affecting the construction and housing industry mostly consists of documentation’s and permits that has to be obtained during the various phases of construction of a structure and its sale.
?
Building Commencement Certificate: Construction of a building or any such structure cannot take place unless and until the builder or the company secures a commencement certificate from the authority, in case of Mumbai it is the BMC who gives IOD&CCIntimation of Disapproval & Commencement Certificate.
§ Floor Space Index (FSI): FSI is basically a ratio, which determines how tall can buildings or a structure can be constructed on a particular plot. The local authority issues it. § Occupation Certificate: After the completion of construction work of a building, the builder or the company has to secure an Occupation Certificate without which the flats in the building cannot be occupied for residential or commercial purposes.
?
Brihan Mumbai Corporation [BMC] Developing Plans: BMC’s developing plans form the most basic criteria in selecting a site. These developing plans chart out predefined areas, which the BMC has already allocated for certain purposes.
E.g. In a given area, some land is reserved for plantation/farming, some piece is kept for industrial establishments like the MIDC area and the other one reserved for residential purposes. So the Builder finds out the type of land, which is suitable for his purpose, i.e.; if he wants to build up a residential complex, then he has to do so in the area reserved for residential purposes; as per the BMC’s developing plans. · CRZ (Coastal Recovery Zone): According to this rule a builder cannot carry out any construction within the radius of half kilometer from sea. § TDR (Transfer of Development Right): This right is available to a builder for utilizing the additional FSI. Normally TDR is given by the local Municipal Authority who acquires the portion of land of builders either for the purpose of constructing road or for making gardens.
§ Others: Apart from the above mentioned points there is also tax exemption that is given for the construction of building on the land having area of more than 1 acre. Economic Factors § Fluctuations in prices of inputs: Many builders tend to stop work when the prices of inputs like cement, iron etc goes up so as to wait for the time when they expect the prices will come down. This result in unnecessary delay in the work and the cost of wasting time would actually be more than the increase in price. § Changes in demand: Changes in demand due to factors like changes in disposable income of prospective buyers and inflation. Also with the easy availability of housing loans and tax exemption on loans the demand for houses is rising. § Future Growth & Resale Value: Any project must be located in an area that if not fully developed must at least be on the way. This is because people prefer those areas having high resale value and will fetch them a good amount of gain. § Stamp Duty & Registration: Payments of Stamp duty followed by the registration of the agreement are two important acts when one enters into an agreement with a developer/seller. With the decrease in the stamp duty by 50% it is considered as a good sign for Construction Sector. Social Factors
?
Credibility of the company/firm: People don’t know what kind of materials has been used in the construction of a building or a structure. Credibility of a builder or the company plays an important role in convincing the buyer to buy the house and be sure of the quality of construction work done. A low credibility or image can lead to poor financial performance. A good image is not just built in a day, it takes years of servicing the society through following high standards of work in the process of construction and sale.
§ Perceived Image of the property developed: A flat in a so-called “posh― area may cost much more than a one in a “not so posh― area. This factor can also determine the success of failure of a project. A flat is selected on the basis of infrastructure facilities like water availability, transport facilities, nearness to schools, colleges, hospitals, shopping complexes, leisure centers, etc. § Building Facilities: The builders may offer buildings that have swimming pools, health-clubs, gyms & parks.
Technical Factors Due to technical nature of the construction process, the technical environment keeps on changing every day. There are developments in techniques used, materials used and various other such aspects of the construction business. A few of such developments are as follows
?
?
?
Pre-structured Concrete Blocks: These are blocks of concrete, which are made in the factories according to the dimensions of the building or structure to be built. It is just like a jigsaw puzzle where these blocks are put together using a huge crane and joined together using mortar by workers. This enables quick completion of work and also economies of scale. Mixture of Cement and Sand: nowadays in order to save time the constructor can order the mixture of sand and cement directly from the suppliers as against the traditional way of ordering cement and sand separately and then filtering them and then mixing it. Other Equipments: other modern machines that are used in construction are the use of huge drilling type of machines to dig the ground, which was before done by workers.
COMPETITION TO IVRCL
The Indian Infrastructure Industry is very competitive with a large number of players. We face competition from big players such as international companies and major domestic construction companies who operate at the national level, to numerous smaller localized contractors /companies. We bid from contracts based n bidding process and the one who quotes the lowest is awarded the contract. We have strategy in place to deal with this competition Leverage specialization to tap growth in related areas such as water road, power and building projects. Gain access to more complex project roles by building our in-house design capabilities, enhancing our internal capabilities and PPP type projects for infrastructure and working with specialized project consultants to enable us to assess project risks for BOT/BOOT projects. l Strengthen pre-qualifications. l Build execution Capability l Growth through inorganic means including acquisitions of companies that have: n Pre qualifications in niche areas n Excellent execution capabilities in related areas
n Complementary geographical locations In infrastructure development none of the global majors are participating in infrastructure projects. There are many reasons to this nonparticipation, one of the main being delay in decision making. This might change and the same global majors might start participating in the bidding process. With them they bring great strength in terms of technology, experience and financial resources. They pose great threat to the domestic players like IVRCL. IVRCL considers this and hence has tied up with global majors in areas where it lacks skill sets, as an entry strategy into new areas of infrastructure, the Company has already started executing small work orders, so that it can build critical mass for obtaining pre-qualification to participate in future big orders (eg:Hyderabad airport work), it has initiated action in the direction of reducing its cost of funds. These steps and prudent corporate governance in place should enable IVRCL to face any onslaught from global majors
Company summary:
IVRCL Infrastructures & Projects Ltd., (formerly IVR Constructions Limited) commenced operation in 1990 with building construction as Class I Contractor-firm in 1987, IVRCL forayed into various social infrastructure sectors like water transmission, treatment, solid waste management, roads and high-ways, bridges, power transmission lines with attendant engineering capabilities and was graded as one of the best Developer Companies by State and Central Governments and could achieve a turnover of Rs. 1055 crors during the financial year 2004-05.
Started in 1990, IVRCL has become a leading player in EPC and LSTK contract implementation in India • Strong presence in Water, Transportation, Building & Industrial Structures and Power sector • Current order book of Rs. 233,750 mn (US$4.9 bn) with revenue of Rs.55,100 mn (US$ 1,148mn) for the year 2009-10 • Proven Project Execution Skills and presence across 21 states in India • Undertaking BOT/ BOOT / DBOOT Type Public Private Partnership (PPP) projects • Highly qualified and well trained human resource base • Listed in 1995, proven dividend paying track record • Company has grown at 43% CAGR in terms of revenues over the last three years
General Information:
HISTORY : Company was incorporated on November 16, 1987 as I. Venku Reddy
Constructions Pvt Ltd., and were converted into a public limited Company on September 29, 1994. Subsequently name was changed to IVRCL Infrastructures & Projects Ltd., reflecting operations in the infrastructure sector. Headquarters of company is in Hydrabad and has more than 5000 employees with 5, 845 full time staff And Over 15,000 temporary staff including skilled and unskilled manpower
MANAGEMENT Board Of directors E. Sudhir Reddy E. Sunil Reddy R. Balarami Reddy K. Ashok Reddy E. Ella Reddy T. N. Chaturvedi T.R.C. Bose P. R. Tripathi S. K. Gupta Chairman and Managing Director Director ED – Finance and Group CFO Executive Director Director Director Director Director Director
Key Mnagement Key D D Rao Director – Technical S. Ramachandran Director – Business Development & Corporate Strategy SHARE HOLDING PATTERN
Particular Promoter Holding
N
f SharesPercent Shares(%)
Indian Promoters 25417184 Foreign Promoters 0 Non-Promoter holdings (Other than Public)
9.52 0.00
Financial Institutions/Banks 2009028 FII/Foreign Fin Inst/Foreign Bank 128976517 Corporate Bodies 55456425 Government Holdings 0 OCB 3428 NRI 0 Mutual Funds 8687624 Other Foreign Holdings 2526963 General Public Individual Holding Upto Rs. 1 lakh 39548152 Individual Holding Excess of Rs. 1 lakh 3554121 Others 830416 Total 267009858
0.76 48.30 20.77 0.00 0.00 0.00 3.25 0.95 14.81 1.33 0.31 100.00
Financial Performance:
Water:
ProjectsTransmission Mains, Distribution Systems, Pumping & Re-circulation Systems, O&M, Irrigation Works and Canal Works. Environmental Projects Sewage systems, Water/Sewage treatment plants, Solid waste recycling plant Key Ongoing Projects:Indira Sagar Project Rs. 4,780mn (US$ 100mn) MCGM Tansa Pipeline Project Rs. 3,581mn(US$ 17.77 mn) Construction of Tunnel from Gundovli to Bhandup Rs.5,729mn(US$ 119.35 mn) Punasa Lift Irrigagtion Rs.4,185 mn (US$ 87.18 mn) BOOT ProjectChennai Water Desalination Plant Rs. 4,901mn (US$ 102.10mn)
Transportation (Road, Railways):
Road Projects include National Highways/Expressways, State Highways, Internal Roads and rural roads, Airport Runway, Integrated Toll Collection. Other projects include Bridges, Railways and tunnels
Key Ongoing Projects:Bhogpur to Mukerian (NH – 1A) Rs. 3,600mn (US$ 75mn) Vivekananda Flyover Rs.1,646mn (US$ 34.29mn) BOT ProjectsIndore – Jabua – Gujarat Rs. 12,970mn (US$270.21 mn) Bharamati – Phaltan Rs. 3,280mn (US$ 68.33 mn) Chengampally – Walayar 8,520mn (US$ 177.50 mn)
Buildings and industrial structure:
Building Projects including Residential, Commercial and Industrial construction Other Infrastructure projects include Storm water drains, underground drains, layout formation and overburden removal Key Ongoing Projects: Dahej Petro Commercial Project – Rs. 8,376 mn (US$ 174.50 mn) IOTL Tankages – Rs. 6,000 mn (US$ 125mn) Bangalore Metro Railway Stations – Rs. 2,390 mn (US$ 49.79 mn) Gurugobind Sing h Refinery Project
Power Transmission And Distribution:
Power Projects include Transmission Lines, High Voltage Direct Current, Distribution and Substations Key Ongoing Projects:Rural Electrification Projects Rs. 3,823mn (US$ 84.96 mn) 220/120 KV Substation Projects Rs. 558 million (US$ 12.4 mn) 400 KV Transmission lines Rs. 221million (US$ 4.91 mn) 765 KV Substation at Sipat for Alstom Rs. 145.3 (US$ 3.22 mn)
TUNOVER:
NET PROFIT:
OVERALL PERFORMANCE:
SWOT ANALYSIS:
IVRCL has made a critical analysis of its strengths, weaknesses, opportunities and threats and has chartered the course of its operations to get over these and attain the targeted growth rates, as detailed hereunder: STRENGTHS • A fully integrated infrastructure company with frontend designing skills and Lum sum Turnkey Implementation capabilities. • Technical tie-ups and partnership with leaders’ indifferent infrastructure segments. • IVRCL has attained a critical mass in terms of resources, technology and manpower skill sets. This enables it to re-qualify for major works in India in public, private sector and international tenders. • The Company has a diversified servicing capability, interms of industry segment within the infrastructure industry. IVRCL has expertise in Water Management, Waste water drains, Laying of Power transmission lines, Construction of Roads, Housing, etc.• IVRCL is the largest player in Water management in India. • Back up of sub-contractors with proven track record. WEAKNESSES I. Success rate of bagging high value works: Current success rate of the Company in bagging the orders is only 16% - 18%. Main drivers to improve the success rate: 1. Pre-Qualification: The pre-qualification is essential for participating in high value tenders at the bid stage. Based on the present value of the order position the company has targeted a turnover of Rs. 8,000million. This will further improve prequalification for bidding high value projects. 2. Cost of Funds: The lowest bidder generally bags the tender. This particular phenomenon has also led to company's working on thin margins with competitors adopting price-cutting. Hence prudent cost management along with identification of niche and unexplored segments of infrastructure industry help maintain the profitability margins. 3. Technology development in the Infrastructure industry: Technology and management of project sites is posing a challenge to infrastructure companies and to overcome this aspect the Company has implemented a comprehensive corporate governance system. In respect of technology the Company has entered into technology tie ups with global leaders as explained earlier. II. Payment Schedule: The biggest paymaster for infrastructure projects has been government body (State/Central). The payment is according to the availability of budgetary allocations. Hence, in some cases the payment gets delayed beyond the average of two months. IVRCL has developed over a period of last ten years a network of sub-contractors, whom it gives back-to back orders. These agreements allow IVRCL to make payment to the sub-contractors only after IVRCL receives the payments from its customers. These arrangement immunes IVRCL from any payment delays and the Company is never out of pocket on such projects.
OPPORTUNITIES: • Global Market The company's past growth has been mainly driven by its activity in the domestic market. It has already attained credibility by being rated as the second fastest growing construction company in India. (CONSTRUCTIONWORLD, Annual issue 2002).IVRCL has already chalked out a global plan to tap emerging markets. It has identified countries like, Mauritius & Middle East countries, as a prospective market. • Indian infrastructure industry is projected to be worth71 billion pounds by 2010. Standard & Poor' s global survey and forecast made in the year 1999, ranks India6th in the global list of 10 fastest growing construction markets during 99 - 04 with an average annual growth rate of 10.4%. This provides great opportunity for IVRCL in the domestic market where it has already proved it credibility.
Threats: • Any changes in political environment and economic policies Governments drive infrastructure investment and any change in governments poses a threat with respect to their commitment towards Infrastructure development. Subsequent to the initiation of integrating the Indian economy with the global economy, since 1991,successive governments have only taken forward the agenda of globalisation of the Indian economy. Despite14Compiled by: Asian CERC Information Technology Ltd STRATEGY: In addition to taking necessary steps in our quest for positioning the Company as a leader in the water sector in the country, we propose to expand the business volume in our current core competency areas of roads and bridges as well as superstructure / integrated townships. The company proposes to forge ahead to increase its presence in the power sector through execution of contracts relating to power transmission lines substations and switchyards. NEW FOCUS AREAS: The Company is increasingly aware of the challenges posed to it to sustain the consistent growth which has been happening during the recent five years of operations. New focus areas in infrastructure such as:• Railway sector business. • Hydel power plant construction services. • Port Development, Dredging. • International Infrastructure Market which throws open a vast opportunity to the Company. The Company proposes to enter into these sectors and has already made headway in each of these sectors through the following steps. i) The Company incorporated a joint venture company M/s.Prodrabena Sdn. Bhd., Malaysia to bid for the Double Tracking of Railways in Malaysia. ii) The Company has formed an association with a John Laing International, UK and MNG of Turkey to bid for Dam Construction work related to Hydel Power Plants iii) The Company has formed a joint venture with Laing Construction of UK and submitted the papers for prequalifications in the ADB funded project called of Rail Vikas Nigam Ltd., a 100% subsidiary of the Indian Railways.
iv) The Company has signed a joint venture with M/s. DRAGOMAR INTERNATIONAL AG ITALY for participating in tenders relating to • Dredging • Port Development • Coastal Protection • Break-water Joint Ventures The multinationals with whom they have ventured to associate are reputed in the specific sectors of water, power, railways and transportation systems. Brief profiles of these partners are presented below: STRATECH SYSTEMS LIMITED - SINGAPORE: Stratech is a Consulting Agency, established in the year 1989 has main vision is to develop and deliver globally, innovative, world-class, technology intensive solutions, products and services to the commercial and public sectors, focussing on high-growth market segments, including Transportation, Healthcare, Defence / Aerospace, Security, e-Governance and e-Business. Their core competencies are:1. 3D Computer Vision. 2. Large-scale real-time mission critical systems for e-Governance. \ REEN ARM CO., LTD - JAPAN : Green Arm is a Japan based company, Their business is to manufacturing on commission, sales and leasing of road construction machineries and others. Recently a formal consortium arrangement has taken place between Green Arm- HitachiTelcon-IVRCL to take up Hot inplace Recycling Work of Bituminous Road Surface in India. HITACHI CONSTRUCTION MACHINERY CO., LTD. - JAPAN: Hitachi is a Japan based company, established in 1970, at Tokyo the construction machinery division of Hitachi, Ltd., was spun off to establish Hitachi Construction Machinery Co., Ltd., as part of Hitachi, HCM was involved in the production of Japan's first mechanical excavator more than 50 years ago. In addition to manufacturing of Hydraulic Excavators, they undertake marketing of Wheel Loaders, Crawler Cranes, Shield machines, Off-Road Dump Trucks and other such products made by HCM Group companies TELCO CONSTRUCTION EQUIPMENT CO., LTD - INDIA: Telcon is a leading manufacturer of Earth Moving and Construction equipment in India since 1961. It is a joint venture between Tata Engineering and Hitachi Construction Machinery Co. Ltd., Japan. Telcon is part of the globally renowned TATA Conglomerate and has experience of manufacturing and selling Earth Moving and Construction Machinery with latest technology. DRAGOMAR INTERNATIONAL AG - ITALY: Dragomar is an Italy based company. Dragomar, together with its affiliated companies, and with thirty years of experience is a highly specialized leader in the field of marine construction and dredging.
PRODRABENA Sdn. Bhd. - MALAYSIA: Prodrabena Sdn. Bhd., is incorporated in Malaysia and implements projects in a wide spectrum of sectors such as road works, building work. Sewerage, Resevoir Treatment,Bridge and earth works with experienced management, supporting skilled technical and committed staff. The company's mission is to sustain business growth by retaining customers satisfaction in providing quality works and timely completion
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