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| 'Lowest-bidder-wins ensures poor quality' | | Q&A: Atul Punj, Chairman, Punj Lloyd Group |
| Surajeet Das Gupta & Ruchika Chitravanshi / New Delhi Mar 05, 2010, 00:43 IST |
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 From a loss-making company which depended on gas pipeline contracts from oil and gas public sector undertakings (PSUs) to becoming one of South-east Asia’s largest construction companies has been a roller-coaster decade for the $2.6 bn Punj Lloyd Group. Its 52-year-old chairman, who is helping close friend Naresh Trehan build his dream hospital (Punj also has a stake in it), is now shifting the Group’s focus back to India — this includes an aggressive foray into defence production and moving from being just a construction giant to a developer. Excerpts of an hour-long interview with Surajeet Das Gupta and Ruchika Chitravanshi:
With the spending on infrastructure rising in a big way, will your India business become big again?
We moved abroad in 1992-93, when we had the capacity and capability but no business. But there’s so much happening here — I wouldn’t be surprised if the 20 per cent backlog of orders we have in India right now rises to 40 or 50 per cent in a couple of years. We’re not pulling out of other countries, but the India business will grow much faster. Last year, a fifth of our business came from India — this will rise to 40 per cent in two years.
Why are you getting into defence production?
It’s a good area, given the large investment planned; there is a shortage of capacity, skills, companies and technology. So, we went in and applied for a bunch of licences — it’s not as if we were at a level very different from the other applicants.
We are not going to duplicate the capacity that already exists in India. For example, we might want to go for manufacturing a missile in partnership with a foreign company. There will be 20 sub-components of which 12 could probably be made here with some tweaking of existing manufacturing facilities. We will focus on the other eight components and the financing bit.
We are going to unlock the value on investment already made. We are not going to make a massive investment and then wait for an order — we are building a multi-purpose facility that can do stuff from oil and gas components to nuclear fabrication to defence work. That is, the facility will be such that it can be used for the existing Punj Lloyd activities — defence orders take time to materialise and can get shot down at the last minute.
What is the initial investment planned?
Around Rs 150-160 crore to begin with, and then there will be incremental investment for individual projects that we get.
Is getting technology from abroad an issue, especially when there is no surety you will win the contract?
We will partner with people who have the technology. Many technology partners are reluctant to develop a project since policy changes can take place suddenly, so we are going to share the cost in development and will share the intellectual property. We are not playing on the offset story. I am willing to partner with firms that make me a part of their global supply chain today. We are not willing to wait only for Indian orders.
We will play a role in offsets — if we’re working with an aircraft manufacturer abroad who does a project in India, it will be easy for us to ramp up supplies of that component and meet the offset obligation, but we are not aiming at this market primarily.
What is your game plan in the aerospace sector?
The easiest area to be involved in India is the air frame side, the fuselage, wings, flaps, tailfin etc. Other than that, there are the avionics, engine side and the hydraulics. The largest value-add in terms of man-hours-spend would be the air frame side. We are not looking at making engines, but the doors, cockpits, ejection seats and so on provide a range of opportunities. You leverage the labour arbitrage. Manufacturing moves with labour costs.
Have you got any orders?
We’ve only been here for two years.
Are you going to leverage the Pipavav Shipyard also for naval projects?
We are looking at it — the government policy on naval projects is not very clear. The fun on the naval side is the completion and, to the best of my knowledge, the government would rather do it in their own yards. Some dialogue is on to allow this work in private yards.
Public sector undertakings have been wary of collaborating with the private sector in defence production. What’s your take on this?
India is an evolutionary story. Any major decision that the government wants to take is always accompanied by some kind of resistance. In two or three years, we will find an Indian solution that works for everybody. We are in a transition currently. The private sector also has to add value — if it just does the same work a PSU does, it will meet with resistance. The onus is on the private sector to show it is genuinely investing in technology, creating jobs and manufacturing products that India needs. Then you would see a sense of respectability kicking in.
Do you continue to position yourself as a construction company moving from one project to another?
We are moving towards a developer’s role in certain areas. In both highways as well as in power projects, we are taking a development position, either as the lead or through a consortium. We are looking at a portfolio of such investments, so that we have a stable income.
We are doing two highway projects but will be bidding for eight new ones and will take a developer position in them. Ours is a sniper approach as opposed to a shotgun approach.
Have the changed bidding rules for highways made getting finances easier?
The earlier policy prevented funding agencies like the Infrastructure Development and Finance Corporation (IDFC) from putting in more than 5 per cent of equity (due to the conflict of interest clause). Since there are only 10 such funding agencies, getting equity was a serious problem. With the conflict of interest threshold being raised to 26 per cent, funds are easier to get.
Are banks ready to finance highway projects, and do they have the money required?
Yes, they will. But there are so many projects coming, I don’t know about their appetite to fund all the demand. This is the largest road-building programme anybody in the world has ever tried to undertake.
Does the new bidding process do away with the fly-by-night operators?
The good thing is that those who are coming are quoting reasonable prices. The lowest bidder concept is a disaster and this is why the quality of infrastructure in India is very poor as compared to countries like Malaysia and even Indonesia. Some countries put a minimum price below which you cannot bid. We are now seeing a focus on these issues.
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