Mr. Vikas Kothari is Director, Business Development in OM Metals Infraprojects Ltd., He is a graduate in Mechanical Engineering from University of Hartford, CT U.S.A and holds a Masters degree from IIM Bangalore. After graduating from US, he started as a Site Engineer in OM Metals in 1997. He has been contributing towards the growth of OM Metals for the last 12 years. He was elevated to the post of a Director with effect from 2009. He is a very active member of the Board, supervising all the joint ventures, for the domestic and international projects, and also and. He has been instrumental in identifying new business and initiating marketing activities for the group.
Incorporated in 1971, OM Metals Infraprojects Ltd. is a leading ISO 9001 Engineering Construction company with a strong presence in the Hydropower sector and experience spanning more than three decades. It is engaged in diversified activities such as execution of turnkey Hydro-mechanical contracts for Hydropower and Irrigation projects, Real Estate development and Infrastructure projects. The company has successfully executed more than 45 Hydro-mechanical contracts for Hydro-power and Irrigation projects across the country. OM Metals has also de-risked its business model with acquisitions in the core business and foraying into Real Estate and Infrastructure sector (port and SEZ).
In an exclusive interaction with Anil Mascarenhas and Hemant P. Maradia of India Infoline, Mr. Kothari says: "Going forward, the order book of Rs7bn will result in stupendous growth for us."
How has the past 1 1/2 years been for OM Metals? How is business shaping up in various segments? Do you feel the worst is over?
OM Metals is an engineering and construction company specializing in highly nicheengineering and construction activities. We undertake turnkey contracts for thehydro-mechanical part of a hydro-power project. We do design, engineering, procurement ofraw material, manufacture, transportation, installation, testing and commissioning of thehydro-mechanical equipment. Similar activities are also undertaken for irrigationprojects.
Our business is isolated from any ups anddowns. Hydro-electric power and irrigation are infrastructure focus areas and thereforehave been seeing only growth in both these areas of engineering construction without anydowntrend.
The past 1 1/2 year was tremendous,particularly the last 6 months where we have achieved top line almost equivalent to whatwe achieve in 2008-09. There remains uniformity in various segments and our core businessis contributing as usual more than 80%.
What is the outlook for your company?
In the past decade, there has been a lot of Government thrust on the power sector,particularly hydro-electric generation. The ratio of thermal-hydro mix in power generationis skewed towards the former. Ideally, for any country, the mix has to be 60:40.
In India, this ratio has gone for a toss inthe last 15 years. The Government of India has realised this, and is now putting morestress on hydro electricity. Almost 7-8 years ago, a plan was announced whereby it wasenvisaged to generate 50,000 MW of power through hydro-electricity over the next twofive-year plans. Accordingly you can see the effects of the same initiative by Governmentof India, on our order book position which has seen a big rise.
Basically, any hydro-power project hasthree major components to it – Civil Works, Electro-mechanical Works andHydro-mechanical Works. The hydro-mechanical part of any hydro electricity project istypically 4-8% of the total project cost. We are by far the largest company in this fieldin India and amongst the largest in the world.
What is your current order book?
We are in this business for the past 40 years with one of the strongest technicalreferences in this specialized field. Our technical references and efficient pricing hasresulted in an order book of nearly Rs7bn. This is spread over a period of next threeyears. Our sales to order book ratio is nearly 1: 7.
Our topline for the past three years hasbeen in the range of Rs1-1.2bn. Going forward, the order book of Rs7bn will result instupendous growth for us.
Were you in any way affected by the economic slowdown?
Not really; because mostly our clients are Government of India undertakings – NHPC,NTPC and NEEPCO. These companies never have any paucity of funds. The Government’sfocus has not changed as far as infrastructure is concerned. Fortunately, we don’thave any exposure to the private sector, which was hit more by the slowdown and creditcrunch than the public sector.
There has been no change in our order book;no cancellation of orders. No slowdown in development or construction or availability offunds.
To give you a sense, in the past two yearsthere have been 7 awards of contracts by NHPC. We have been awarded 4 projects out of 7projects of NHPC.
Likewise there have been 3 awards ofhydro-mechanical contracts by NTPC and we have bagged 2. In addition, NEEPCO has awardedus their sole project that it has announced in the last few years.
Which are some of the top global companies?
Globally there are four major companies that execute hydro-mechanical projects namely -Alstom, DSD Noell, VA Tech (Andritz) and Technoprom Exports.
Tell us about the future potential for your business?
Over the next two five-year plans there will be minimum 25,000 MW (out of total 50,000 MWthat has been planned) of power will be added / additionally generated throughhydro-electricity. Of that, considering the total cost of power project as equivalent toaround Rs.7-8 crores per MW therefore if we cater to 5%, that’s the total potential.This works out to nearly US$1bn over the next five years to ten years.
What about manufacturing capacities?
We’ve built capacities over the past three years. We have factories across threelocations. These are located at Kota (Rajasthan), Kathua (J&K) and Siliguri (WestBengal). We also have some ancillary facilities located at each site.
We will start construction on a newfacility soon. We will double our capacity once this fourth unit is up and running. As ofnow our capacity is 20,000 tons per annum. We will hit 40,000 to 50,000 tons a year afterthe fourth facility goes on stream.
This fourth facility is targeted to beamongst the largest in the country. This is likely to come up in Bhilai.
What is your capex plan?
We have planned an outlay of around Rs200mn on expansion for the next two years.
This will be funded from internal accruals.
Do you have any fresh fund raising plan?
Not at the moment. We have been posting good results. We also did a QIP in 2007. We raisedabout Rs1.2bn.
Have you used up all QIP money?
It is not fully utilised. We still have about Rs.550-600mn left with us.
Where have you kept the balance QIP money?
We’ve kept the money in term deposits with various Banks because we are looking forinorganic growth / acquisition opportunities in India and abroad. We have therefore keptthis money in a readily available mode.
We haven’t yet frozen any plans sofar.
What is the rationale behind inorganic growth plans?
We lack a global footprint. We intend to spread our operations overseas in a big way. Ofcourse, the largest international markets for hydro-power generation remain India, Chinaand Brazil. A few projects keep happening in the Far East and elsewhere. We recentlycompleted a project in Vietnam. We are also looking at Nepal and Bhutan. We are alsolooking out for projects in Myanmar.
We also plan to use our expertise inhydro-mechanical engineering and construction in any related areas; may be Balance ofPlant for a thermal power project. We can do structural fabrication work. We aim to useour current capacities to the optimum level.
Are you planning to enter into other segments of hydro-power?
Not at the moment. We have a pretty good position in the hydro-mechanical projects. And,there is too much competition in other areas of hydro power projects and thermal powergeneration. In civil works too, there are so many players.
Also, the companies in civil constructionand thermal power don’t enjoy the kind of margins that we have. This is because thereare enough entry barriers in the hydro-mechanical and electro-mechanical works.
What is your USP?
It is our technical references. Our scope is a turnkey / EPC contract covering design,detailed engineering, manufacture, transportation, installation testing and commissioning.You would not want to risk your project by awarding these contracts to any new player.Past experiences also count. You must have an experience of executing such contracts intreacherous locations.
Do you face any threat from China?
The Chinese are among the top players in hydro-power equipment because China is theworld’s largest market for hydro-electricity generation. Fortunately, we are notaffected by Chinese competition because the Government of India wouldn’t want toallow them to execute any parts of hydro-electric projects for border security reasons.
But, even otherwise, the Chinese playersmay not be as competitive as we are even if they were to be allowed by the Government.This is because hydro-mechanical equipments need a lot of localization by executing sitefabrication and installation works which requires local competence and local costs.
Tell us about some of your big projects?
We’ve done the world’s largest vertical lift gate for NTPC. This was NTPC’sfirst hydro-power project. We’ve done design, engineering, procurement,manufacturing, transportation, installation, testing and commissioning of the DiversionTunnel gates for Kol Dam Hydro Electric Power Project.
We’ve done another big project inMaharashtra. This was done for the Vidarbha Irrigation Development Corp. (VIDC) This wasan irrigation project where we’ve done 33 Nos. of one of the largest radial gates.
Brief us about your real estate foray?
Our diversification into real estate was nearly a decade ago. We were getting propertiesat a steep discount. Some of these properties were also owned by us. We built a hotel inJaipur. We constructed a multiplex at Kota. We also have standalone projects in Jaipur,Mumbai, Hyderabad and Kota. We’ve taken up five projects.
At the moment though, only Kota is beingdeveloped. All the others are on hold. One, there is no rush. Two, our land acquisitioncosts have been fairly low.
What will be the break up of revenue going ahead?
Engineering and construction will always be the major contributor to our topline, as wellas to our bottomline. About 70-80% of our revenue every year comes from this business.Going forward, we see no major change.
Real estate will be a small contributor tothe topline as well as bottom line.
Tell us about the Pondicherry port project?
We participated in EoI and PPP floated by the Government of Pondicherry. The existing porthas been taken over by us. We have a 50% stake in the project. The SPV is calledPondicherry Port Ltd. The balance is with another company called Subhash Projects (SPML).We intend to build a major port there. We could also bring in a strategic partner at anappropriate time.
We are also planning a SEZ alongside theport. There also we have around 25% stake in the SPV called Pondicherry SEZ Ltd. SPMLholds 25% while the Pondicherry government owns around 20%. The rest is with aninfrastructure fund.
You are also planning a slum redevelopment project?
We participated in a tender floated by MHADA. It is a Joint Venture to redevelop the slumarea of 26,000 sq.m. in Bandra. The idea is to temporarily re-locate the slum dwellers andconstruct permanent housing for them on the same plot. We will utilise the balance of theland to build around 200,000 Sq. Ft. to 250,000 Sq. Ft. of residential space. It will be ahigh-end project.
I am assuming that the ground-breaking ofthe project should happen in the next 7-8 months.
What is the rate that you plan to charge?
We are hoping to sell the high-end residential space at the rate of around Rs.30,000-35,000 per Sq. Ft. It is quite reasonable considering the location.
What are your overseas plans?
We will look at acquisition opportunities overseas that will bring us technology andknow-how and also allow us to foray into newer areas of engineering construction.
What will be the size of the acquisition?
It will be a small acquisition. It should be around US$20mn in size. That is theenterprise value we are talking about. So, the consideration for equity may be lower.
There is Europe, US, Far East, Brazil,Russia and China. We don’t want to enter China. Brazil is way too far. We arefocusing on the Far East and the Indian sub-continent. Nepal, Bhutan and Myanmar offergreat opportunities.
What are your long-term financial targets?
We want to reach topline of Rs 5bn in three years. Our five-year goal is to reach atopline of Rs10bn. The current order book and the new businesses should enable us toattain the objectives.
What is your debt-equity ratio?
Currently it is less than 1 and stands around 0.2. We don’t have too much of debt inour books. For all practical purposes, we are a debt-free company.
What is the promoters’ shareholding?
Promoters’ shareholding is around 69%. It was at 64%, but we raised it through thecreeping acquisition route.
Any equity dilution plans?
Currently there are no plans to dilute promoters’ stake.