"Andhra pradesh has traditionally been a land of contractors and construction a significant part of the state economy,"
To understand this untold story, take a trip to the 1960s and 1970s. Like others, Andhra Pradesh too built its share of mega projects three-four decades ago: the biggest being the Nagarjunasagar dam, 150 km south east of Hyderabad, followed by the Srisailam dam 200 km south of the capital, Vizag Steel Plant and National Thermal Power Corporation's Ramagundam power station. "Andhra pradesh has traditionally been a land of contractors and construction a significant part of the state economy," says KV Rangaswami, executive director, L&T. By 2020, says a UN report, construction will contribute a tenth of the state’s GDP.
Managing construction workers, say old-timers, was an extension of overseeing hundreds of agricultural labourers, especially in sowing and harvest seasons. The abundant availability of labour mainly from Palmur area of the drought-prone Mahbubnagar district, 100 km southwest of Hyderabad, helped. If the ability to get large worker-pools to stick to project milestones was a competitive advantage, it was the entrepreneurial zeal of the contractors that saw them scaling up. Unlike counterparts elsewhere who stuck to doing business at home, the Telugu contractors headed wherever projects beckoned.
By 2020, says a UN report, construction will contribute a tenth of the state’s GDP.
Yet, political blessings were a key variable in deciding winners of contracts and powerful communities were gainers, admit industry leaders. “Political connections did matter in those days as there were hardly any entry barriers in terms of stringent grading or pre-qualification. So, there was room for manipulation,” admits E Sudheer Reddy, vice chairman and managing director, IVRCL Infrastructures. Over 20-30 years, some companies have broken into the big league. The 27-year-old Nagarjuna Construction boasts of a three-year order book of Rs 5,800 crore, turned in revenues of Rs 1,800 crore last year and aims to grow 50% this fiscal. IVRCL has revenues of Rs 1,100 crore last fiscal and is growing two-fifths annually.
its order book of Rs 6,000 crore is dominated 60% by water projects, the rest accounted for by roads, power and industries and buildings. The growth has attracted private equity firms ICICI Ventures and ChrysCapital to take exposures in the two companies. Madhucon Projects has Rs 4,900-crore worth orders spread over nine states and is a dominant player in road projects. It is targeting 1,000 km of road projects in the next five years to be constructed on a 'build, own, transfer basis'.
Unlike counterparts elsewhere who stuck to doing business at home, the Telugu contractors headed wherever projects beckoned.
According to its finance director S Vaikuntanathan, the company plans to promote a new entity to consolidate its BOT projects. While the biggies hog the limelight, there are several other players are active in the arena. They include Soma Enterprises, Gayathri Constructions, Progressive Constructions, B Seeniah & Co., KNR Constructions, KMC, Southern Engineering and Prasad Projects. Almost all of these mid-sized businesses are run by first or second - generation entrepreneurs.The metamorphosis from small-time, family-run construction businesses into professional, project-driven entities has seen Andhra’s infrastructure companies adopting new operating structures. Some are even taking a leaf from sectors like the automobile industry where manufacturers focus just on core operations and assembly, outsourcing ancilliary functions.
The Rs 300-crore Indu Projects is an example. "We give smaller companies assured business for say, five years as well as the necessary finances, thus enabling them to focus on quality and timely construction," says I Syamprasad Reddy, the company's managing director. "Now we are working on a model of even taking equity in those companies."
The future looks bright for the Andhra Pradesh companies as infrastructure and construction investments boom. For every GVK or GMR, there are at least a dozen others with ambitions of making it big. "The demonstration effect has worked powerfully," says historian Mahadevan. GMR chairman G Mallikarjuna Rao predicts many more construction and infrastructure companies will mushroom in the future. Now, who said brick and mortar is dead?
