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Navigating All New Waters

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For E. Sudhir Reddy, it was about being at the right place at the right time. Starting as a builder in 1987, Reddy chanced upon a circulating water pipeline project, while bidding for a few projects at Raipur Thermal Power Station in 1992. "The chief engineer gave us a choice between two projects," he recalls. "We picked the water project."

Since then, the CMD of infrastructure company IVRCL (formerly IVRCL Infrastructures & Projects) has developed an expertise in water projects. "We have done all kinds of projects — desalination, sewage water, drinking water…," says Reddy. "Basically, we specialise in transporting water." The company has also imbibed technology such as telemetry, GSM and CADA (Command Area Development Authority), in its water projects, which contribute about 55 per cent to its topline.

Reddy admits that the country's interest in infrastructure has contributed to IVRCL's sales growing at an average 39.35 per cent over the past four years. Its concentration in Andhra Pradesh also  helped it a lot. "The Y.S.R. Reddy government awarded about Rs 10,000 crore of water projects in the past 4-5 years, a majority of which was bagged by IVRCL," says Elara Capital analyst Abhinav Bhandari. The company also credits its business network for the revenue growth.

The beginning, however, was anything but easy. "In the early 1990s, construction was not a sector where banks would say, ‘I will lend you money,'" says Reddy. It was difficult to raise both debt and equity. Over the years, Reddy as promoter had to dilute his stake to 9.5 per cent — foreign institutional investors have the majority stake in IVRCL now — to raise funds. While debt is available today, raising capital through equity has become difficult.

So, Reddy believes that sustaining revenue growth will be a challenge. "For a Rs 100-crore company to grow 40 per cent is different from a Rs 1,000-crore company becoming a Rs 1,400-crore company," he says. Angel Broking analyst Shailendra Karnani says, "IVRCL's biggest challenge is its inability to raise equity. Its debt-to-equity ratio has gone up tremendously, mainly due to the captive build-operate-transfer (BOT) project it has undertaken through IVRCL Assets & Holdings Ltd."

To sustain growth, IVRCL, which is into road and building construction, transmission-distribution of power, and rail projects, is trying to diversify by exploring new verticals such as railways, and is also getting into mining. "Today,  infrastructure is the buzzword," says Reddy. "Everyone wants to lend to you because you are in infrastructure."

(This story was published in Businessworld Issue Dated 23-05-2011)