What kind of exposure do you have to real estate?
Out of our order book of Rs 22,000 crore, maybe Rs 50 crore is in realty. We have about 15 acres in New Delhi. That is it. I guess somebody was watching because we were thinking everybody else is in it and we should also get into it, but just as we were getting ready, the slowdown started.
Has the downturn in prices of steel and non-ferrous metals kicked into your margins?
It will from Q4 onwards. A lot of projects that we bid for in the last six months are being finalised now, particularly overseas. Clients have not asked us for a pricing-down. But you can’t run this business on upsides and downsides. You factor in your risks and hope you get it right. This is a one-off phenomenon in commodities. The world won’t see anything like this for years. We will see a correction in prices.
So the input problems of last year could even out from this quarter onwards?
Commodity prices have gone down, but cost of money has gone up. Somewhere, things balance out.
There is an accusation that as a company, you have stretched yourselves too thin…
A year back, people told us, “There is so much work in India, why are you wasting your time outside?” The same people are now telling us, “You were the smart guy, you went abroad and nobody else did.” Stretch is a function of management. What we have is a very high quality of management. I travel 20 days a month because 80% of our work is outside (India). In India, I can build a relationship with anybody I want, but when a tender goes to the government, even if I want it, the relationship means nothing. But if I invest my time in the Middle East or North Africa, that relationship has a financial value. In India, we spend time to build a reputation. We have already done that. It is not that I am looking for a licence or policy change or spectrum allocation. In my business, I don’t need to spend time with politicians.
Do you see the share of Indian contracts in your order book going below 20%?
If we win an offshore contract in India, say it could be worth $800 million. That would skew the (order book) ratio in favour of India. Generally, I would like to keep India at 25%, Southeast Asia at 25%, Middle East at 25% and North Africa at 25%. That is how I would like to spread myself. I started out in V P Singh’s time. As much capability as I thought I had, there was no work for two years —- except Mandal Commission. At that point, I swore to myself that I should never risk myself to any one country. We might move to sub-Saharan Africa next.
Is betting on gas a good gambit?
Yes, it is already happening. There have been large finds at the Krishna-Godavari basin. I think gas is the way forward. I don’t see the Turkmenistan-Afghanistan-Pakistan pipeline or the Iran-Pakistan-India pipeline happening now. They will happen at some point. But whether they will happen in my lifetime or my son’s, I don’t know. We need to make sure that we get very active on the diplomatic front and not let some other country take away our reserves.
Are contracts in the Middle East being reworked because of lower crude prices?
The projects that are likely to be affected are not the oil & gas ones, but the petrochemical ones, because that cycle has almost fallen. It is a fact of life. Another thing is the real estate boom in UAE. There were huge towers coming up every month … it was absolute madness. Those who got out of that early are safe. We have no exposure to realty there. When we look at the other sectors and hear talk of doom, I feel fortunate that we made the effort to go outside India. Getting into the UAE is an 18-month process and then you have to get projects. So it is anywhere between 24-36 months.
What about the fabrication space?
We avoided getting into the fabrication space last year when we got into the offshore oil & gas platform space. That came to us because Sembawang had acquired a company , which allowed us to qualify. We did not have a yard so we had to outsource the fabrication to a yard in Malaysia. That had its own problems so we decided on doing fabrication on our own. Otherwise, I have always believed fabrication is a pure commodity play. We looked at locations in Indonesia, India and Malaysia and then we came across an opportunity to become the co-promoter of Pipavav Shipyard. There our No. 1 priority is defence; then oil & gas; the last is commercial shipping. Our priorities are different. We are the only shipyard of a relevant size outside of the government. It is the third or fourth-largest in the world in terms of size.
In defence, you would be pitted against L&T…
There is too much work there. Hindustan (Construction Company) can’t handle it. L&T can’t handle it. That’s why everyone wants us online quick.
When do you see the joint venture with Thorium Power gaining traction?
The agreement is to be signed by March. It is a great tie-up. Thorium Power invested in nuclear technology 20 years ago when the world gave it up.
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