Time for private contracts, say infra cos

Private contracts are back in vogue for construction companies. After staying away for over six months for various reasons, they have started looking at these projects again as the situation on the ground improves.

The onset of the downturn late last year had resulted in delays in payments from clients and deferment of expansion plans of companies, making infrastructure firms averse to private contracts. Instead, they focused on contracts awarded by government bodies and public sector companies where they were surer of timely payments.

S Ramnath, senior vice-president of Chennai-based Shriram EPC, believes infrastructure companies cannot afford to ignore private projects now. “There is definitely a more positive current after the new government came in. Banks are definitely more willing to lend than earlier.”

The power and steel projects are particularly good bets, Ramnath says.

Nearly 40% of Shriram EPC’s Rs 2,000 crore order book is in private projects.
S K Sachdeva, executive director, finance, Ahluwalia Contracts, feels things have improved over the last few months.

Payments due to Ahluwalia from Emaar MGF, which it is working for in the Commonwealth Village project, were pending for four months earlier, but the situation has improved with the Delhi Development Authority coming to Emaar’s rescue.

“There are four other projects where work, earlier stalled, has resumed,” said Sachdeva.

Ahluwalia has orders worth Rs 4,500 crore, of which 68% is in the private sector. Ahluwalia is working on a Vedanta Aluminium plant in Orissa and is involved in building corporate offices.

Not just existing players, but even those looking to enter the private projects space are positive on it.

Among others, Hyderabad-based KNR Constructions is on the lookout for opportunities. “The risk associated with private contracts has come down considerably,” executive director K Jalandhar Reddy said. According to him, KNR is not interested in industrial contracts and is looking at projects in the corporate office space arena.

But despite the renewed interest in private projects, realty is still a no-no for contractors. “Hospitality has improved, but housing and commercial realty are still areas of serious concern,” said Sachdeva.

Earlier this year, construction companies saw real estate developers delaying payments by more than 3-4 months. The situation has not improved much with the cash-starved developers tapping every fund-raising avenue to stay afloat. Contractors expect realty to take longer to turn around than other sectors and only want to complete the projects in hand.