The Hindu Business Line : Power business to drive Lanco’s long-term growth

The Rs 3,336-crore turnover (2007-08) company has decided to shift its headquarters to Gurgaon, Haryana, from June 1. The tough business environment, economic slowdown and the collapse of the real estate market have also made the Hyderabad-based major re-look its diversification plans and big dreams in the realty sector.

For now, its bold initiatives into renewable energy – solar and wind, among others – are on hold or shelved. The entry into nuclear energy has been halted and the realty business has taken a slight beating, explained Mr L. Madhusudhan Rao, Executive Chairman of the diversified Lanco Group, in a freewheeling interview with Business Line.

But all is not down and discouraging for Lanco. Its core power business will drive the long-term growth and also tide over the near-term crisis. The company has lined up capital investment of $3 billion in power projects for just 2009-10. Its projects are on schedule as well, Mr Rao said, exuding confidence.

Excerpts from the interview.

What is the rationale in shifting the headquarters of Lanco Infratech to Gurgaon, when the group is so identified with Hyderabad and has built infrastructure already?

For the past two and half years the core business areas of power and EPC (engineering, procurement, and construction) are being operated out of Delhi. Our business is pre-dominantly in power and infrastructure areas.

Also, the external interface is 75 per cent in New Delhi and about 20 per cent in Mumbai. While Delhi is close to the regulators and policy makers, Mumbai is close to the consultants and bankers. Hence, we felt it made practical and business sense to move closer to these centres.

You have already created your own huge space at Madhapur in Hyderabad for office. A large number of staff would be dislocated by the move. How is this issue being handled?

Yes, we have created good space in Cyberabad. But what we have done is to move our realty and construction divisions to the present corporate office from our Lanco Hills and sites. This change would take care of the space issue.

The shift would affect about 250 employees. Indeed it causes problems, but we have given adequate time for the staff to look out for houses, children’s schooling, etc. In Delhi we already have 550 people working. Therefore, the Gurgaon corporate office would have about 800 from June 1. We hope this big change would offset the costs involved through business growth, which should translate to employee benefit.

How has the economic slowdown impacted the company’s growth?

There is virtually no impact on the core business sector of power, which generates revenues of over 50 per cent for the company.

The construction business, which accounts for 45 per cent revenues, has a very slight impact. The reason being, the construction group gets contracts from internal projects and businesses.

Our realty sector has taken a hit. But, it contributes a meagre 5 per cent of revenues, so we can take it in our stride and restructure.

How are you coping with the impact and what measures have you taken?

We have put a cap on our new real estate projects, especially the one in Chennai. We will focus on phase-I of the Lanco Hills project, which involves completing 13 high-rise towers. Work is going on in full swing. Our exposure to realty is not very high. Our land bank for the segment is also 250 acres.

Is it true that the prestigious Signature Tower (100 floors) project has not taken off and also there are cancellations and price drop in the existing residential projects?

First, the Signature project is on. We are awaiting the final clearance from the Central aviation authorities. Our design and expertise is in place.

Let me also clarify that no customers are exiting our projects and we are also not reducing prices or offering discounts. We will start delivering from March 2010, as promised originally. Already, every month three floor are being completed and 75 per cent work in the 13 towers is completed.

You had ambitious plans for the renewable energy sector. What is the progress?

Yes, we began planning big for the alternate energy sector with substantial funding into solar, wind, biomass, etc. But we are rethinking now.

On the wind sector, we have decided to drop it totally, though we feel it is a good sector. Funding is a constraint. We have only invested in technology and a few sites. These we will retain. We also plan to drop a joint venture with a German company.

In the solar energy sector, we are still studying it. Our plans are to enter as an end-to-end solution provider. (We are) confident of getting in but not definite of the timing as of now.

In India, typically the entry barriers are few and hence several players have got into manufacture photovoltaic modules or cells, where the investment is low in this sector.

The short-term liquidity crisis globally could affect growth of solar energy. We have to be cautious in the area for investments.

As for nuclear energy, I don’t see much happening for the private sector for the next five years. There is no indication from the Government that the private sector can implement power plants. We have plans ready and will be there when the Government gives the nod.

In the economic downturn, what would drive your company’s growth or will we see some impact on the company?

We are very bullish on our power business. Already, about Rs 20,000 crore of capital investment has been made. Another Rs 15,000 crore has been lined up for fiscal 2009-10.

It would be an 80:20 debt, equity structure and lead to financial closure of 2,640 MW installed power capacity. It has set a target of reaching 15,000 MW by 2015.

At present, it has six operational plants and 10 under execution at various stages, totaling an installed capacity of 8,500 MW. The company is into thermal, hydro, wind and biomass power plants.

Recently, a top executive of the company and chief of the power business, Mr D.V. Rao, put in his papers. How does it impact the company?

Mr Rao was an asset to the company. But over the last eight months he has been expressing a view to take up an own initiative. From March end he has been relieved.

During 2009-2010, Lanco is set to add nearly 1,000 MW in two projects. One unit of Amarkantak of 300 MW and one unit of Udupi Power located near Mangalore in Karnataka are poised for commissioning later during the year.

Is the company into recruitment or downsizing, as the business verticals show different trends?

We are going to recruit big. In the next one year, about 2,500 are to be added, especially in the construction, power and EPC divisions. They would be engineers and senior executive staff. We are also getting enquiries from Indians returning from Dubai in the construction sector.

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Lanco Infratech seeks $100-m IFC funding

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