Eldeco: Building A Diversified Growth Path

Updated: Jan 25 2003, 05:30am hrs
Imagine a former lecturer of the engineering college of a sleepy town of Bichpuri in Uttar Pradesh working on the blueprints of some major residential-cum-commercial complexes in Greater Noida, Gurgaon and Lucknow. Yes, S K Garg, chairman of the Eldeco group left lectureship in 1975 to form his civil construction company, Eldeco Construction Private Ltd. But before that itself, Mr Garg was working as a part-time engineering consultant for which he obtained the government approved licence for being a valuer. While he spent his mornings and late evenings working on construction projects, he used to go to the college during the day.

For all this, Mr Garg got his inspiration from a one time meeting with the then patriarch of the Birla Group, Mr G D Birla, who he met in a function at BITs, Pilani when he was teaching there in 1960s. Mr Birla told me that one should always think big in order to rise. That echoes in my mind till da-te, says Mr Garg. However, Mr Gargs family circumstances did not allow him to implement his big ambitions for some years as he had to move to his hometown in Uttar Pradesh.

The Genesis
It was only in 1975 that Mr Garg got an opportunity to put into shape what had been occupying his mind. With Sanjay Gandhis drive for beautification of towns, Mr Garg bid for a project of landscaping of a bus station and adjoining areas in Agra. While other contractors wanted more time and had very run of the mill designs I was ready to do the landscaping job in 60 days, he says. For this he pitched a tent on the site and worked relentlessly. He says that it was an endurance test which he put himself through and realised he can do much more. Not just thatthis was also the first time when he made some decent money to plough into the venture he had in his mind. With the Rs 80,000 I earned from this project, I took on a Rs 50 lakh project in Mathura, he says. Thereafter, he started getting assignments from the state Public Works Department (PWD).

Township Development
Today, Eldeco has done construction projects with the Reserve Bank of India (RBI), Bharat Petroleum Corporation Ltd(BPCL), Hindustan Aeron-autics Ltd (HAL) and the Uttar Pradesh Stock Exchange. But his passion seems to lie in township development. His recent projects involve developing mini townships in smaller towns of Uttar Pradesh like Mathura, Hathras, Firozabad, Sitapur, Barabanki and Rai Bareilly. A comparison with other states reveal that Uttar Pradesh has the highest shortage of dwelling units after Tamil Nadu, says Mr Garg. He also says that Plan estimates suggest that the state would require 16.3 lakh dwelling units during the 10th Five Year Plan. Besides, it makes economic sense for Eldeco to construct townships because it derives the benefits of economies of scale both in construction of residential buildings and developing related infrastructure.

Yet another area where Mr Gargs interest lies is low cost dwelling units which is marketable easily. We make Rs 80 crore by selling dwellings worth Rs 80,000 in two months while we make only Rs 80 lakh in the same period by selling big hou-ses worth Rs 20 lakh each. It naturally makes sense to intensify our operations in low cost housing, says Mr Garg. He also says that with cheap finance available for buying houses there are many more takers.

Aiding this process has been Eldecos research centre which has come out with very affordable models of low cost housing which provides just the bare minimum structure which can be developed upon in a phased manner and infrastructure is very basic.

Phased Expansion
Today Eldeco has developed housing and commercial complexes in most parts of UP incl-uding Greater Noida, Noida and Ghaziabad and it is now fo-cussing on Gurgaon in Har-yana. Besides, the company has diversified into infrastructure. For this phased development, the group created different companies at different points of time. For instance, the group flagship Eldeco Housing & Industries Ltd was founded in 1985 (10 years after the parent company came into existence). Also the groups only listed company it has completed over 50 projects covering Lucknow, Kanpur, Agra and Gaziabad. Eldeco Infrastructure & Prop-erties Ltd was formed in 2000 to undertake projects in the National Capital Region of Delhi and is focussing on No-ida, Greater Noida and Gurga-on. Similarly Build Tech Ltd is involved in affordable housing projects and Eldeco Projects Ltd specialises in multi-storied residential apartments.

Future Plans
For the future, Mr Garg has a number of projects in mind. To start with he plans to open a world-class naturopathy centre in Agra. Though Mr Garg claims that it is more as a gesture for returning to the society what it has earned from it but profit motives cant be undermined. And similar centres in Kerala have proved that anything to do with nature cure has high success rate.

Eldeco is also developing a shopping mall in Kanpur and soon plans to build one in Lucknow. Anything that is in demand becomes our priority, he says adding that he also plans to venture into bridge and road development projects.

For future growth, he would also lay more focus on smaller cities than big metropolises. Real estate development is not a gamble in smaller cities where prices move more or less in accordance with the consumer price index (CPI), he says. He also feels that though it is a dep-ressed market situation nationwide as far as metropolitans are concerned it is a gradually rising market in smaller cities. For instance while in Lucknow real estate prices have been rising from Rs 900 per square feet to 925 per square feet in two years in metropolitans it is 40 per cent lower than the peak level, says Mr Garg. Mr Garg believes that there is acute shortage of middle income group (MIG) and Lower Income Group (LIG) housing and that is where he plans to intensify activity. Eldeco would give special importance to dwelling units in these categories.

From a small real estate company in 1975 to listing of its first company in 1985, with a paid up capital of Rs 2 crore, Eldeco today is a Rs 650 crore group with activities ranging from residential group housing to contract construction. And now it is diversifying into shopping malls, bridges and other infrastructure. It remains to be seen as to how well does it maintain its harmony in profitable diversified portfolio as well as in its core strength of housing development.