‘Land banks will get us cheaper funds for power projects’

National Buildings Construction Corporation (NBCC), which was once written off as a loss-making enterprise and referred for disinvestment accordingly, has seen a dramatic turnaround in its financial performance in recent years. From 2003-04, the central public sector construction major has consistently achieved good performance ratings. Now, the central public sector enterprise is looking to strengthen its operations. As part of its diversification plan, the company has entered the real estate business. It now has plans to foray into power generation. In an exclusive interview with FE?s Noor Mohammad, NBCC chairman Arup Roy Choudhury talks about his company?s future plans. Excerpts:

What are NBCC?s core strengths?

We have our own architecture and design capabilities and can undertake execution of all types of building projects on a turnkey basis. NBCC is credited with constructing the most economical and cost-effective buildings in the country. We also have a good track record of completing projects on time and have constructed 70 lakh square metres of buildings in India and overseas. NBCC?s clients include ministries and departments of central and state governments and public sector enterprises. The company has been getting repeat orders?a mark of clients? confidence in the company.

We also have over 30 years? experience in undertaking civil construction for power projects and installing balance of plant (BoP) equipment like chimney, cooling tower and coal and ash handling systems. On the asset side, NBCC has a lot of land bank in the NCR, Kolkata, Ahmedabad, Kochi and Patna. The current value of our land banks on the balancesheet is much below the market price. On revaluation, however, the asset value could go up manifold, further strengthening our balance sheet.

What will be you focus areas in the coming years?

The performance MoU signed with the ministry of urban development for financial year 2010-11 envisages a specific focus on residential and commercial real estate and the power sector.

While we are already executing projects in the power sector as a contractor; we also plan to get into the power generation business. We have secured ministerial approval and are now looking for opportunities. We are especially looking at developing small and medium-sized power projects.

We will leverage our land assets for securing cheaper financing for our power projects. We will get the market value of our land bank reassessed. We have the technical expertise to develop power projects. However, NBCC has no plan at this stage to participate in tariff-based bidding for allocation of power projects.

How is your real estate business doing?

There has been an overwhelming response from central and state government employees to our housing schemes. This is because our pricing is very transparent. We have adopted the ?forward costing method? under which various cost components and marginal profits are added in a transparent manner to work out the chargeable price. Further, the ?super area? has been quantified in a manner that buyer can know what are the payable loadings above the carpet area. In other words, our pricing is quite transparent.

What measures are being taken by NBCC to build its technical capabilities?

We have taken various measures to enhance the technical expertise of our staff. For example, we have a training institute to upgrade the skills of our regular employees and retrain them in areas of specialisation so that they could make optimum contribution to the company?s growth. Besides, we are also setting up employment-linked training institutes in remote areas where locals would be trained as artisans in the construction industry.

How was NBCC?s financial performance in recent years?

NBCC was a loss-making company in financial year 2000-01 with a negative net worth of Rs 400 crore. But since then, it has seen a turnaround on all parameters. For example, its operating profit has grown at CAGR of 36% between 2000-01 and 2008-09. During 2008-09, our total income was Rs 2,044 crore, gross margin Rs 246 crore and net profit Rs 159 crore.

Segment wise, we generated revenues of Rs 1,730 crore from civil construction, Rs 208 crore from real estate and Rs 101 crore from infrastructure. We have targetted an annual turnover of Rs 4,500 crore by fiscal 2011-12 in our corporate plan.

NBCC was a loss-making company in 2001. How did you turn it around?

We achieved customer satisfaction by focusing on timely project completion, quality assurance and cost reduction. That has helped us bag repeat orders. Besides, we also liaison with our clients on a regular basis as part of our proactive approach.

We have implemented measures like computerised project management and Web-based monitoring system to ensure timely execution of projects. We have also introduced the concept of ?labour in prime cost? that makes it mandatory for contractors to engage departmental labour. That, in turn, leads to better utilisation of our surplus labour and reduces overheads on account of idle wages.