Realty in inflation shadow; cos take up raw materials biz

Written by Kavitha Venkatraman | Hyderabad, Jul 25 | Updated: Jul 27 2008, 05:29am hrs
Backward integration seems to be the order of the day in the construction and real estate sector. The rising cost of raw materials and thinning of margins has forced many real estate and construction companies to set up their own factories for manufacturing raw materials such as ready mix concrete, form work and crushed aggregates.

While some players have already put a foundation for the backward integration of raw materials, others have started taking a serious look at this approach. For instance, Hyderabad-based Indu group has set up an exclusive service centre, with state-of-the-art machinery for rebar processing, manufacturing ready mix concrete, blocks and form works. The centre also has pre-cast facility and crushers that can produce 200 tonne of aggregate per hour. The company has invested close to Rs 15 crore in this centre.

According to R Rajashekaram, general manager, asset management division, Indu Projects Ltd, the centre has been up and running over the past three months. The idea behind the move was to produce quality products with reduced manpower and get them delivered at the right time and cost, irrespective of the fluctuations in the market. It is for in-house consumption. However, the excess capacity will be supplied to other construction companies. If the delivery schedule of the basic raw materials is tied up, nearly 90% of the worries of a project manager are taken care of, he said.

Maytas Infra on the other hand, is putting up a plant for manufacturing modular shuttering systems in Visakhapatnam in association with Nagarjuna Construction Company and a German companyPaschal-Werk G Maier GmbH. The Rs 100-crore plant is under construction and is expected to be operational by December this year. The plant is for both domestic and international market. According to P K Madhav, chief executive officer and director of the company, In the domestic market, the products will be first used for in-house consumption and later on will be sold to other construction companies. We will also be exporting to other markets like Asia-Pacific and West Asia and that is precisely why we chose to house the project at Visakhapatnam. The product should be a huge hit with all construction companies in India and abroad, as it allows more repetitions resulting in considerable reduction in the plasting and painting cost.

Maytas Properties is also open to the idea of backward integration. Says K Thiagarajan, chief executive officer of the company, Wherever it makes sense, we will definitely look at backward integration. I cannot, at this point of time, set up a steel mill or factories for producing cement and other bulk commodities. But, yes, we can look at some of the things that make sense for us, like door frames or aluminium frames. It will be looked at more from the point of view of quality control rather than cost. But, we have not looked at anything specific at this point of time.