Hyderabad: Hyderabad-based Nagarjuna Construction Co. Ltd, or NCC, is exploring opportunities to expand its airport development business to international markets, starting with West Asia, after a group comprising it successfully bid for two airport development projects in south India recently.
“We are now in the process of preparing ourselves for a major foray into international markets for airports development, apart from other verticals such as roads, buildings and water (supply projects),” said Narayana Raju Alluri, head of NCC’s international operations.
A group comprising NCC, Hyderabad-based Maytas Infra Ltd and a subsidiary of Austrian airport operator Flughafen Wien AG had won contracts to develop two small airports in Karnataka’s Shimoga and Gulbarga districts.
NCC has decided to bid for the Ras Al Hadd airport in Oman’s capital, Muscat, with a foreign partner. “We have tied up with a Turkish company to bid for the Muscat airport project, wherein we will execute the civil construction contract,” Alluri said. He wouldn’t reveal the Turkish firm’s name.
NCC has already won two road construction contracts in Oman worth about Rs1,300 crore. “We are now pursuing more such opportunities.”
Another Indian firm bidding for the $680 million (Rs2,917 crore) Muscat airport project is Larsen and Toubro Ltd through its Omani subsidiary, according to the Oman Observer.
In airport projects, Alluri said, NCC is keen on construction work, and not owning and operating them because the cost involved will be huge and the recovery period long. Most infrastructure projects are given on build, operate and transfer, or BOT, basis wherein the developers operate the projects for a specific period of time to recover costs.
NCC’s chief financial officer, Y.D. Murthy, said the firm will also bid for construction contracts at Kolkata and Chennai airports, called for by the Airports Authority of India recently. While Shimoga and Gulbarga projects are to be developed on BOT basis with the developers holding the right to operate them for 30 years, the Kolkata and Chennai projects are for construction?works.
For the Gulbarga and Shimoga projects, the partners have floated two special purpose vehicles or SPVs, or separate companies meant to carry out the projects. The two Hyderabad companies will hold 37% each in the SPVs, while VIE India Project Development and Holding Llc., the Austrian firm’s unit, will own the rest.
NCC’s focus on only the construction portion of airport development rather than going for BOT projects is a sound move, said Shailesh Kanani, an analyst with Mumbai-based stock broking firm Angel Broking Ltd. “BOT projects involve huge investments and it turns riskier for the infrastructure company if not adequately supported by value unlocking through land bank around the airport project,” he said referring to the land such companies are allowed to develop around the projects. He also said NCC’s projects in West Asia will help it diversify risk.
NCC reported a net profit of Rs163 crore on revenues of Rs3,473 crore for fiscal 2008. International revenues amounted to Rs291 crore during the fiscal year. It currently has an order book position of about Rs13,400 crore.
NCC expects to close the current fiscal with a turnover of Rs4,500 crore with an Ebitda (earnings before interest, tax, depreciation and amortization) margin of 9.5-10% and net profit margin of 4.5-5%, said Murthy.