October 10, 2011
Mr Gurjeet Singh Johar, a Chartered Accountant by profession, did not have any prior experience in construction when he, with his partners, incorporated C&C Constructions in 1996.
Today, as Chairman of the Rs 1,290 crore company, Mr Johar speaks to Business Line as he hunts for acquiring stakes in BOT projects, opportunities in hydel power, and sets Rs 1,800 crore turnover target for the next 2-3 years. Excerpts:
Why did you choose this sector?
I had picked up quite a bit about doing business with my previous employers, and my partners had good construction acumen. We zeroed in on road construction. Today, we are in concessions in roads, parking, checkposts, also doing the largest power transmission job (UP Government tender).
The USP of our group is to identify areas that are difficult to access, less competition. But, we do not just limit ourselves to such jobs — we are also present in ‘mass’ areas.
What is your current debt-equity ratio? Any plans to raise debt?
It is at 1.5. We want to maintain it that level — it should not be more.
Do you get offers to offload equity?
In this market everybody wants to buy. At these prices, we would not want to do any equity transaction. We feel the company’s valuation is quite low.
Has the promoter holding gone up in the company?
There has been a creeping acquisition (In June 2011, promoters held 64.15 per cent — up from 63.43 per cent in March 2011) We are continuing to do it…There is about two per cent (more) that we could buy.
What kind of balance do you want to maintain between contract and BOT projects?
We will be both in contracting and BOT. The balance sheet can only support a certain level of BOT projects and your appetite is much bigger. Over the next few years, if I can get 25-30 per cent of the contract from my own BOT projects. We are moving to buildings, looking at power generation on hydel front.
In the construction space what is a reasonable return level?
The profit before tax (PBT) in construction should be at least 8-10 per cent range. In concession (build-operate-transfer or BOT) side, I would not do anything less than an internal rate of return (IRR) of 15 per cent. There will always be a one-odd transaction just to ensure there is business.
In a competitive backdrop do you see players offloading their stakes in projects?
I see over the next year or so a lot of BOT projects being available at discounts. I am waiting.
There have been offers…it is too early to give their names.
How do you manage risks like interest rate, inflation, etc?
When you are in construction — you could be in BOT or pure contracting. In BOT projects, one has to be very careful about interest rates and inflation. Interest rates are at their peak today. I can only hope they come down. But in construction contracts, we have pass through escalation clauses. So, we are fairly well covered.