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Contractors shift from realty to govt projects

By Neeraj Thakur and Raghavendra Kamath in New Delhi, Mumbai
March 02, 2009 11:40 IST
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Contractors such as Ahluwalia Contracts, Simplex Infrastructure, Unity Infrastructure and BL Kashyap are increasingly shifting their focus to government-funded infra projects such as metro stations, airports and roads in the face of a slowdown in real estate causing delays in payments from property developers.

The companies, which had 18-75 per cent of their order books in property development, say they are facing payment delays of 20-90 days from some of the private developers, blocking their working capital requirements.

Some of them take a week's advance payment from developers to execute their projects.

"Most of the private developers are defaulting on their payments as they neither have the money nor the demand to complete their projects. Government projects are more secure in terms of payment schedule. That is the reason why most of us are now shifting our focus to government  projects,'' said Arun Sahai, chief executive of Ahluwalia Contracts, a Delhi-based construction firm executing Commonwealth Games Village-related works.

Companies are either taking small government projects alone or bidding for larger ones with consortium partners. Ahluwalia is currently building Ranchi Airport, Rohtak Technical Institute, Delhi University campus (Rajiv Gandhi House) among others, while Kashyap is bidding for the Bangalore Metro project with a partner.

Property developers are stalling their projects as demand for homes and office space slows down in the country due to poor corporate and buyer interest in the current economic slowdown. This has hit contractors, such as Ahluwalia, which construct buildings for realty companies.

DLF, the country's largest property developer, has halted construction work on nearly 16 million sq ft of office and retail mall space out of the 62 million sq ft of planned construction. In the office space, the developer has stalled construction on nearly 12 million sq ft out of the 36 million sq ft of planned space, the company said recently.

Another realty major Unitech has dropped plans to develop two of its six information technology parks due to slowdown in the sector.

"Today our debtors' outstanding from developers is between Rs 150 crore (Rs 1.5 billion) and Rs 200 crore (Rs 2 billion). This amounts to 2-3 months' of working capital blockage for our company,'' Sahai said.

Contractors now expect the contribution from real estate to fall by 50-60 per cent in the next fiscal as property sector sees widespread slowdown in the country. "Opportunities and enquiries from real estate has dried out completely. We are very cautious about taking up real estate projects,'' said Yogen Lal, chief operating officer, Unity Infraprojects.

While Ahluwalia has increased percentage of its government projects to 40 per cent from 20 per cent in the last two months, another contractor BL Kashyap is planning to take the share of government orders to 20 per cent by the end of next financial year.

"Currently, we do not have any government projects. We are forming a consortium to bid for government projects as we do not want to lose bid on technical grounds,'' said a spokesperson of BL Kashyap, which is involved in Delhi Airport project.

But in doing so, they may have to take a hit of 200-500 basis points on their margins as realty projects normally give them 11-13 per cent margins, while that of infrastructure give them 6-10 per cent.
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Neeraj Thakur and Raghavendra Kamath in New Delhi, Mumbai
Source: source