The infrastructure industry is a need of decisive government with clear policies said KK Mohanty MD, Gammon Infrastructure in an interview to CNBC-TV18's Ekta Batra and Anuj Singhal.
The industry has been bogged down by various factors like capacity underutilisation, stress on the balance sheets, and no firm decisions by the government on issues of environment and forest clearances. Moreover, the banking sector too has lost its confidence in the private-public partnership (PPP) structure for the industry, says Mohanty.
He feels it is very difficult for the company to revive business in the next few quarters due to project delays.
However, he is upbeat on the company's growth for the comming year. "Gammon Infra is on a sound footing with seven operational projects underway and three projects on verge of completion," he says. The company aims to cross Rs 1000 crore in topline for FY15.
Also read: NHAI FY14 report card: Low response for bids
Below is the interview of KK Mohanty, MD of Gammon Infrastructure with Anuj Singhal and Ekta Batra on CNBC-TV18.
Ekta: What is the ground situation looking like because there is an expectation that infrastructure is going to be the first leg that is going to see some amount of a build up post elections? At this point in time, is there a stoppage in terms of work just ahead of elections and see how elections pan out like and then start aggressively?
A: In the present situation, no further bottoming out of the situation is happening.
Ekta: What is the worst level?
A: Firstly, capacity created is unutilised. Secondly, everybody is losing under fixed cost because there is no productivity. Thirdly, balance sheets have taken a hit. Lastly, no work is getting executed or decision coming from the government agencies.
Over and above this, the banking structure has lost its confidence especially in the private-public partnership (PPP) structure in infrastructure sector.
Anuj: Do you get a sense that post elections this would change or is this just a bit of too much hope because beyond a point, hope is not a data point? So on the ground, do you think something would change?
A: I have two takes on this. First thing is the basic requirement is that you have to have a stable and decisive government. If that is again a fractured mandate then it is very difficult.
The second major concern especially for the infrastructure sector is that the basic financial backbone and management backbone has been broken in last two years time. There has been a systematic breakdown of the decision process. Now, how much time it will take to revive and correct it is a big challenge.
Ekta: We have seen a multiple infrastructure companies suffering from high debt and hence there is a lot of focus on divestment of assets irrespective of the election outcome. Do you think that there will be a more focus towards a leaner organisation and hence there will be aggressive divestment of assets? It might not be at the valuations that they want but eventually it will be to focus only on the core competencies or maybe even a few business verticals as opposed to many?
A: I divide it in two parts. One is the infrastructure segment, and other is the construction segment under which come Gammon Infra India, ACC or Larsen and Toubro (L&T).
Construction segment business will not have much of a problem, if the opportunities come; good work and reasonable decision process comes through. They might survive. The PPP business is a high capital intensive business. If somebody is thinking to have a leaner organisation and a PPP business then that won't be possible because of the expectation of private sector is bringing money in to invest into infrastructure for a long-term basis. And without capital outlay how are they going to invest and have more assets.
However, what might happen in a matured market is that there will be different type of investors. Initially, during the construction period the risk is high, so these construction or PPP companies, infrastructure companies will come. When it gets into operation the more steady operators may come who are expert in operational projects. So, those new set of investors will come, which will require lesser return on their capitals compared to the high risk taking stage at the start of the projects. But the PPP business has to survive as a model - it is a capital business, you have to have a larger asset basket, you have to have the expertise of implementing the project, you have to have the financial engineering capability to churn out the portfolio on a regular basis.
Anuj: What about next year, do you think next year will also be a loss-making year?
A: As far our company is concerned, we are on a sound-footing. We have seven operational projects; we have another three projects on the verge completion. This year we are supposed to cross Rs 1,000 crore topline. From that angle, I don't think next year will be too much of a challenge subject to one assurance that the government and the public sector is functioning in a rational manner.
(for the entire interview watch video)
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