December 2011 | Nithin Rao
New engines of growth
By entering new verticals at the right time, Tata Projects has set a blistering growth pace and has made a name for itself in the engineering, procurement and construction space
When state-owned National Mineral Development Corporation (NMDC), India’s largest iron ore producer by volume, wanted to construct its first and the then largest blast furnace in the country, it hired a consortium led by Tata Projects (TPL) and Danieli Corus (a joint venture between Tata Steel Europe and Italian equipment manufacturer Danieli). Winning the Rs17-billion blast furnace contract represented a huge achievement in terms of both revenue and cachet for TPL, which has emerged rapidly as one of India’s major players in the engineering, procurement and construction (EPC) space.
What’s in a name?
For instance, the foray into the steel business was smooth because of the strong presence of Tata Steel and the partnership with Danieli Corus. On the engineering side, the association with Tata Consulting Engineers (TCE) adds big value. While other bidders have to hunt for the right technology and engineering partners, TPL has the advantage of support from TCE. The two Tata group companies have a seamless relationship, says Mr Deshpande.
TPL has also made successful forays into the steel and power sectors thanks to the strong presence of Tata Steel and Tata Power in the two verticals. “We also do some projects for other Tata group companies,” explains Mr Deshpande. “However, it happens at an arm’s length and true value is always being sought. While we always have a fair chance of winning those contracts, we are not unduly favoured.”
A new drive
Established in 1979 as an EPC company, Tata Projects used to be a company that — as Mr Deshpande puts it — “was small, doing its own job properly, nicely and profitably, and not making much noise”.
In 2002-03, the company decided to take advantage of its skills in EPC by expanding its horizon and aligning its operations to the fast-growing sectors of the Indian economy in the infrastructure space. Over the next four years, it established six EPC verticals or strategic business units (SBUs) covering sectors such as power generation; power transmission and distribution (T&D); water and waste water; oil, gas and hydrocarbons; railways; and metals and minerals. The quality services unit, functioning as an independent certification body, was the seventh SBU.
Currently, power generation accounts for about 40 per cent of TPL’s revenues, the power T&D and steel sectors about 20 per cent each and the rest accrue from the other three verticals (railways; water and waste water; and oil, gas and hydrocarbons). According to Mr Deshpande, the company has a capacity to generate between Rs20 billion and Rs25 billion in revenue every year in each of the three major verticals — power generation, power T&D and metals sectors. “I am hopeful the other three verticals will kick in at the right time. We have a good strategy in place and in the next three years, we should double, if not treble, our turnover. We aim to be a Rs100 billion company by then.”
Realising the importance of such an agency, Tata Projects (TPL) established a business vertical called Quality Services (QS), which today caters to a host of domestic and international clients such as Larsen & Toubro, Suzlon Energy, Bharat Heavy Electricals, Torrent Power, Oil and Natural Gas Corporation, IndianOil Corporation, Jindal Group, Petrofac, Hyundai, Siemens, Foster Wheeler, DuPont, Rio Tinto and Bechtel.
Says Mr Deshpande: “This is a rapidly growing and highly profitable business for us; it brings in about a billion rupees every year, which is very large for a services business. We have surveyors in 32 countries, who provide product and process inspection, process supervision and process quality checks.”
QS, which operates as an independent unit to ensure there is no conflict of interest in contracts handled by TPL, has been growing at an impressive 40 per cent CAGR over the last two decades. In addition to third-party inspection, and expediting services, it also offers vendor evaluation and approval, on-site and field inspection services, second-party inspection services, quality management system certification and training, besides several technical training courses.
Though a relatively small company within the Tata group, TPL has grown steadily and consistently in recent years, and is winning international recognition for its work. “In September 2011, we received an award for ranking yet again in the ‘Top Ten Most admired construction companies in India’ from Construction World magazine in New York,” says Mr Deshpande. (TPL has featured in this list for the last five years). “And in October, the same magazine declared TPL the winner in the ‘Fastest-growing construction company in India’ category.”
But perhaps the most important element is having the right people on board. “It is important that when markets grow, you attract good quality people,” says Mr Deshpande. According to him, in a projects company, the most important factor for growth and success is human resources. “We are a low capital-intensive company, with no manufacturing plants. The entire focus is on people skills and competencies. Getting good quality people and retaining them is what drives growth.”
Though the opportunities within India are tremendous, TPL is also looking to expand its overseas operations, especially in the Middle East and Africa and in verticals such as hydrocarbons and railways. Currently, though the domestic market accounts for 95 per cent of its revenues, the company hopes to see the share of international operations go up to 30 per cent.
By building competencies in crucial infrastructure sectors in time to ride the demand curve, this EPC company has drawn a firm set of blueprints for its own success
Nalgonda district in Andhra Pradesh in South India — 100km from Hyderabad, where Tata Projects (TPL) is headquartered — has the highest incidence of fluorosis in the country, a disease caused by ingestion of excess fluoride because of high fluorine content in water.
Having developed extensive competency in water treatment, TPL decided to channel this expertise for the benefit of the residents in the district, choosing reverse osmosis (RO) technology as the best possible solution. RO removes salts and other impurities from water and is a sustainable solution for providing safe drinking water. In October 2004, TPL installed a skid-mounted, 1,000-litres-per-hour (lph) RO plant at Gangadevipalli village in the district. The initiative was a great success and Gangadevipalli is today acknowledged as a model village.
TPL now offers 17 RO models that cater to different water types, and in capacities ranging from 200lph to 5,000lph. The company also opened a Water Purification Plant Development Centre (WPPDC) in July 2005, on the outskirts of Hyderabad.
Another useful invention is a mobile Brackish Water Reverse Osmosis (BWRO) plant with a capacity of 4,000lph. The plant can be rushed to a natural disaster site whenever required. After the tsunami in December 2004, TPL and the Tata Relief Committee installed one such plant at Nagapattinam in Tamil Nadu, a state in South India.
RO plants also provide a viable and profitable means of livelihood as they deliver safe water at a very low price of 10 paise per litre whereas branded water is sold at Rs12 a litre. These plants require modest upfront investments with negligible operation and maintenance costs and are capable of turning a decent profit. They also create local employment as each installation provides employment to at least three people.
So far TPL has installed 380 RO plants across India that together provides safe drinking water to about a million people. The company is now working on an RO plant powered by solar energy in a bid to cut down electricity costs and make it environment-friendly. Intractable as it may appear, TPL believes that the water problem can be solved by pragmatic and innovative solutions. Clean water may be limited, but imagination is not.