DSIJ Mindshare

We Pay More Attention To Volume And Value - Vascon Engineers

Vascon Engineers brings an experience of more than two decades in efficient engineering and customer-centric development of real estate across India. The property products by Vascon Builders include residential, industrial, commercial malls and multiplexes, hotels, convention halls, and IT parks. Besides all the engineering and construction works, Vascon Engineers has taken up several initiative steps towards social reform. These include an association with Cipla Centre for palliative care. The company has also played an instrumental role in the beautification of Pune city. Excerpts from the interview:

What is your business outlook for the current year?
Our EPC (engineering, procurement, and construction) and real estate businesses have shown continuous growth. However, since our approach is that of 100 per cent completion in real estate, the additions in the topline and the impact on the bottomline are registered in different years depending upon the maturity of the projects. The EPC contribution to our company’s topline and bottomline would be around 80 per cent.

Although today we have a say in terms of the square feet area construction of up to 60 per cent in EPC and 40 per cent in real estate, our books still show 70-75 per cent in EPC because this maturity will take place in 2012. So our balance-sheet will not reflect the true position of the company’s strength. The current growth of the company and its future prospects can only be understood if you go deep into the cash flow scenario.

In the EPC segment you have concentrated more on building facilities for companies. What kind of industry exposure do you have?
One of the exposures that have helped us grow is related to the pharmaceutical sector. We also have to our credit institutional buildings like the one for the Tamil Nadu Assembly, the car parking facility for Delhi Airport, the back-end operation building for ESIC, and the MAT projects for the army. In the sphere of education we have constructed the buildings for Symbiosis Institute and are now setting up similar facilities for the Sinhagad group of colleges. In Pune, we are doing a project of about 2,000 rooms in the hospitality sector.

Our specific focus is on constructing buildings where high-end finishing is called for tight delivery schedules. Infrastructure companies and EPC contractors are good in RCC work and structural work but they lag behind in finishing. Our expertise born out of handling pharmaceuticals projects and residential buildings has given us an edge over the others. So when it comes to the turnkey type of assignment involving false ceilings, flooring, air-conditioning, etc, we know our job best. For example, we completed the construction of 1.5 million sq feet for the Ruby Mills project within two and a half years. If I had delayed the project by three months the client would have lost Rs 100 crore, i.e. if you calculate the rental of those many square feet at Rs 150-200 per sq feet.[PAGE BREAK]

[INSERT_1]

What type of margin is there in the EPC business?
We end up earning anywhere between 8-12 per cent in the EPC business in terms of PAT. Combining this with the other mixed activities of real estate the bottomline would go up to 15-25 per cent depending on how much contribution is derived from real estate. The hospitality business should be looked at in terms of equity and not margins. That is one of the reasons why investors are not able to understand our company in totality. They cannot figure out how to do the valuation since there is no other parallel model to depend on.

How many projects do you have in the hospitality sector?
Over the next three to five years we plan to add around ten projects, with the total cost around Rs 500 crore. Our equity will be of Rs 250 crore, of which, we have already purchased land worth Rs 100-120 crore and we need to invest only the rest through internal accruals.

In the EPC business, does the company have plans to enter into core infrastructure projects like building roads, etc.?
We feel that we should enter the infrastructure project on a BOT basis but we lack the financial acumen on how to quote and also the political power required to back such projects. But we are looking forward to become a consortium partner for bidding so that our execution expertise can be put to good use. There will be other experts, who will be connected, networked, and also have the required financial muscle and acumen to take up such jobs. That is the reason we took up the Delhi Airport project for GMR.

Are you focusing more on Tier II and III cities in the realty space?
Yes, because, frankly speaking, we are experts in design, development, execution, and marketing but are not land bankers. One of the reasons is that land is no longer available in the central parts of any city. And even if you do manage to find a plot, the project can only be limited to about 100-200 flats. We prefer to work only in range of  Rs 3,000-4,000 per sq feet where we can build up to 6,000 houses even if the margin may be as limited as Rs 600 per sq feet. We pay more attention to volume and value instead of trying to gain a margin of Rs 6,000 sq feet from a project of only 50 homes.

How much land do you own as of now?
We currently have the potential to build around 55 million sq feet, with  good land banks at Thane in Mumbai, Pune, Nashik, Aurangabad, and Goa.[PAGE BREAK]

What is the value of your order book?
We have projects worth Rs 4,200 crore which will require a time period of two to three years for completion.

How aggressive are you in terms of geographical expansion?
In terms of growth in any new location we adopt a very careful approach. We have a presence in the south in cities like Chennai, Coimbatore, and Madurai, both as an EPC contractor and a real estate developer. We do not believe in buying land and then sitting on it for a long time before starting any development work. We would rather consider matured land banks where we can start constructing within a year or two. As far as our geographical reach is concerned, we are there in 13 states. We were born in Mumbai and grew up in Pune and so naturally our home town is Maharashtra. Over the past 25 years we have grown in western India and now you will witness our growth in the southern belt of India.

How does Vascon want to see itself in the long run either as an EPC or a real estate player?
Both are inseparable. It is like the chicken and egg story. Any good developer has to have enough bench strength to execute because delivery of any project is the most important factor.

DSIJ MINDSHARE

Mkt Commentary28-Mar, 2024

Mindshare29-Mar, 2024

Multibaggers28-Mar, 2024

Interviews28-Mar, 2024

Multibaggers28-Mar, 2024

DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

Compliance Officer: Mr. Rajesh Padode
Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
Tel: (+91)-20-66663800

Corresponding SEBI regional/local office address- SEBI Bhavan BKC, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400051, Maharashtra.
Tel: +91-22-26449000 / 40459000 | Fax : +91-22-26449019-22 / 40459019-22 | E-mail : sebi@sebi.gov.in | Toll Free Investor Helpline: 1800 22 7575 | SEBI SCORES | SMARTODR