'We're looking at diluting equity to raise funds'

Q&A/ I Syam Prasad Reddy

A civil engineer and former promoter of IVRCL Infrastructures and Projects Limited, I Syam Prasad Reddy is at present spearheading Indu Projects Limited as its managing director. The infrastructure development company's turnover has touched the Rs 127-crore mark in a short span of three years and this year, according to Reddy, it is poised to double its revenues.

"In fact, in 2006-07 we expect to cross Rs 700 crore as well," he adds. Reddy has a significant number of plans up his sleeve to make these claims.

In conversation with Business Standard, he reveals the triggers of growth for his company besides his take on the real estate and infrastructure industry in Andhra Pradesh.

What's the organisational and capital structure of Indu Projects at present and is there any change likely in the near future?

We are a closely-held company and are now looking at diluting some equity to raise funds. We have consulted Ernst & Young for the purpose and will disclose our plans shortly. We are also restructuring our organisation.

By December this year, we will have four divisions specialising in infrastructure contracts, property development, retail infrastructure and infrastructure projects undertaken under the build, operate and transfer basis.

Earlier, we used to operate in all these areas also, but there was no role clarity. Separate divisions will ensure that there are different teams focusing on specific areas.

We are planning to rope in a couple of hands at the senior level and are looking at inducting independent directors too. We are consolidating our offices in Andhra Pradesh into one. The new office is being set up in 30,000 sq ft of space and will be ready in 15 months. We may open an office in Chennai soon.

How much equity is the company looking at diluting and have there been talks with foreign institutional investors in this regard? Is an initial public offering also in the offing?

Ernst & Young is working on these matters and will give us a detailed report regarding this. Nonetheless, there is likely to be foreign institutional investment in our company. An initial public offering is not ruled out either. The size of the offer is still being discussed.

What are the projects that the company has on hand?

We are working on a housing project that has a sales realisation of Rs 550 crore. Besides, we are looking at setting up a Knowledge Park in 14 acres of land that will have a sales realisation of Rs 300 crore. Setting up an SEZ is also on the cards.

We have also become a service provider for a European company that is looking at investing Rs 1,000 crore in Andhra Pradesh and Rs 10,000 crore in the country to set up its retail outlets. We are sourcing the land, getting the required permissions and constructing the outlets for the company. We will, however, be able to reveal the identity of the entity only in December.

Are you looking at setting up a real estate investment fund?

To set up an investment fund, one needs a big name as a partner. There have been talks with an MNC in this regard and we may set up one in the near future. The fund will be a subsidiary of Indu Projects with equity participation by the multinational and us. There will be mezzanine equity as well.

Can consolidation be a trigger of growth for this industry?

I do not see a trend towards consolidation in this industry because of restricted cash flows. Moreover, it is not really required as sharing of funds and expertise can be ensured with partnerships as well.

There is a trend towards partnership and an industry player today needs multiple partners for large projects. Besides, it is easy to execute a project in a different state with the help of a local player.

What are the problem areas for the real estate and infrastructure industry in the state today?

Clearances take a long time. Land titles are also a problem area which can, however, be avoided with sufficient legal scrutiny. The biggest problem that Hyderabad is witnessing now is spiralling of land prices on the outskirts of the city "� from Madhapur to Shamshabad airport.

In the last six months, land prices have skyrocketed by around 200 per cent in that area. This is not a very good sign for the industry.