Delhi Metro Rail Corporation (DMRC) might be a public sector company, but its profit margins and efficiency are no less than any private company. Its managing director, Elattuvalapil Sreedharan, spoke to Bhupesh Bhandari and Bijith R on his financials, real estate income and growth plans.
In 2006-07, 40 per cent of your total revenue came from traffic operations. Can you grow it further?
The revenue from traffic operations has to be consistent with the paying capacity of passengers. So, we have fixed the metro fare at a minimum of Rs 6 and a maximum of Rs 24. I would be happy if we are able to reduce the revenue from traffic operations and compensate it by increasing the revenue from other sources like advertisements, commercial exploitation of available space, consultancy services, among others. This would ensure that the passengers benefit the most.
In many other metros of the world, traffic income is very less and is subsidised by the government. In our case, we don’t receive any such subsidy. So, we have to increase our income from other sources.
But you have exploited all the other revenue streams like advertisements, real estate and consultancy services. Your last profit and loss statement also shows substantial treasury income. Is there any other revenue trigger left?
Metros like Singapore have other revenue sources like bus fleet, even trams, in addition to real estate and consultancy services. We too have a fleet of 100 buses for a feeder service. However, it is not done as a source of additional revenue for us, but to provide maximum service and convenience to the public.
We have floated a tender for 300 more air-conditioned buses. This will help some of our stations that are not generating sufficient revenues.
In 2006-07, your profit margin on traffic operations was 45 per cent. Has it improved further since then?
It has. We measure it in terms of operating ratio, which is expenditure as a proportion of the total income. Last year, we had an operating ratio of 0.60-0.64. This year, we have been able to reduce it to 0.52.
You did the first phase of the Delhi Metro with metre gauge. In the new lines for the second phase, you have opted for standard gauge. What kind of money have you saved?
Across the board, I would say the savings would be 4-5 per cent. Similar savings will be applicable to operations and maintenance too. But the biggest advantage of having standard gauge is that we will be a part of the global system, which will make the transfer and upgrade of technology easier.
Your books for 2006-07 (the last year for which audited accounts are available) have huge deferred tax liabilities of almost Rs 300 crore, though these were down from Rs 900 crore in 2005-06.
It is a sort of hypothetical figure. We make some provisions for future tax liabilities which may or may not materialise. So, it is just a provision that we make every year in our books of accounts. It may get wiped out of the accounts in 4-5 years.
In 2006-07, your real estate income of Rs 251.80 crore was more than your traffic income of Rs 222.66 crore. Will it remain so in 2007-08?
Real estate income will be high in 2007-08 too. But this trend will not sustain. There are two kinds of real estate income: the upfront income that we receive when we give our vacant land for commercial exploitation, and the revenue income which comes every year. When we run short of our land bank, our upfront revenue will stop. So the real estate revenue in the current form is not sustainable and possible.
How much is your land bank now?
We have not got any land specifically for commercial exploitation. We create surplus space in the land we get for transportation and station building through our sheer engineering skills. The surplus land will not be more than 4 or 5 per cent of what we have got.
By how much is Delhi Metro growing?
In the last one year, the growth in out ridership has been around 24 per cent. If we are able to provide additional capacity, we expect this growth to continue for another few years.
In some civil works, contractors have stalled work or given it up because of higher input costs. Has something like that happened at Delhi Metro?
Though many agencies have this problem, our contractors have never abandoned or delayed their work. There is an escalation formula in our contracts, but that does not take care of all the increase in the price of commodities.
So, we have modified this formula for steel alone in which 80 per cent of the hike will be taken care of by Delhi Metro and 20 per cent will have to be borne by contractor. So the contractors are pretty satisfied over that. But for other commodities the old escalation formula applies.
You have completed many projects ahead of schedule. Will you do that for the second phase as well?
We can do the whole work earlier, but the rolling stock will not be available by that time. For example, the rolling stock for the Noida line will be available by only June 2009. So we are slightly slowing down the project.
Has the supply of trains become an issue?
A train is such a complex technology involving safety features, comfort level, etc that it will take time for even finalising the tender. After placing the order, it will take at least 20 months to manufacture it. Then it has to be tested and experimented which will take another 3-4 months.
But will there be delays?
There will not be any delay. If there is, we will punish the suppliers. We have stringent penalty clauses.
Normally, Delhi Metro divides a particular project to smaller stretches of 1-2 km before giving it out to different contractors. The margins for a contractor out of smaller stretches will be small. So, is there a chance of quality getting compromised because of this?
I won’t say that the margin is less. We don’t award a contract by length but by the value of the total package. Normally, our each package is worth Rs 100-200 crore where the contractors can have a profit margin of 6-8 per cent.
But we have also got some stringent quality specifications. At any point, if we find that the quality of the work has been compromised, the contractor will be asked to dismantle the work and do it again.
Has that ever happened?
A number of times.
