A DARK HORSE
- Anandam Banerjee, Outlook Buisness, Nov 5, 2006
 

It may be a lightweight when compared to the likes of the construction bigwigs like Larsen & Toubro or Hindustan Construction Company, the Rs 466-crore B L Kashyap & Sons (BLK), nevertheless, is a dark horse that could be a front-runner tomorrow. Particularly so, considering its 70% compounded growth over the past three

years. Headed by Vineet Kashyap, the company’s Managing Director, BLK is involved in projects ranging from industrial plants to corporate offices, commercial space, hospitals, hotels, residential, malls and multiplexes.

 
Riding The Boom

With the construction business booming across the country, the company is a virtual shoo-in into our listing of most promising emerging companies. Currently, 60-65% of the BLK’s projects are in the commercial sector. This included hospitality, healthcare, corporate offices, retail and commercial spaces. Industrial and large residential projects make up for the rest of its business. In the residential space, the company only looks at large projects of more than two-to-three lakh sq ft. Around 15-20% of the revenues come from turnkey projects that the company does on a square footage basis. Over the years, BLK has emerged as a one-stop shop for its clients, with the design and construction problems being handled entirely by it.

 

BLK’s construction activity is spread across the country (except in the East). On an average, the company handles 30-35 projects per annum, with as many as 80% of them being executed within a time-frame of four months to a year from the date of order. This has helped it land a slew of high-profile projects over the years. In the industrial segment, it recently bagged the project to construct Maruti’s diesel plant. Another area BLK is big in is close to 4 million sq ft in the segment. Some of its bigger projects here are Uppal’s Plumeria in Greater Noida (1.5-1.6 million sq ft) and several other developers in Bangalore (1.5-2 million sq ft). Among the major projects in the retail commercial space, the company is doing The Courtyard for DLF (New Delhi) scaling to 2 million sq ft and Select Citywalk (New Delhi) of 1.3 million sq ft. Besides this, it has renovated and built Delhi’s first PVR multiplex cinema in Saket. Now, it is coming up with three retail spaces in Bangalore and two in Pune. Kashyap rattles off the projects he’s handled with justifiable pride: “In the industrial space, Yamaha and SmithKline’s food plant was a fantastic experience for us. In the hospitality space, Wildflower Hall and Park Hyatt Goa, are two completely different experiences for us. Both have added value to our company and we are proud of these two projects we have handled in the hospitality space.”

 
Sustaining Growth

The only risk factor that seems to concern the company is the growth factor-whether it would be able to grow at a healthy and sustainable rate. But Vineet says “going by what we are seeing in the market, to the people we are talking to, to the plans of the developers and going by the plans of the industry players- we do not think that there will be any dearth of projects. We could witness a shakeout in the real estate industry three-to-four years down the line or see returns going down from the current levels, but as of now we don’t think that there could be a negative trend in the construction industry.”

 

The company follows the percentage completion revenue system and bills its clients every month for the work it does. “At any point of time, we do not have more than two months outstanding,” says Kashyap. Thus, the risk of payments delays (due to disputes), so rife in the construction business, is minimized. Another positive factor is the fact that since BLK does not undertake any build-operate-transfer projects, its projects tend to pay off in shorter durations. BLK’s order books have grown at a CAGR of over 50% in the last three years (last year they saw a jump of 73% to the current levels of Rs 1,000 crore.

 

The company’s revenues have seen rapid growth. Says Kashyap: “This year (FY2007), we will be targeting 80%growth. But it could be difficult to sustain this growth rate beyond a year or two.” At the same time, he thinks that the EBITDA margin of 9-11% can be sustained over the next three years (he would like to push it through another two years to make it a five-year target).

 

In the coming years, the company’s 100% subsidiaries BLK Furnishers (to be renamed BLK Lifestyle soon) and Contractors and Soul Space Projects will play a critical role in helping it attain key growth targets. Says Kashyap: “BLK Furnishers expect to earn Rs 100-150 crore of revenue by FY2008 (its earnings in FY2006 were Rs 7 crore). And we expect Soul Space’s revenues to be at Rs 80-100 crore for FY07 and continue to be in the range of 15-20% of our total construction revenue.”

 

The company has also been upscaling its projects continuously. Though number of projects the company will handle each year will remain the same at 30-35, but the size of the individual projects is expected to go up. “Earlier, the project size was Rs 5 crore, while today, it is Rs 30 crore. We ramp up the project size by offering more value-added services for the same square footage,” says Kashyap, adding: “We have several plans for our business we plan to add real-estate and furniture to our construction business. But since our core competence is construction, we would like to maintain our earnings from that business at around 85%.”

 

In keeping with these plans, the company raised around Rs 200 crore via a maiden public issue in February 2006. Most of the funds raised will be used to fund the company’s long-term working capital needs (Rs 80-90 crore), build the furniture plants (Rs 20 crore) and purchase capital equipment (with the balance amount). The company sees its capital equipment purchases further boosting its earning potential from FY2008 on.

 

Finally, there is the competition to consider. BLK’s closest competitors are regional players such as Ahluwalia Contracts in the North or JBC in the south. The company also competes with construction majors, L&T and Shapoorji Pallonji, for projects on the all-India stage. Then again, as Kashyap points out, with the construction boom showing no signs of flagging, there is enough business to go around for everyone.