Size Matters

In tune with the industry needs, Afcons Infrastructure Ltd has evolved with transformations from time to time, says K Subrahmanian, its Managing Director. Niranjan Mudholkar finds out more in this exclusive interview as Afcons celebrates its Golden Jubilee year.

He has had a very fulfilling journey in the construction sector spanning almost three decades. And come to think of it, it was almost an accident that this industrial engineer joined this industry. His professor was taking up a project with HCC and asked K Subrahmanian to join in. “I am glad I said yes to him,” he says standing in front of the Afcons House.

K Subrahmanian went on to work with HCC for more than twenty years except for about a year (when he was with Lakshmi Mittal’s office). In 2002, the Shapoorji Pallonji Group brought him to Afcons with a clear objective of turning around its flagship Company. It was a masterstroke by the Group and the last seven years have completely vindicated this move.

Of course, this year has been truly special for K Subrahmanian, India’s sole representative on the Dispute Review Board Foundation – an international forum consisting of eminent construction professionals, which promotes use of alternate dispute resolution. This year, Afcons celebrates its Golden Jubilee and has also become the only Indian construction company to win the World Quality Commitment 2009 Award.

We thought it is just the right time for an exclusive interview with this man who is known for his quiet but decisive style. Although he comes across as a cool and composed personality, his cabin resembles a war room of an Army General on a mission.

In your organization’s journey spanning five decades, it has participated actively in the nation’s infrastructure growth. How has Afcons evolved over the years vis-à-vis the transformations in the infrastructure industry and the overall economic dynamics?

Afcons was incorporated in the year 1959 as Rodio Hazarat & Company, a joint venture between Rodio of Switzerland and Hazarat Company of India. Essentially it was in geotechnical engineering, primarily doing piling and foundation engineering works. The Company entered into marine segment in 1966, in 1970s into bridges and made an overseas foray in Iraq. In 1976, Rodio exited India and employees took over all the shares and renamed the Company as Asia Foundations & Constructions. The Company entered into the roads segment in the 1980s followed by LNG tank construction and other industrial structures in the 1990s. In 1996, the Company started calling itself Afcons Infrastructure. The Company was taken over by the Shapoorji Pallonji Group in 2000 and subsequently we entered into the hydro and the UG (underground) segments in 2002. Last year, we ventured into offshore construction in Oil & Gas. Thus, in tune with the needs of the industry, Afcons has evolved with transformations from time to time. Today, we can say that we are almost in all the segments of infrastructure construction.

How would you differentiate this evolution at organisational level vis-a-vis the other leading infrastructure companies in the country?

In the 1980s, there were very few big construction companies in the infra segment like L&T, HCC, Gammon and Afcons. Most of the other top companies of today were subsequent phenomena including firms like Nagarjuna Constructions, IVRCL, GMR, GVK etc. To answer your question, the other infra leaders at that time were general contractors while Afcons was a specialist construction company.

Although Afcons did start the process of transforming into being a general contractor in the 1980s, it truly became a general contractor group only in 2000.

Did Afcons have to make major organizational or business policy changes as it grew?

We made four key changes as we grew. First, we changed our business mix. For any organization, change is the only constant. In tune with the expansion in multiple geographies and different segments within infrastructure, Afcons had to make changes from time to time. As we expanded into the new areas and to different geographies, changes of organizational structure became necessary. We organized ourselves into different strategic business units (SBUs), each headed by a Director.

Secondly, we restricted the number of the projects that we undertook. As we were growing, we decided that there cannot be too many projects. So we started undertaking projects of specific size. Thus, you have the turnover but you have less number of jobs to manage. Thus, we went for a size strategy.

Thirdly, we put in place a risk management frame work for the selection of our projects. For example, if a job does not have an arbitration clause, we do not go for it. The fourth key change was the introduction of a comprehensive HR policy based on the total satisfaction module. This module encompassed key elements like salary & incentives, training & development, communication about the Company and branding.

What are the key issues & challenges facing the infrastructure sector in the country today? What are the possible solutions?

I believe there are several challenges facing the industry today. Huge shortage of skilled manpower in various categories is definitely one of them. To address this issue, the industry needs to undertake huge initiatives in training and development. We have to set up various training institutes for developing skilled manpower across the country. At Afcons, we follow the ‘Classroom at site’ system. We treat every project as a training laboratory where the expert and experienced employees train people working under them at the job site itself. In fact, each department at Afcons has a training in-charge. It has become a line function.

Using improper contract documents by various government agencies is another big hurdle for our industry. In this regard, adoption of internationally approved contract documents such as FIDIC documents, Standard Bidding Documents etc will go a long way. Government uses these documents for funded projects.

We suggest these documents should be used for non-funded projects as well. And experience shows that using these internationally approved documents has improved project implementation. In fact, there is direct evidence available to prove this. Ultimately, I believe that this is a mindset issue and the earlier we change the better.

The industry is also severely hampered due to the poor dispute resolution mechanism we have. This issue requires administrative reforms at the Government levels. It also requires measures such as proper delegation of powers to project directors and even creating special purpose vehicles within the Government departments with fully empowering project directors for project execution. Creating the right kind of Audit vigilance culture will also help.

Land acquisition is of course a well known problem faced by the infrastructure sector in India. This has to be dealt by passing and implementing some special laws while at the same time doing away with some of the archaic laws, which are impeding the land acquisition process. Obviously, this also requires political will and change of mindset. One more issue that needs to be resolved on priority basis is availability of credit for private players working on major infrastructure projects.

There are structural impediments in the financial system due to global credit crisis. These have to be addressed at every level possible by adopting models that encourage investments in infrastructure.

Afcons still hasn’t gone for an IPO?

We did have plans to go for an IPO in 2007 but it was deferred for strategic reasons. Even at this point of time, we have no plans of going for the IPO.

How is Afcons placed financially in the current FY? How healthy is your order book?

We have an order book of around Rs6000 crore with an average execution period of about two years. We expect to have a turnover in excess of Rs2500 crore in the current year and a profit before tax of Rs125 crore.

You have just completed the Vallarpadam Rail project in Kochi (Kerala) well on schedule. It is considered as a milestone project for both Afcons as well as for India. Tell us something about this project.

This is a very important fast track mega infrastructure project for Rail Vikas Nigam Ltd, (RVNL).

This rail bridge will connect the mainland to the proposed international container trans-shipment terminal (ICTT) on Vallarpadam Island across the picturesque Vembanad Lake in Kerala’s Ernakulum District. Being critical for commissioning the operations of ICTT, this project has been directly monitored closely by the Prime Minister’s Office (PMO) for meeting the ambitious tight time schedule. The total cost of the line is estimated to be about Rs300 crore. The structure has a clearance of seven meter above water and is made of 134 pillars supported on pile foundation. The depths of piles vary between 45m to 55m. About 50,000 tonnes of cement and 18,000 metric tonnes of steel have gone into the structure. At 4.62 Km, it is India’s longest Railway Bridge and has been completed in a record time of two years and three months.

The speedy construction could primarily be attributed to the use of latest equipment. The highly sophisticated beam launcher equipment which is used for launching the pre-cast superstructure (concrete beams) has been specially designed and imported for this project and is capable of launching 12 spans in a month which equals to 600m length of the bridge. This has been used for the first time in India. Another modern technology used in this bridge is pumping of concrete for a length of 1800m. This became necessary as there is no easy access to most of the bridge foundation locations.

This is definitely a National record in concrete pumping (horizontally) and could even be a globally record. But we will have to confirm it. (Afcons used Schwing Stetter’s BP1800 machine to achieve this feat).

(Pradeep Gaur, RVNL’s Chief Project Manager working on this project, has showered praise on Afcons for this project in a letter. Following are some excerpts: “The professional way in which this bridge has been handled by Afcons Infrastructure Ltd has impressed everyone who has visited the project site. The meticulous planning, massive mobilisation, elaborate preparations, and clockwork precision with which all activities including the girder launching was accomplished would impress even the best worldwide experts in this field.

I doubt if there is any other company in our country engaged in construction industry which could have executed this 4.6km elevated structure better than Afcons Infrastructure Ltd.

RVNL is extremely lucky to have Afcons as their agency to execute this prestigious work. Our total reliance and trust in your organisation for accomplishing this challenging job with extremely tight target has been fully vindicated.”

That fulfils your mission of total satisfaction for the client.

Yes, but we believe in going beyond it. In meeting our customer’s requirement, we are serving the nation as well as creating value for all our stakeholders including suppliers and sub-contractors.

That’s in fact our mission statement. Initially, we were a bit apprehensive about this philosophy but the last five years of operation of this philosophy has led to immense benefits. Some of our sub-contractors have stood with us through very difficult conditions.

What is your take on safety?

Safety is must since it involves human life. It is also a key business requirement today. People will not give you jobs if you are not a safe operator. No construction company can afford to ignore safety without facing the consequences. It is important to weave safety in a holistic manner in the process of project execution. It is linked with methods, with technology, with training & development.

For example, we discuss the method of execution with our site engineers and understand what could go wrong in terms of safety. We conduct a hazard and disaster analysis for each of our project. We use this analysis to train our people. Safety is an essential part of the entire project management cycle. I must add that working with several international companies has helped Afcons imbibe the safety culture very early.

Afcons has successfully executed several overseas projects and you also collaborate with many foreign companies. How do Indian infrastructure companies compare with International companies?

Well, in terms of the productivity norms, safety practices, planning etc., global companies fare better than a lot of Indian companies. Of course, I would say that many Indian companies have come a long way in these areas. Ten years from now, India would be on par with any international company. Even an Andhra company will beat the best foreign companies. That’s the growth of Indian infrastructure sector across the board.

As I have mentioned earlier, Afcons has benefited by doing overseas projects and collaboration with foreign companies, as we can get into their league in certain respects.

Which Indian infrastructure firms do you really admire? Why?

I like each company for one particular aspect. For example, I admire Gammon India for commercial management, HCC for entrepreneurial project management, Larsen & Toubro for Technology & systems, Punj Lloyd for global aspirations and of course, Afcons for HR.

Tell us briefly, the advantage that Afcons has by being associated with the Shapoorji Pallonji Group?

This parentage gives us immense push and confidence. Of course, we have great financial backing from the Group but it also gives us an ethical edge. I would rate Shapoorji Pallonji as one of the most ethically strong business groups in the country today.

Where do you see Afcons in the next five years? Will you focus on any particular infrastructure segments? Why?

Afcons had grown during the last five years five times with a CAGR of 47%. We have laid down our road map very clearly. We would be present in all segments of infrastructure but our traditional focus on marine projects will continue. We have also identified hydro as well as Oil & Gas as new growth areas. Geographically, we would continue our overseas presence and would like to have a turnover of minimum 25% from this market. This would particularly come from Africa and oil producing countries in the Middle East.

We want to double our turnover in the next three years and we are confident that we can do it. We would like to maintain our status as a prominent transnational infrastructure company recognised for business innovations, focused on total satisfaction and creating enhanced value for all our stakeholders.

Bonus Interview with the ED

During the exclusive interview with K Subrahmanian, the MD, Construction Week India had the bonus opportunity to speak with S Paramsivan, Afcons’ Executive Director (Finance & Commercial). We present some key inputs from this man who also plays an important role in Afcons.

On training: We have completed about 50,000 man hours of training in the last couple of years for our employees – both on soft skills as well as hard skills. This kind of training is unheard of in this industry. For example, we have tie-up in place with the Steven Covey Institute for our senior management.

On PPP: The PPP model, with the exception of roads, isn’t very favourable in infrastructure segments like ports. Since ECBs have also dried up due to the global situation, the Government needs to rethink on this issue.

On branding: We have woven our branding strategy with our HR policy as we believe our employees are our brand ambassadors. We are focused to ensure that our employees feel the sense of pride, belonging and happiness while being associated with Afcons.

On support from the parent Group: It gives us tremendous strength. Afcon’s technological strength combined with the financial backing of the Shapoorji Pallonji Group gives us an advantage which many construction companies do not enjoy.

On corporate governance: Despite being an unlisted company, 50% of the Afcons board are independent directors who are all eminent personalities. And this is not a statutory requirement. Basically, we have a system in place to ensure proper corporate governance. I would say, ethical operational management is one of our differentiators.

The MD’s Top four Afcons projects

(Excluding the recently completed Vallarpadam project)

Barakhamba underground Project for Delhi Metro

For the first time in India, a top down construction methodology (instead of the conventional bottoms up methodology) was used, which resulted in minor displacement, faster construction, etc.
This is the first underground project done without a foreign collaboration in India. The project was completed well ahead of schedule and with all safety. In fact, the Delhi Metro Rail Corporation Ltd gave a certificate to Afcons for completing three million man hours of work without any reportable incident.

Shell Hazira marine project

This is one of the marine projects from a very demanding client i.e. M/s Shell, USA. We had a very high level of safety norms and global standards of construction and commercial administration. We could fulfil all that and all the three milestones have been completed on schedule and each milestone earned a bonus of US$ 100,000 each. In a letter of commendation, Mare den Hartog, Shell India’s Director – Gas & Power had to say this: “The Hazira investment for Shell represents a major re-entry into India after several decades of relatively low activity. As such, a major concern for Shell was whether it would find contractors that could construct the facilities in accordance with the international standards of quality, safety, environmental practices, and commercial administration, which the company applies for all its projects worldwide. Companies like Afcons in the Hazira project proved that this was indeed possible, and this has encouraged Shell in its decision to continue expansion of its business activities in India.”

Madagascar Ambattovy Jetty Project

This project done for a consortium led by M/s SNC-Lavlin, Canada, is getting completed in Jan. 2010, three months ahead of schedule. First two milestones have been achieved on schedule. Significantly when there was internal turmoil going on in Madagascar, we could manage to continue with the work and achieved the milestone.

Jetty modification works for M/s Reliance Industries Ltd at Jamnagar

This is a technically complex project involving modification of 4.5 Km length of jetty carrying live hydro carbon lines. Afcons has successfully completed this project involving fabrication and erection of trestles of 71 nos., 60 meters span, each weighing 60 MT. This is a cost plus job carried out for M/s Reliance Industries Ltd. It was considered that this could be done only by foreign companies and no Indian company was considered competent. (In fact the earlier jetty was done by Saipem of Italy.). Afcons completed this job two months ahead of schedule earning Bonus as well.

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