The time for excellence in project management is here

01 Oct 2012 CW Team

Pratap Vijay Padode, Editor-in-Chief and Managing Director, ASAPP Media Information Group, talks about the need for construction companies to turn into ‘learning organisations’.

In October 2011, I wrote an editorial that raised the question: “Can we grow despite the government?” Well, the answer seems to be summed up in the falling GDP and a PEW study: 45 per cent of its sample size describes the economy as ‘bad’. A year ago, opinion was more upbeat, with a 56 per cent majority saying the national economy was doing well. Today, just 38 per cent of Indians are satisfied with the way things are going in the country – a 13 point decline since last year.

We need to be concerned about the drop in sentiment because it hurts entrepreneurship. Here are some figures....

The growth of construction has been robust since the slowdown in 2008-09 with the exception of a decline in growth rate in 2011-12. In 2011-12, the real construction GDP grew at a slower pace of 5.3 per cent as against around 8 per cent in 2010-11. However, in the quarter ending June 2012, the sector grew an impressive 10.9 per cent compared to an expansion of 3.5 per cent in the same period due to the uptick in projects awarded earlier.

In 2011-12, the top 55 companies with an aggregate operating income of Rs 177,501 crore and accounting for one-third of construction GDP posted a decelerating growth. Their aggregate net profits declined 8.04 per cent, reflecting the inability to pass on the increased costs to the customer.

According to the Centre for Monitoring Indian Economy (CMIE), 793 industrial and infrastructural projects worth Rs 2.2 lakh crore were scheduled for completion in the Q1FY12 but only 124 projects got completed on time. Projects worth almost Rs 8.9 lakh crore are scheduled for completion from July 2012 to March 2013. Even if half of these get completed, the total commissioning during 2012-13 will be the highest ever seen by the industry in a single year.

The top seven construction and engineering companies account for 52.8 per cent of the total turnover; with L&T, alone contributing over 28.8 per cent. The others include Punj Lloyd, Nagarjuna Construction Co, Simplex Infrastructures, Jaiprakash Associates (construction segment), Gammon India and IVRCL. Back in 2005, there were only eight construction companies with a turnover of over Rs 1,000 crore; this grew to 34 companies in 2011-12.

If one had to buy the entire share capital of the top companies, one would shell out only Rs 19,000 crore in 2005. After the stock market recognised the potential of this sector and re-rating it, this value zoomed and with the sensex at 7,805 on August 31, 2005, one would have to pay Rs 44,575 crore to pocket the construction industry, which was still valued at 1.19 times its turnover. The market capitalisation in January 2008 with a sensex over 21,000 stood at Rs 200,000 crore. As on September 4, 2012, the market capitalisation of the top 10 construction companies with a cumulative turnover of Rs 116,422.17 crore and profits of Rs 7,720.04 crore was Rs 108,421 crore.

Construction companies were first challenged to build scale, balance sheet size and execution capacity; now, they are being tested in their ability to manage costs, debt, inputs, labour. The time for excellence in project management is here. We must turn into a ‘learning organisation’ that has the agility to move with the times. Can we too find an opportunity in adversity? Then, we can restore the slogan from “India Whining” to India SHINING!