MC Interview | Aim to maintain double-digit top-line growth on robust order book, strong pipeline: Tata Projects MD

Vinayak Pai, Tata Projects CEO and MD

Tata Projects celebrated a major achievement with the inauguration of India's new Parliament building in May 2023. It was one of the most ambitious projects of the company till date.

This milestone coincided with the company’s return to profitability in FY24, signalling a significant turnaround. Supported by a robust order pipeline, Tata Projects is confident of sustaining profitability and achieving double-digit revenue growth, managing director and chief executive officer Vinayak Pai told Moneycontrol in an interview.

"In the past, we were reporting losses due to COVID-related issues and commodity prices. We were also facing delays in the execution of some public sector projects, where there are more milestone payments, and we were facing liquidity issues," Pai told Moneycontrol.

The engineering, procurement, and construction (EPC) company, which is privately held by the Tata Group, like its peers, was hit by the pandemic-triggered disruptions and reported losses for two consecutive years in FY22 and FY23, before turning green, with a net profit of Rs 14,5.48 crore in FY24.

Pai noted that the company now boasts a strong portfolio of private sector orders, allowing it to negotiate contracts with a balanced risk-reward mechanism.

Upbeat by the recent strong performance and a robust Rs 45,000-crore order book, Pai said the company plans to scale up and may consider an initial public offering (IPO) in the future.

Edited Excerpts:

Your company has been executing a number of interesting projects in the past few years, including the Parliament project. Going forward, what is your view of the order pipeline in FY25?

Our order book is steady at the moment. We have a total order book of Rs 45,000 crore. This should keep us busy for the next few years.

Our order book didn't grow for a few years, but now there are strong opportunities in the market.

What kind of growth are you anticipating in FY25?

While public sector ordering has been slow in FY25, it doesn't impact us much because most our projects are long-term in nature.

We have been grown our top line in double digit in the last year. I think we will continue the trend because there are a lot of opportunities in the market.

Our bottom line has improved significantly in FY24. Our EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) has increased to around Rs 900 crore from negative a year ago.

(Tata Projects reported a loss of Rs 618.08 crore in 2021-22 after reporting a profit of Rs 103.65 crore in 2020-21. The company's losses widened in 2022-23 to Rs 867.29 crore. However, in 2023-24, it reported a net profit of Rs 145.48 crore)

Can you highlight what has changed in the last year that has helped you improve your bottom line ?

We have reported profits in the last five quarters. Our operating margins have also slowly improved.

In the past, we were reporting losses due to COVID-related issues and commodity prices. We were also facing delays in the execution of some public sector projects, where there are more milestone payments, and we were facing liquidity issues.

Now, we have a strong portfolio of private sector orders. We can negotiate the terms of the contract in an equitable risk-reward mechanism.

Balancing both the public sector and private sector has helped us to gain that stability and not rely too much on milestone payments.

 The government had awarded projects estimated to be worth around Rs 2 lakh crore in 2023-24. Do you expect order inflow from the government in FY25 to match the same level?

I think so. There are a lot of projects in the pipeline from the public sector.

In addition to the conventional mobility sector like roads and railways, we would also expect more funding to go into power and green energy sectors.

Over the last year, there has been a global shift in the narrative around thermal power. After a long time, we see NTPC come out with new projects. What is your assessment? Do you think there will be a significant chunk of thermal power projects coming up and how are you looking at tapping that opportunity?

India is ahead of a number of countries, when it comes to generating power from renewable sources.

Even in China or the US, getting to 1/3rd of the power from renewables is not easy.

Going forward, we expect India's renewable capacity to grow at a much higher rate, as a percentage of the power requirement.

Though there are definitely investment in conventional or thermal energy, I think the investment in unconventional or renewable energy continues at a much higher pace.

But we would like to see more incentives for investors in green hydrogen projects.

Beyond the allocation for infrastructure and capital expenditure, what else do you expect from budget for the infrastructure sector?

The government should focus on the holistic growth of the construction sector.

I think private sector capital expenditure will also drive significant growth, going forward, and the government should look at ways to boost private sector capital expenditure.

The make-in-India story in sectors like semiconductors, electronics and data centres will help fuel economic growth at a much faster rate.

So the government should look at facilitating private sector spending.

Another thing that should be re-looked is GST. In the construction sector, the GST on cement, which is at 28 percent, still continues to be one of the challenges.

Creating liquidity in terms of having a better dispute resolution mechanism for government contracts will also be helpful.

Another suggestion is the introduction of surety bonds instead of bank guarantees.

There is is definitely a liquidity issue in the industry at the moment. And the government can work towards better project definition and better DPR (detailed project report) quality, going forward, so that projects don't change after a few years of execution.

This will help in lesser number of disputes and later lesser dispute resolution and then a faster mechanism.

The government should also consider a quality-based selection criteria for awarding projects.

The last thing that the government should look at is how to create skilled manpower in India. We have a strong shortage of skilled manpower at the moment.

Tata Projects is executing the upcoming Noida International Airport project, and the deadline for the same has been extended. Can you highlight the reason why the project is facing slight delays?

We have faced some issues related to project definition and availability of labour during election time.

I think it's a spectacular achievement, that in 2.5-3 years, we will have a greenfield airport up and running, which is probably much faster than the global average.

You said there's a shortage of skilled labour in the sector and there has been a lot of dialogue around how Indian companies rely on Chinese engineers for multiple projects. Do you expect this to continue for a while?

I think the reliance on Chinese engineers is for specific projects where the technology comes from China.

Unless the technology comes from China, there is very little reliance or practically no reliance on Chinese engineers, in my opinion.

Another factor to be highlighted is that a significant portion of Indian talent is exported at the moment.

Indian companies have also increased their focus on productivity and the use of technology to boost project execution.

Furthermore, a lot of Indians who have worked in the Middle East are looking to return to India and companies are are leveraging on that pool of supervisors and engineers to bring back modern techniques to the Indian market.

There have been a lot of infrastructure-related mishaps in the last few years. What is alarming is that some of them are relatively new projects. In your opinion where does the problem lie? Are Indian companies cutting corners? Are they in a rush to complete projects?

Definitely, the industry is seeing a large growth and the big players are not scaling up. A lot of new companies have entered this space because there is so much to do.

In a way, the government has encouraged smaller companies to come in to increase the whole ecosystem of people who can build infrastructure.

In the process of bringing in newer players, the government has neglected to enforce systems and protocols for safety and an inclusive standard.

Globally, there are standards and benchmarks on lost time, incident frequencies, fatality rates, etc.

In India, there is no accountability or there is no benchmark to compare.

Of course, the speed at which some of the projects are executed leads to neglect of standards.

A quality-based assessment of the criticality of a project versus the capability on the safety quality aspect of a contractor needs to be assessed before a project is awarded.

How can the government implement quality standards in place in the current environment?

To ensure safety and quality of an infrastructure project, the government should ensure that companies focus on their leading indicators.

On the safety front, there are a lot of leading indicators which are very important. At Tata Projects, we track and control our leading indicators.

The industry should focus on, of course, the lag, but also the leading indicators. I think this is missing.

I also think the qualification criteria for awarding infrastructure projects should be controlled at the time of awarding the project.

There has been a lot of buzz around IPOs coming out of the Tata group of companies. What is happening with Tata Projects?

We have been discussing it. However, our financial performance needs to be steady and strong for the next few years before we can fully consider an IPO.

Going forward, as we stabilise and as we get into more project execution and as we have to scale, that's a conversation with the shareholders we will seriously consider.

Have your bosses given you a timeline, in terms of how to prepare the company for a milestone, like an IPO?

We are getting fit and modern. Ensuring that's my job as CEO.

Given that you have been closely involved in the semi-conductor manufacturing space in India, can you highlight how this sector is developing in India?

I think there is a tremendous amount of movement in this sector and it is one of the best PLI (production-linked incentive) programmes by the government.

People have compared it to the Chips Act of the US.

We have taken this sector very seriously and you know we have developed talent and capabilities.

Tata Electronics has announced that it will set up a semiconductor fabrication plant in Gujarat, and we are in discussion with them to help create the same.

We are really looking forward to seeing growth in this sector.

How do you think the Reserve Bank of India's (RBI's) draft, proposing tighter norms for lending and heightened monitoring for under-construction infrastructure projects will impact project costs in India?

I think it has to play out. I would like to see who would monitor it. Monitoring a project is not easy.