Shapoor Mistry, chairman, Shapoorji Pallonji, and his team chart the company’s growth and share their vision.
BY JAYASHREE MENDES
The concept of genius, be it in the artistic or business realm, continues to fascinate, thanks to its rarity and the uncertain nature of how it arises. Without a sense of professional purpose, starting a business that will outlive several generations cannot be a morale booster. And so it’s with Shapoorji Pallonji. The Indian-based infrastructure conglomerate, with interests in infrastructure, real estate, textile, power, biotechnology, among many other things, started out as a partnership firm in 1865. Even way back then, the company built projects that continue to stand today as iconic structures in the city where they have been built. As of now, the company has many firsts to its credit and has remained at the forefront through the decades and tops several of its rivals in some regards.
Today, Shapoorji Pallonji joins the exclusive club of companies to have survived 150 years, a rare feat accomplished by constantly adapting through the tumult of recessions, technology shifts and succession into new ventures.
Speaking about the 150-year brand, Shapoor Mistry, chairman, Shapoorji Pallonji, says, “As we celebrate 150 years of our existence, I am reminded that enduring institutions like ours ‘learn from the past’ - and do not ‘lean on the past’. Indeed, we use the past to build the future! Today, the group stands tall in key areas of the economy such as construction and engineering, infrastructure, real estate, water, oil & gas and renewables, amongst several other businesses, as we are ready to take on new opportunities in India and overseas.”
Staying on top of any industry is a feat. But adding to Shapoorji Pallonji’s accomplishment is the fact that it’s the only Indian-born company to have a worldwide presence in 43 countries with a 35,000 workforce and continuing to execute mega infrastructure projects globally that help chart a country’s vision.
At a time when trends are moving so fast that many companies in the industry tend to rise fast only to flame out, Shapoorji Pallonji demonstrated a strength shared by a handful of 150-year-old companies: the ability to change. Jai Mavani, group M&A, strategic finance and family office, Shapoorji Pallonji, says, “To a large extent the senior management in SP Group is highly empowered. Every deal has its own parameters and requires a nuanced balancing of our own competencies iterated with external scenarios — be it market, commercial, political or regulatory. Every decision taken must have a perspective that we are living in complex times and there is a Black Swan lurking somewhere. It is extremely important to have a Plan B in place.”
The Indian-born-gone-global firm’s legacy as one of the nation’s most enduring companies has been due to its rare blend of ingenuity, persistence and a strict adherence to its core objectives summarised by its motto, “Built to Last”. It has risen over the years riding the surge of building mega infrastructure projects such as India’s first FPSO (floating, production, storage & offloading), Terminal 3 for the Delhi International airport (interiors, electrification and DG back-up), the Valarpadam rail bridge (India’s longest rail bridge stretching 4.62kms), the Samalpatti power plant (a 106MW liquid fuel fired power plant and the first in India certified for Work Place Organisation system by AOTS Alumni 5S Forum India) — and all this without abandoning its core tenets.
The FPSO Armada Sterling is functional for Oil and Natural Gas Corporation Limited (ONGC) at the D1 field, 200km offshore from Mumbai. It presented the company with major challenges such as designing a permanent mooring system for the extreme monsoon off the west coast of India. The internal turret mooring system, the first for the company has been specifically designed for severe monsoons prevalent in the field with maximum wave height of 21.4 metres.
Sustainability has always been part of its smart business practice. Actions to use renewable energy, recycle building materials, reduce waste and conserve water are grounded in economic decisions to help reduce operating expenses and mitigate energy price risks.
“It is our focus on relationships, our technological excellence, our willingness to try new things and a culture of persistence to achieve our goals – that makes us stand apart,” says Mistry.
K Subrahmanian, VC & MD, Afcons Infrastructure Ltd, says, “The growth has been driven mainly due to diversification. Since 2005 we have diversified into segments like offshore oil & gas, underground metro, increasing order books of Rs 600-plus crore, entrenching ourselves firmly as an EPC player, and steadily increasing our footprint in the international market. Our strong alliance partners in the global market have helped us bag bigger and more complex projects.” Afcons, the infrastructure arm of Shapoorji Pallonji, has formed strategic alliances with global EPC players like Saipem, IHI, Strabag S E, Transtonnelstroy, Technip, Gunanusa, etc. Currently, the company is executing some complex and interesting projects that are under execution: Rohtang pass tunnel, the longest tunnel in the world at an altitude of 13,000-plus feet; Chenab bridge, the tallest railway bridge in the world; Chennai Metro; Kuwait Sulphur Jetty; and Lucknow Agra expressway.
In all this, safety ranks first for the company and is in its DNA. The company has well formulated guidelines and EHS policy which is in line with international standards. The management has fully empowered project teams to take all measures to ensure a safe environment. The systems have been also certified as per ISO 14001:2004 (for EMS) & OHSAS 18001:2007 (for Occupational Health & Safety Management). Irrespective of the size of the project, to ensure safe working conditions of the staff, the company takes many measures. From establishing site safety to implementation of company’s HSE policy at site with a safety plan, safety induction, hazard identification & risk assessment (HIRA) are some activities.
The increase in market potential has not only resulted in vast business opportunities but also increased international competition. M D Saini, MD & CEO, Shapoorji Pallonji International FZE (SPINT), says, “As compared to India, what is unique to Middle East North Africa (MENA) region are cultural diversity, adequate skilled resources, stringent regulatory environment in some countries, and wide-ranging contractual obligations.”
With a strong sense of purpose, the company upgraded its offerings by developing in-house design capabilities. Today a considerable proportion of the order-book is on design and build. In another move, it constituted an exclusive technical excellence team. The responsibility of the team is to ensure all value engineering on the project and bring in relevant new technologies to expedite the work for timely completion.
It’s imperative that any global company with an international footprint undertake a robust customer and project due diligence built on strong internal goals so as to push limits. Pawan Parikh, CEO, Shapoorji Pallonji Engineering Procurement & Construction, says, “Before we bid for a project, we carry out detailed due diligence of the project and the sponsors. We also take support, in some cases, from major consulting firms to evaluate project risks and probable mitigation measures. Sometimes, if we find the project to be risky, we decide to not bid.”
At the Group, the team periodically evaluates the portfolio of businesses it is in on several dimensions, including the market dynamics and outlook, the competitive positioning and capabilities. “This throws open ideas in terms of existing business lines that need greater focus (in terms of investment, talent and other capabilities), adjacent business lines to be considered for entry, or even new opportunities,” says Shankar Krishnan, group head, strategy, Shapoorji Pallonji.
The company has had, for some time, the practice of holding strategy conclaves for key businesses. “This is an immersive and interactive process of discussion, engagement and, eventually, alignment amongst the senior executives on the strategy. It has been my endeavour, and that of my colleagues in the group companies and the group centre, to take this process forward and institutionalise it,” adds Krishnan.
Umesh Khanna, group head, coordination, says, “A prime focus when negotiating contracts is on quality and ability of client to reciprocate to quality, lifetime cost benefits, and relationship; obligations and earnestness thereof to deliver and acknowledge the perceived/committed benefits within agreed time & cost line; and the balance that terms related to payments, timeliness, LDs, etc. create to assure a win-win.”
Companies that last almost always put making money secondary to a broader and more ambitious stretch goal. In this light, a strong focus and a recent foray has been the company’s entry into solar power. The Indian government has announced an ambitious target of achieving 100,000MW of solar capacity by 2022. With the group’s financial strength and in-house expertise in taking up EPC work for such projects, it has plans to significantly increase participation in solar generation projects.
Mukundan Srinivasan, MD, Shapoorji Pallonji Infrastructure Capital Co. Ltd says that in the power sector, we invest in and develop projects offering long term power purchase agreements (PPAs) with credible counterparts, thereby providing stable revenue streams. “For instance, our solar projects have PPAs for 25 years, hydro for 35 years and in case of thermal power projects between 22 and 25 years.”
In addition to the super critical 1,320MW power project in Gujarat, Shapoorji Pallonji is pursuing gas-based power generation projects in Africa and South East Asia. “We are also implementing grid connected solar projects in India and Africa. Renewable energy is our focus and we are working to scale up our development activities in the area of grid connected solar and hydro power projects,” Srinivasan adds.
The Africa venture appeared on the horizon when Shapoorji Pallonji was awarded a contract to construct an IT Park in Mauritius. “Buoyed by the Mauritius foray, the company decided to venture into other countries in Africa, Latin America and Southeast Asia. The outcome was the Africa Business Centre (ABC) set up in 2007 to play a catalytic role to win contracts. We bagged the first job in Ghana – to build a seat of the government. The ABC has helped group companies penetrate the region and spread their footprint across Africa, including Sierra Leone, Liberia, Cote d’Ivoire, Nigeria, Zambia, Rwanda and Ethiopia. Products made by SP Group companies are also being sold in Africa,” says S Kuppuswamy, advisor, group finance and special projects, Shapoorji Pallonji.
Construction has always been at the forefront of the Shapoorji Pallonji Group. However, doing business in a resource driven economy has its own challenges. Kekoo Colah, CEO, Shapoorji Pallonji Real Estate (SPRE), says, “Despite the challenges, our focus remains on delivery excellence: on time, with the best quality, delivering on commitment and further building upon the huge bank of goodwill and reputation. Our projects like SP Infocity Pune, SP Infocity Chennai, Shukhobrishti, and The Imperial have been recognised by national and international bodies for excellence and uniqueness.”
SPRE has also been a pacesetter in evaluating alternatives to conventional construction methodologies. From deploying aluminium modular formwork systems like Mivan, Kumkang, Peri, Doca and Durand to reduce slab cycle time to being the first to introduce power distribution thus using rising mains and reducing the number of cables, the company’s real estate projects incorporate them all. In 2006, way before affordable housing became a buzzword, SPRE signed a development agreement with West Bengal Housing Infrastructure Development Corporation Ltd to build Shukhobrishti in Kolkata, the largest mass housing project in India.
It’s well-known that long-lived companies don’t take wild risks with their businesses. They carefully protect their finances as well. Considering that a large number of older companies take on enormous projects, they often have huge capital needs and widespread operations, yet they resist the temptation to load up on debt.
Mahesh Tahiliyani, finance controller, Shapoorji Pallonji, says, “The controller has to organise a team for details, but get into details only when necessary. The key is to get the right people who will deal with technical issues in a commercially savvy manner.”
Lasting companies have goals that keep their employees motivated through the decades. They routinely have new businesses strategised in group meetings and are constantly pursuing future businesses. Innovation is a prerequisite to survive. Vasant Sanzgiri, group head, HR, Shapoorji Pallonji, says, “A multinational group like ours will always require a steady pipeline of leaders and creating this is of paramount importance. We follow a three-pronged approach to meet this requirement: Hiring people with experience from top business schools; developing our middle management to prepare them to take up senior management responsibilities; and a programme for senior managers to take top responsibilities. This, we believe, will create a pipeline of leaders in the group who will steer the group to its next level of growth.”
In many ways, Shapoorji Pallonji’s pursuit of working is symbolic of what makes companies last. It’s not surprising that the company is moving ahead because they are innovators. They would not be here if not for it.
JAI MAVANI, GROUP M&A, STRATEGIC FINANCE & FAMILY OFFICE
You spearhead acquisitions for the group and look after M&As. Considering that Shapoor Mistry is known to have a keen eye for diversification and expansion, what are some of the experiences you bring to the table?
Strong corporates like Shapoorji Pallonji are always preferred port of calls for investment bankers. Especially in times like these, where significant distress opportunities are doing the rounds. The challenge is distinguishing between pure financial plays and opportunities which bring in a long term strategic fitment, be it in terms of technology, market segment or newer geographies.
This calls for a disciplined analysis and a conviction to walk away whatever be the temptation, if it does not fit into the strategic investment criteria. Else, one may be exposed to the same risks which many infrastructure companies in India suffer when they bid for projects with a valuation perspective instead of a sound cash-flow analysis.
The real estate and infrastructure business is all about perception of risk, and creating a market for investment grade assets. How does this work in your role at SP Group?
Both the infrastructure and real estate sectors in India are in its second stage of evolution. The first was based on irrational exuberance on the back of deluge of foreign capital and irresponsible investment approaches mainly between 2005 and 2008. Very much like one saw during the dot-com boom and bust of early 2000 which was thankfully followed by a more responsible approach to investments. Hopefully, we will see a similar approach in infrastructure and real estate as well.
Already there are green-shoots of regulatory reform (e.g. real estate regulatory bill) as well as financial evolutions (REITs, 5/25 schemes for infrastructure finance, etc.) Being involved as an advisor and consultant while many of these reforms were being drafted helps me in bringing a holistic overview as opposed to a transactional approach. Also understanding global good practices (and mistakes) is useful.
K SUBRAHMANIAN, VC & MD, AFCONS INFRASTRUCTURE LTD
What are some of the methods you employ to ensure that you complete your projects on time, which is your USP?
To ensure continued success in international EPC environment, our philosophy of operational excellence is a necessity.
• The operational excellence model encompasses operational efficiency, productivity, innovation and commitment to delivery to all stakeholders.
• As a part of our execution strategy our mantra is simplification. Through an in-depth study of the design and methodology, we work towards developing solutions that lead to simpler construction methods.
• We have even gone beyond our scope and proposed changes in design when we feel it leads to earlier delivery of projects.
You have often stressed on your commitment to the environment. What were some of the steps adopted to pursue this goal?
Afcons believes in supporting communities impacted by its activities. Initiatives taken at sites include skilling of local labour, fulfilling local infrastructure requirements, and assistance during difficult conditions such as flooding, etc. In Liberia, we developed the local workforce. As against employing 30% locals, we employed 77%. We installed hand pumps at Buchanan site, donated two ambulances, constructed markets and huts for villages, among other things.
In India, we dug two borewells every kilometre of the entire 64-km stretch during the execution of the Jammu-Udhampur Highway project, refurbished a school (at Sangaldan) and an old-age home (Ulundurpet). We have been an ardent supporter to flood victims in Uttarakhand and J&K.
KEKOO COLAH, CEO, SP REAL ESTATE
You have earned a reputation for building landmark buildings. In an environment that is so nebulous, how does it feel to conduct business in an economy that brings its own challenges?
Even as the Real Estate division has earned a reputation, it faces challenges. For one, real estate development, like some other sectors of the economy, is cyclical. Other issues such as land acquisition, seeking developmental rights and certainty of titles, to obtaining permissions and complying with all statutory requirements, is a tedious, complex and time consuming process.
Real estate sector depends primarily on capital, labour and materials. Minimising uncertainty in availability of any of these resources is the key to operating in this environment. To that extent, a differentiating strength of SPRE has been its ability to add value to its clients and customers across the real estate development value chain by utilising the services of other group entities – design, construction, façade materials, MEP, HVAC, solar power, water.
At a time when affordable housing is the focus, it is a common refrain that land should also be made affordable. How can such projects be executed with ease in city limits?
Land costs are one of the most important determinants of “affordability” in real estate. With affordable land available sparingly within city limits, such projects tend to be located on the outskirts of metros. As employment opportunities continue to be provided mainly within city limits, it becomes imperative that the government along with other stakeholders incorporate holistic economic planning for each of our cities.
M D SAINI, MD & CEO, SHAPOORJI PALLONJI INTERNATIONAL FZE
You have completed 30 years with Shapoorji Pallonji. Could you sum up your learnings as the Group celebrates 150 years?
I’ve always looked at challenges as opportunities and learnt to give 100%. If one can develop a passion for what one is doing, then I think any obstacle can be overcome. My vision was to develop the company into an internationally reputed, total solutions company, which delivers best quality, based on superior technical expertise and project management capabilities. Today, with an order book of around $4.0 billion and expected revenue of over $1 billion in 2015-16, we have established the foundation for another 150 years.
In terms of EPC, what are some of the design-build and construction advancements you have taken ahead globally?
As a strategy, we desire to increase ‘Average Project Size’ at SPINT. It involved many new initiatives and enormous efforts in capability building on many fronts. Initiatives include establishing joint ventures with competent industry players, considerable value engineering efforts through our design studio, adoption of new technologies and inducting many international experts in the team, resulted in executing the strategy of bagging big projects and increasing our average project size.
MAHESH TAHILIYANI, GROUP, FINANCIAL CONTROLLER
How do you work through and advise on the financial and control implications of delivering the strategy?
Goals set are (and have to be) common for all at the Group level. Each has to contribute his strengths to make the strategy infallible. The understanding of business models and the reasoning of the planned strategy helps to advice on the financial elements required for delivering. For instance, during SAP implementation, all businesses came together to ensure a harmonised system to the extent possible. This enabled achieve standardisation of key processes. Adapting to change and continuous monitoring of the performance and taking corrective actions helps stay on the path to success.
Finance is fuelled by a changing regulatory environment and, budget and resource constraints. How do you balance your tasks?
Change is constant in businesses. No one has access to unlimited resources. Availability of unlimited resources has the risk of creating inefficiency in the system. One has to anticipate change and consider best practices. The expectation of the stakeholders like the government with respect to governance is increasing and so are the challenges of the business. Creating awareness of the requirements amongst businesses and the top management and the acceptance of the same is the optimum way to get things moving in the right direction.
MUKUNDAN SRINIVASAN, MD, SHAPOORJI PALONJI INFRASTRUCTURE CAPITAL
SP Infra Capital has several joint ventures for developing of infrastructure projects. Please detail a few.
We work with partners who complement our resources, skill and competencies. In the gas-based power generation projects, we have strong local partners for projects in Africa and South East Asia. Our Samalpatti power plant, was also implemented in joint venture with Covanta Energy, USA and Wartsila, Finland.
In highways, we initially developed the Trichy toll way project in Tamil Nadu in JV with IJM of Malaysia. We also have a joint venture with HPCL for developing 5mmtpa LNG regasification terminal at the proposed port at Chhara in Gujarat.
The government has big plans for infrastructure development. How do you plan to cash in on this?
Our port will help us get into major logistics opportunities as they open up with the government’s “Make in India” campaign. The transportation sector is seeing major policy announcements which would help us build upon its highly rated development and construction skills to participate in on-going highway, rail and other projects that would be offered to the private sector or on PPP basis.
We believe once the industry issues in the thermal power generation are overcome, significant opportunities would be available to us.
PAWAN PARIKH, CEO, ENGINEERING PROCUREMENT & CONSTRUCTION
In terms of power plants, what are some of the tested and proven processes you adopt to provide reliable power solution?
It starts with engineering the solution well, which we achieve as a result of a capable engineering team. The team conceptualises the solution and does detailed engineering of solution. Although they come from diverse areas of specialisation, they are equipped with the required design tools to do their job effectively.
This is followed by disintegrating the complete solution (or system i.e. power plant) into smaller sub-systems and selection of good quality equipment and system suppliers while accurately managing the interfaces between these sub systems and suppliers.
Finally, efficient execution, construction, erection and commissioning with all safety measures ensure reliable power solution to customers.
Does EPC contracting need better risk management? How would you go about it?
Yes, it does. The most important part of project management is the “risk”. Identifying risks and preparing a mitigation plan at an early stage helps us take proactive steps to foresee a possible departure from the plan for e.g. a delay or increase
in costs. Effective risk management also helps us build stronger ties with our customer as we are able to execute the projects better.
S KUPPUSWAMY, ADVISOR, GROUP FINANCE & SPECIAL PROJECTS
In terms of infrastructure and construction, what sector do you see demand coming from in Africa?
The demand for infrastructure construction in Africa is estimated to be around $93 billion per year over the next decade. There’s a need to exploit mineral resources efficiently and build transportation links in the region. The entire exercise depicts the huge scope for infrastructure in Africa. Simultaneously, housing, healthcare and water also require a lot of attention, besides ensuring affordable housing and construction of hospitals. Considering that the region has a high degree of power deficit, much investment is needed to set up power plants using coal, HFO, gas, solar and peat. One also needs good EPC contractors to execute the work. Our group’s EPC division is gearing up to start work on one such job in East Africa.
How do you work out the financing and the logistics when you cater to this market?
Africa requires unique solutions and entails funding arrangements with Exim Bank, the Government of India, international financing agencies and Africa centric funds.
SHANKAR KRISHNAN, GROUP HEAD, STRATEGY
What are the steps required to effectively deliver economic infrastructure projects?
Infrastructure projects are typically high value and long gestation, with socio-economic benefits over the long run. The key requirement is a spirit of collaboration between the multiple stakeholders involved, including for instance, the client, contractor, consultant and business partners. Often, local government is an influencer, and hence it is important to seek alignment at the outset.
What is the starting point about thinking differently and developing great strategy? Do relate this with respect to your role at SP Group.
The starting point, for a good strategy, is to be able to view one’s own business dispassionately. We have noticed that most business can do with a greater emphasis on environment scanning and market intelligence, such that business performance can be gauged by the yardstick of the market in which the business operates. We have emphasised the critical need for market context and external perspectives, in forming a view on our businesses and their strategy. Almost always, we start our strategy discussions with this as the context.
SUBODH DIXIT, EXEC. DIRECTOR, ENGINEERING & CONSTRUCTION
What are some of the crucial elements that are necessary to fulfil design build contracts effectively?
There are three-four key ingredients for success of a design & build project: Domain knowledge and an efficient design; effective procurement of sub-contractors and strong partnerships; and understanding the customers’ requirements and translating their sometimes unstated intents and expectations in product development and delivery.
Design & build is a strong three-way triangle of customer, D&B team and execution. Finally the most important of all is a highly mature collaboration between design and execution team members.
In terms of contracting model, what works best for SP EPC? What are the types of contracts that work best for various types of projects?
There is no one right answer. The best contracting model is when a contract is drawn in a very equitable manner between customer and contractor. More often than not, Indian contracts are heavily tilted against contractors and these often create non-performance, litigation, cash flow and project delays and recourse mechanism either does not exist and/or is too slow.
UMESH KHANNA, GROUP HEAD, COORDINATION
As group head, coordination, I understand the role would imply working closely with the promoters and group companies. Could you tell us a little more about this role?
This role has multiple dimensions. It is to facilitate and enable group companies to derive inimitable advantages which intra business synergies provide. The art is to do this with focus on achieving short term targets while remaining committed to unleashing long term tactical advantages. It involves working alongside businesses for enabling entry and or expansion in new business sectors and markets, upscaling skills and project sizes. My role spans opportunity targeting and securing, relationships management, technology and business alliances management as also proactive interventions to improve the delivery efficiency.
What are some of the factors that matter when your company approaches international business?
The factors that influence us while approaching an opportunity/market remain same for home and overseas barring two – safety of our people there and undue/unmitigatable risks in respect of quality of deliver and finance.
VASANT SANZGIRI, GROUP HEAD, HUMAN RESOURCES
At a time when companies face high attrition, SP Group has a loyal set of employees. As HR head, what would you attribute this to?
The topmost benefit of employee loyalty is that we have people who understand the ethos of the SP Group and are completely aligned to it. The knowledge and expertise acquired over the years working on different projects remains within the group and people grow with the company, in the company.
What are some of the training facilities offered at your company considering that the job requires highly skilled persons?
Training and development is the corner stone for the success of any organisation and SP is no exception. A combination of on the job as well as class room training which includes practical inputs and practice opportunities, ensures we have knowledge and skills enhanced on a continuous basis. We have made significant investments in leadership capability development over the years across our group companies.