Rubble Raising: Don't get fooled by the picture, there is money to be made here

Remember the 250 million strong Indian middle class that attracted multinationals in droves to the country in the early 1990s? The ones that stayed on soon discovered that the market relevant to them was far smaller, around 50 million or so. Well, these days, the numbers, as one would expect, all have to do with Iraq. And they're as appealing as they are uncorroborated. Now that the war is over, everyone agrees, military activity will be replaced by reconstruction activity. There are roads, bridges, power plants, schools and hospitals that have to be built or rebuilt. What no one can agree upon is the cost of this reconstruction. The Washington-based Center for Strategic and International Studies has taken the safe way out by predicting a range of $25 billion to $400 billion (Rs 1,18,425 crore to Rs 18,94,800 crore). And estimates by the US Agency for International Development (USAID) put the cost of reconstruction at $150 billion (Rs 7,10,550 crore). All the initial contracts have gone to US companies, and many of the later ones too, will. Bechtel has been awarded a contract of $680 million (Rs 3,221.16 crore) to repair Iraq's electricity system, water utility, and other infrastructure. Earlier, Kellogg Brown & Root, a unit of Halliburton, a company which US Vice President Dick Cheney once headed, won a contract to make emergency repairs to Iraqi oil fields.

The big opportunity for India Inc lies in subcontracting work from companies that win reconstruction contracts, says C.M. Mehra of Baghdad-based Wexford Financial. Several Indian companies, especially those that have worked on such projects in Iraq, are scrambling to do so. ''Iraqis are comfortable working with Indians,'' says S.V. Rajadhakshya, a Senior VP in charge of business development at construction company Afcons Infrastructure. ''And Indian companies have considerable experience working in Iraq.'' For instance, over 50 Indian companies, including BHEL, ONGC, and MMTC, do business in Iraq. That would help.

With several countries vying for a piece of the pie, India's industry associations have upped a gear. A Federation of Indian Chambers of Commerce and Industry (FICCI) delegation is visiting the UN Office of Iraq in New York to follow up on a Rs 3,000 crore deal and pitch for a Rs 2,000 crore one that it hopes will be bagged by Indian companies in the near future. And Confederation of Indian Industry (CII) has identified a list of some 40 firms that could participate in the reconstruction. The list includes such names as Ashok Leyland Projects, L&T, Dr Reddy's Laboratories, Ranbaxy Laboratories, BHEL, Tata Teleservices, National Highways Authority of India, Punj Lloyd and Apollo Hospitals.

Such lists and visits are fine, but India's recent track record in bagging reconstruction contracts-remember Afghanistan?-hasn't been too hot. Some execs attribute this to geopolitical factors; others to the fact that little reconstruction activity has happened in Afghanistan. ''Iraq is a bigger economy,'' explains Ajit Gulabchand, the Chairman & Managing Director of Hindustan Construction Company. It has been well over a year since Afghanistan's reconstruction began, but India Inc is yet to see the colour of Afghan (rebuilding) money. It is hoping that it gets to see Iraqi gold quick. Real quick.

-additional reporting by Anil Padmanabhan in New York and Ashish Gupta in New Delhi

The Fifth Element
UB's spirits division becomes the fifth largest in the world.

UB's Mallya: A heady brew, but gainful?

Fifth place isn't so bad. Not when you are an Indian company, and not when fifth means, fifth largest in the world. That's an honour recently earned by the UB Group's spirits division (McDowell & Herbertsons, never mind that the management and ownership of the latter is still being contested in the courts). impact International, a New York-based journal of the global liquor industry has ranked the division the fifth largest in the world by sales. ''To be ranked with global majors like Diageo, Pernod Ricard, Allied Domeq, and Bacardi is a sign that we have arrived,'' gushes Vijay Rekhi, President, UB Spirits Division and Managing Director, McDowell's. ''This despite the fact that we export less than 2,50,000 cases a year.''

In terms of volume, there's no denying UB Spirits' status as a performer: it has grown at an average rate of 14 per cent a year for the past five (the industry grew by 8 per cent) and it boasts eight brands that sell over a million cases a year including Bagpiper that does six. Still, while volumes have grown from 18.6 million cases in 1997, to 30.8 million cases in 2002-03, and sales from Rs 662 crore to Rs 901 crore, net profit has merely inched along, from Rs 11.98 crore to Rs 15.77 crore. Rekhi complains that ''non-market forces like government policies,'' dictate ''end product pricing''. He is quick to add that the company is trying to control costs by ''effectively deploying it''. It could take some time for the effects of that to be felt in the division's profitability. Meanwhile, Rekhi and his team are eyeing the fourth spot.

-Venkatesha Babu

IPO
Issue of Timing

Last fortnight's tech meltdown on the Indian markets post-Infosys results has taken its toll on the valuations of it stocks. The key question amidst such a bearish scenario within investment banking circles is: Will TCS go ahead with its IPO in such climes? Investment bankers are counting on a turnaround in sentiment by the second half of this fiscal. TCS was keen to go public by May, but their advisors have suggested that September would be a better time. The IT major's valuation is in the Rs 35,000-crore range, down from earlier estimates of Rs 50,000-60,000 crore. TCS is keen to offer 10 per cent of the company. By September that valuation will change, depending on market conditions prevailing then. Till then it's over to the investment bankers with the TCS mandate: JM Morgan Stanley, DSP Merrill Lynch, and JP Morgan.

-Brian Carvalho

The Opportunities In Iraq

OIL & POWER
$5 billion now and 100 billion over 10 years
Iraq has oil reserves of 110 billion barrels that need to be tapped. Getting Iraq's oil fields back to their pre-1991 production level of 3.5 MBPD would cost $5 billion now. And in the next year, close to 700 kw of power generation capacity will be restored.

Telecommunication
$5 billion
The already close-to-obsolete communication system was wiped out by the war.

Airports
$500 million initially
First target: one international airport in six months; two more in one year.

Seaports
$4.8 million for damage assessment alone
Already Umm Qasr Port Stevedoring Services has bagged this damage assessment contract. The objective is to reconstruct enough of the port in eight weeks to allow ships with loads up to 50,000 tonnes unload their cargo. That'll take some doing, though.

Roads & Highways
N.A.
In one year, some 4400 kilometres of road network is to be made serviceable.

Water
N.A.
Iraq's 14 waste treatment plants and 1,250 waste water pumping stations are in bad shape. Getting them up and running is a priority.

Schools
$62 million in one year
Creative Associates International Inc has been awarded an initial $2 million contract.

Healthcare
N.A.
Iraq has 270 general hospitals, 33,000 beds and 995 civilian primary medical centres. The reconstruction objective is to rebuild one referral hospital in each city, 100 general hospitals across the country, and identify a new HQ for the ministry of health.