I almost expected Lagadapati Madhusudhan Rao to steer the conversation away from the Sasan ultra mega project — which he bagged and lost last year — and focus on the other feathers that adorn the cap of the Lanco group as we sat down to lunch at Maurya’s Bukhara restaurant in New Delhi, writes Vandana Gombar.
Perhaps he would try to focus on the Lanco Hills realty project coming up a few kilometres away from the posh Banjara Hills area of Hyderabad, which would house the world’s tallest residential building, or on the power projects that he has added to his kitty over the last year, totalling more than the 4,000 Mw that Sasan would have brought in one sweep. The chubby Rao was, however, more than willing to discuss “anything” though he seemed a little flustered at having a lady as a host.
He chose the seat without a back rest — “It is just a psychological comfort. People almost never lean back while eating” — and decided to restrict himself to basic vegetarian fare to give me company in my light eating initiative, born of a last ditch attempt to lose weight. He talks of his own attempts at being lean and mean by checking into spas across the world every few months — which he euphemistically calls “bootcamps” — and how the kilos come straight back in a few weeks. As we wait to order, I ask Rao if the ghost of Sasan has finally been buried. Lanco’s winning bid for the project, where it offered to sell power at an eye-popping low rate of Rs 1.196 per unit, was what catapulted the company to the national stage. Its bid was subsequently disqualified. Rao shrugs off the question. “It was not Lanco’s problem. We had a good legal case, but there were other opportunities in the sector that we decided to focus our energies on, after we realised we had wasted six months.”
The buzz doing the rounds at the time was that he was trying to take on Anil Ambani, whose company, Reliance Power, finally got the project. So was it a case of corporate rivalry? Personal rivalry perhaps? I do not get a ‘yes’ or a ‘no’, but get this instead: “We are the two most competitive players in the power sector.” Was there some political rivalry at work? The founder chairman of the group, L Rajagopalan, is a Congress party MP from Vijaywada in Andhra Pradesh and is the elder brother of Rao. “We have friends in all political parties. In Indian business, we cannot take sides,” he says, as he rattles off projects proceeding smoothly in non-Congress regimes like the Anpara C project in Uttar Pradesh and the Amarkantak project in Chattisgarh.
Lanco is looking at an integrated play in the power sector, with a presence in all segments — thermal power, hydro power, solar power and even nuclear power. It is set to start manufacturing wind turbines and also to buy wind energy assets across the world. “We want to be a manufacturer, developer and asset-owner,” says Rao. It is a co-promoter of the upcoming India Energy Exchange and is a significant player in the power trading sector. Lanco is also eyeing opportunities in seaports, airports and roads construction. That is quite a spread for a group with an expected turnover of Rs 3,000 crore this year (against Rs 1,650 crore last year).
At this point, our basic vegetarian fare is served. A bowl of Bukhara dal makhani, a veg platter of roasted somethings, and the breads — a tandoori naan for me and a pudina parantha for him. We also move on to the other main business of the group besides power — realty. Lanco boasts the world’s largest ‘single phase’ mixed property development underway — the Rs 6,500 crore Lanco Hills project spread across 30 million sq ft. For the uninitiated, ‘single phase’ means simultaneous one-phase development which comprises residential spaces (it has ‘almost sold out’ 15 towers with up to 34 floors each, at an average price of Rs 5,500 per sq ft) and commercial spaces (there are 12 towers for IT companies, again with up to 34 floors each). The area will also house star hotels (it has already tied up with Grand Hyatt and The Holiday Inn), a 16-screen multiplex and the country’s second largest shopping mall spread across 2.5 million sq ft. As for the tallest 112-floors high residential tower, dubbed Signature Tower, it will be about double the height of the building that’s currently the tallest — the Q1 tower on the Gold Coast of Australia, which rises about 320 metres and supports 80 storeys. The company has been waiting for more than a year-and-a-half for aviation approval for the tower. “When it comes, there will be a grand launch. It would be a historical moment.” It is also developing a very high-end Lanco Ville at Chennai over 10 million sq ft. “We are looking at a niche play in the realty sector,” he says. The company expects to have 40 million sq ft of developed properties by 2011. This is after factoring in the expected general slowdown in real estate when “funds will be an issue and credit will be an issue.”
The total capital investment planned by the group — which has 23 subsidiaries as of now, but is floating special purpose vehicles at a frenetic pace — is Rs 40,000 crore over four years. About half of this is already committed to projects which have achieved financial closure. Lanco, however, does not really have a track record to show its capability in handling such large scale initiatives in real estate or in power, where the company intends to increase “operational” capacity 30-fold by 2010 from about 500 mw operational today. The 42-year-old Rao throws back the question at me. Did Sunil Mittal have a track record? Did Infosys have a track record? Or the Reliance Refinery? “The opportunities that we see in the country today were not there in the past. So where is the question of track record? What is required is an entrepreneurial spirit,” he says. And then, of course, is the fact that whatever projects have been taken up by the group have been done successfully, and in time.
The Smart Investor, Business Standard’s weekly supplement, had last month given a thumbs-up to the listed flagship company of the group, Lanco Infratech, though it has underlined the need to keep an eye on the execution side. Rao brushes asides concerns on execution challenges and exudes bullishness in the economy and in his company, which has seen a halving of value to about Rs 400 per share since the bears struck a few weeks ago. “We are highly undervalued,” he says. So what is fair value? “Rs 1,000” he says, without blinking an eyelid, given that he is confident of delivering 25 per cent return on investment for shareholders over time. On that positive note, we take our last sips of coffee — which is a sad stand-in for the dessert that we both decided to skip — but nobody said drool control was going to be easy. And yes, he was right. I did not lean back even once.
LUNCH WITH BS: L M Rao
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