Corporate

Afcons Infrastructure Eyes Re-Expansion in West Asia, This Time with Local Partners

During the third-quarter earnings call, Afcons Infrastructure's MD, Paramasivan Srinivasan, told analysts that "bigger projects in the Middle East with local partners" are taking shape from a strategic perspective

Afcons Infrastructure Eyes Re-Expansion in West Asia, This Time with Local Partners
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Following in the footsteps of rival Larsen & Toubro (L&T), Shapoorji Pallonji Group's Afcons Infrastructure Ltd plans to expand its business in West Asia.

Top company executives are optimistic about the region due to its booming construction opportunities and are looking to collaborate with local partners to minimise risk, according to a Mint report.

During the third-quarter earnings call, Afcons Infrastructure's MD, Paramasivan Srinivasan, told analysts that "bigger projects in the Middle East with local partners" are taking shape from a strategic perspective.

Now, the firm's head of corporate strategy, Hitesh Singh, has told Mint that “The Middle East, and especially Saudi Arabia, are markets that you simply cannot ignore given the volume of business."

Saudi Arabia is investing hundreds of billions of dollars in building new cities, including Crown Prince Mohammed bin Salman's ambitious Neom project, a futuristic linear city.

Afcons' Re-Expansion in West Asia

Afcons has previously undertaken projects in Gulf nations. However, according to the Mint report, the company withdrew from the region due to cash flow issues.

Srinivasan explained this during the second-quarter FY25 earnings call:

"Middle East projects are largely cash flow negative because there is a 10% cash retention. This retention is paid only after obtaining approvals from 19 different agencies, which can take 18 to 24 months to secure," he told analysts.

During the same call, Afcons' Executive Vice Chairman, K. Subramanian, noted that the lack of proper dispute resolution mechanisms in the region had made it a lower priority for the company.

However, with competitors like L&T securing major projects in the region, the Shapoorji Pallonji Group company is reconsidering its stance.

West Asia accounted for 35% of L&T's Rs 5.6 trillion order book, with Rs 2.67 trillion worth of orders booked in FY25. In contrast, Afcons' order book stood at Rs 380 billion, with overseas business contributing only 15%.

This is expected to change soon. Afcons has established a 90%-owned subsidiary, Afcons Contracting Co., in Saudi Arabia to oversee local projects, with the remaining 10% stake held by a local partner. Additionally, Afcons has partnered with NMDC and ITD Cementation to bid on Dubai's $8 billion sewerage tunnel project, with the consortium being approved as a bidder.

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