This story appears in the October 14, 2012 issue of Forbes Asia. Subscribe to Forbes Asia
BY ANURADHA RAGHUNATHAN
Shaukat Ali Mir, chief operating officer for international electromechanical projects at Voltas, is overseeing the construction of the mechanical innards of a $2.5 billion, premier medical research center in Qatar. The Sidra Medical Project, as it is known, requires Voltas to install $250 million in plumbing, firefighting and drainage systems, among other infrastructure, and is beset with delays, changing client specifications and cost overruns.
Voltas, a Mumbai company, has already taken a $54 million cost writedown on the project for fiscal 2012, which is about 20% of its revenues on the contract. But the 54-year-old Mir is calm amid this desert storm. "For now we're just focused on finishing the project," says Mir. "We want to keep the customer relationship intact. We believe this will be a huge referral for us going forward. As for Sidra, we can claim back some of the cost overruns."
Mir is looking beyond the Sidra contract and toward Qatar's hosting of the 2022 FIFA World Cup and the related build-out of one of the richest countries in the world. "FIFA will change the dimension of infrastructure, hospitality and sports complexes in Qatar," he says. "We've already positioned ourselves in Qatar with nearly 500 staff members. We've been operating there since 2003."
(Click here for more stories focusing on business between Asia and the Mideast.)
These opportunities keep Voltas active in what is a fragmented and highly competitive Middle East market. Voltas, a Tata Group company, had $1 billion in revenues in fiscal year 2012 and ranks among the region's top three MEP (mechanical, electrical and plumbing) contractors, alongside Dubai companies like Drake & Scull International and ETA.
Voltas is India's largest exporter of electromechanical projects, and Mir oversees more than $1 billion of these projects, which span five countries. He is the top executive for international projects and is one of five EVPs under Voltas Managing Director Sanjay Johri. Ishaat Hussain is director for Tata Sons and chairman of Voltas.
The company derives nearly a third of its topline from the region. Revenues have flattened out in the past year, but income from the Middle East has been growing at a compounded annual rate of 22%, from about $50 million in fiscal 2003 to about $290 million in fiscal 2012. The region is the Indian company's primary market, with 7,770 employees concentrated there.
In the past decade Voltas has provided electrical and mechanical systems for many buildings that dot the Middle East landscape--from the world's tallest building in Dubai to the recently constructed Etihad Towers in Abu Dhabi.
"Voltas has been in the right markets [in the Middle East] for the right number of years, and it has worked on big-ticket projects that showcase its capabilities," says Kunal Sheth, a research analyst at Mumbai-based securities firm Prabhudas Lilladher.
But with this opportunity comes intense competition. With construction slowing down in the developed world, the Middle East North Africa region--with a projected $4.3 trillion in construction spending by 2020--represents huge growth prospects for companies like Voltas that have a foothold in the region. But the opportunity is also attracting new entrants seeking their share of business in the booming Gulf. This surfeit of contractors has shifted the balance of power in favor of customers. "Clients can push pricing, and they can push it very hard," says Heidy Rehman, Citigroup's analyst for the MENA region. "The customer holds all the cards, and payment issues are becoming more of a factor."
Recently bidding margins have dropped to 3% to 4% from 6% to 7% previously. And delays in awarding projects have resulted in a decrease of MENA contracts awarded in the first five months of this year, according to a July Bank of America Merrill Lynch report on Gulf Cooperation Council countries .
Against this backdrop Voltas is feeling the heat in the form of contract overruns on Sidra, and lowered margins and a slimmer order pipeline in general. "The next year will be on the difficult side," says Mir. "Margins will continue to be under pressure."
But he believes Voltas will be able to ride this period out. For instance, the company is looking for deals in Saudi Arabia's $750 billion construction market, which is also the third-largest heating, ventilation and air-conditioning market in the world. In December 2010 it created a 50-50 joint venture with Olayan Financing, the holding company of the privately held Olayan Group, an industrial, services and trade conglomerate in Saudi, to pursue electromechanical projects in the kingdom. The JV has won a $71 million order for a utility complex in Riyadh.
"Saudi is where the UAE was five years back in terms of potential," says Mir. "Saudi requires companies like us that have worked in large, iconic developments."
Voltas, which was founded in 1954, has evolved from being a small air-conditioning player in the Gulf into a major contractor. The company first entered the region in 1976 with a contract to install air-conditioning systems at the Sultan of Oman's palace. Then came a string of projects in Iraq, Libya and Yemen. In 1982 Voltas built a water supply system, a telecom network and a captive power plant in a Saudi township. In the 1970s and 1980s Voltas' strategy was to work with leading Indian civil contractors. But in the 1990s the firm began allying with foreign contractors. Also, the Middle East became a defined area of focus.
Mir first began working in the Middle East in Saudi Arabia in 1982, and he helped develop Voltas' business in the region, even as the company enlarged its suite of services to include fire protection, water management and indoor air quality in addition to the usual offerings of air-conditioning, heating and ventilation. In a way, Mir's career--from rookie engineer to COO--parallels the rise of Voltas from air-conditioning contractor to a major MEP service provider in the region.
Mir, an engineer turned manager, grew up in the mountain state of Kashmir in northern India and moved in 1976 to the desert state of Rajasthan, where he earned a mechanical engineering degree from Birla Institute of Technology & Sciences.
After a brief stint at Engineers India Ltd. he joined Voltas and moved to Saudi, where he spent seven years handling engineering, project management and business development roles. In 1989 he moved to the United Arab Emirates to head a joint venture called Universal Voltas, which focused on project management and maintenance of mechanical and electrical systems. In the last decade he's worked to land electromechanical contracts for high-profile projects across the region, including the Mall of the Emirates in Dubai and Bahrain City Centre in Manama. "Slowly but surely, we've increased our scope, offerings and geographical dimensions," says Mir.
Voltas' most prestigious project to date is Dubai's Burj Khalifa, the world's tallest building. As part of a consortium with ETA and Hitachi Plant, Voltas executed a $153 million, seven-year electromechanical contract that ends this year. With more than 160 floors, the iconic tower required nearly 7,500 electromechanical drawings to develop a system that could work. "When you are working at that height, the entire air-conditioning, electrical distribution, plumbing and drainage are required to be of a different nature," says Mir. He even had to employ younger workers, who could handle the air pressure difference at those heights.
While Voltas considers Qatar, the UAE and Oman as key Middle East markets, in addition to Saudi, it also plans to explore second-tier locations such as Libya and Egypt. Mir, for his part, is used to embracing far-flung geographies, both professionally and personally. As he puts it: "I grew up in India. I am living in the Middle East. My children live in Canada, and I plan to retire in Europe."
