GM Rao is facing challenges head-on
Grandhi Mallikarjuna Rao (GMR) maybe 64 years old, but he easily bounds up steps from his 11th floor office to the terrace for this photoshoot. Even as his young team (including a security retinue) struggles to keep up, Rao clearly sets the pace. "Eating right, exercising and enjoying what you do - the 3Es - are my secrets to fitness," says Rao. This regimen is something which he also seems to have imposed on his eponymously named group to adopt.
After a decade of rip-roaring growth when GMR Group went from 'Who?' to 'Whoa?' and then 'Wham' as the economy turned turtle, it is time to consolidate, pare down excess baggage and reorient strategy. With huge upfront capital expenditure, numerous regulatory requirements, apart from political meddling, the sector faces many challenges. As India's economy slowed in the past couple of years, infrastructure companies such as GMR have struggled more than most. One of the biggest problems these companies now face is high debt. As of March 2014, GMR Group had a total debt of Rs 39,187.45 crore. However, what sets the group apart has been Rao's deft moves to sell non-core assets for a profit, bringing down debt even as he seeks newer models to leverage the existing assets.
As part of its 'asset-light and asset-right' strategy, the group has sold its stake in the Istanbul airport for Rs 1,900 crore, and in a Singapore power firm for Rs 2,900 crore. Rao is emphatic that there has only been selective, carefully thought through, sales of assets and no 'distress sale'. "We follow the principle of develop, build, create value, divest and reinvest," adds Rao. The ALAR approach, the group, says will help improve profitability and free cash flows by 'sweating' existing assets.
Rao says neither he nor his group are emotionally attached to any assets. He, however, does confess that the decisions on the Singapore power company and the Istanbul airport were, indeed, tough. "We invest more than just money in whatever we do. We invest a lot of passion, energy to build world-class assets. But I don't regret selling them as we made handsome profit on them of close to Rs 3,300 crore."
So, what exactly is the divestment criteria? Rao says that for each asset and project, the group carries out a comprehensive stress test every six months. "When the valuation of asset is done, whatever price that we think is meaningful and comes to our expectation of cash flow, we go for it," he says. "If, for example, an asset does not meet up to our expectations in realising value, then we will not sell, we will wait for the market to mature. Our coal mines in South Africa were loss-making, so we divested it. Whatever divestment decisions we make, we ensure we never divest below value."
An analyst at a leading brokerage says the group has a long way to go before it can claim to have turned the corner. "They have some good assets but a mountain of debt. They also operate in highly regulated industries where the government of the day can play a very influential role."
A big believer in spiritual discourses for what he says is his 'daily tonic' of positive energy, Rao is a follower of a number of well known spiritual preachers such as Swami Sukhabodhananda, Jaggi Vasudev and Sri Sri Ravishankar. Inspired by Warren Buffett, he has also pledged to give away a large part of his wealth. Irrespective of where he is globally, he makes it a point to practice yoga and meditation for two hours every morning.
All the dexterity and zest provided by yoga and meditation would be required as he tries to consolidate the group. "We are in a VUCA (short for volatile, uncertain, complex, ambiguous) world. However, I believe we are better prepared than ever to tackle challenges and consolidate so that we can plan for growth in the future."
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