Face to face: Rajesh Kumar Krishna, Beaver Gulf
Rajesh Kumar Krishna, chairman and CEO of Beaver Gulf Group, explains how the multi-disciplinary contracting firm’s stance on financial diligence has facilitated expansion across the UAE
Significant numbers of construction professionals in the Middle East have lost their jobs since the beginning of this year. In May, Abdullah Al Alyan, director-general of the Ministry of Labour’s Makkah branch in Saudi Arabia, said contracting giant Saudi Binladin Group has slashed 69,000 jobs as it seeks to recoup its losses following last year’s crane crash at the Makkah Grand Mosque. Another 1,700 factory workers were also said to have been fired during the month.
Meanwhile in the UAE, contractor Arabtec is likely to downsize this year. At parent group Arabtec Holding’s annual general meeting in April, chairman Mohamed Al Rumaithi said the firm was looking to reduce its costs in 2016, and this initiative could entail job cuts and lay-offs.
Regional contractors appear to be following a uniform operational model this year – one where cost savings take precedence, with job cuts among the numerous measures implemented to reduce expenses.
So it is admittedly a surprise when Rajesh Kumar Krishna, chairman and CEO of Beaver Gulf Group, says his company’s staff strength could grow to 5,000 by 2017. Beaver Gulf turns 10 next year, and increasing its employee numbers is part of the contracting firm’s planned targets for the landmark anniversary.
“Part of our plan is to reach an annual turnover of at least AED1bn ($272.2m), with a strength of not less than 5,000 employees by next year,” Krishna tells Construction Week.
“We’re on track to meet the goal. Yes, market conditions do influence our pace of progress but, eventually, we’ll meet the target. Our existing clients aren’t stopping their projects. There’s a bit of a slowdown right now, but across the UAE, there are projects in the pipeline and many tenders are ongoing too.
“The current situation is not the same as 2008, when the market had crashed. What we’re seeing right now is not a crash – it’s a slowdown. We’re still seeing projects being planned and are submitting at least two tender bids each week. The real challenge is on the margins, because there are fewer projects in the market to compete on. We’re fully booked till the end of 2016, but in the next few months, we have to book projects for beyond December 2016.”
Submitting two tender bids a week is as busy and time-consuming as it sounds, Krishna explains. However, he is quick to point out that the firm is extremely selective about the clients with which it works.
“We’ll be involved whenever the right opportunity comes up with the right client. We want to make sure we’re not picking up any projects where client factors could jeopardise our overall financial discipline. So as long as clients are proactive about timely payments, we’d like to pick up a project and keep growing – even if the margins are slightly lower.”
Financial diligence forms the crux of Krishna’s vision for Beaver Gulf; it is the contracting maxim to which he’s most loyal.
“The biggest of contracting companies could fail not because of technical reasons, but because of financial indiscipline,” Krishna declares.
“Because we maintain our financial discipline through cash flow and payment records with our suppliers and sub-contractors, going up to any value or volume of work is not difficult. You can boost your resources – be they engineers or workmen – according to the projects you have, but you need to maintain and follow very strict financial discipline.
“We control individual cash flows for every project we work on. This includes incoming and outgoing transactions, and it is very strictly monitored too.”
Beaver Gulf’s day-to-day operations see Krishna managing client relations and payment collections. The chairman agrees the latter is a function rarely handled by company leaders, but is quick to point out how the strategy benefits Beaver Gulf.
“Client meetings and payment collections are the two major areas I concentrate on. My team is more than capable of handling everything else,” he reiterates.
“Financial discipline is the biggest factor that is required to run a contracting company successfully in any part of the world. We’re not investors – as contractors, we have to collect advance payments from clients and manage our bills. We need to get our payments on time so that we can keep our commitments to the market. If timely payments aren’t made, then the whole machinery collapses – if not immediately, then certainly some time down the line. The biggest contractor will face difficulties if a sound payment system isn’t properly implemented.
“Of course, negotiation plays a key role here. We negotiate favourable terms with our sub-contractors and suppliers, because everyone is under stress and has had to lower their expectations,” Krishna continues.
“Contracting is the only stream in the world where you price for a finished product before you actually manufacture it. All contractors are prone to mistakes. For example, we might get our estimation wrong on a project, but if that happens, then you could lose the bid. You don’t want to work on loss-making projects or engage in suicide bidding, because clients will only work with reputed contractors. Therefore, negotiation is crucial.
“When you have the luxury of margins, you don’t need to negotiate too much, but when margins are tight, you have to find common ground regarding contract terms,” he explains.
Krishna says these measures not only maintain Beaver Gulf’s coffers at a healthy and stable level, but also enhance the contractor’s reputation in the market.
“Relationship building is a must in any industry. People need to know you and the team behind you to trust you, but many projects are influenced by people sitting on higher levels.
“As a company, we believe if we’re sincere and honest in our operations, then nobody can stop [us] from competitively participating in tenders. But some relationships do matter out here [in the Middle East],” he says.
Krishna explains the dynamics of client-contractor relationships using Beaver Gulf’s experience on a bid it submitted for a Nakheel project in Dubai as an example.
“We were the lowest bidder in a public tender for Nakheel’s Palm Deira Night Souk. Despite our bid being the lowest, the third-lowest bid was awarded the project at a higher price, even though we complied with all technical and commercial requirements on the project.
“We know that Nakheel and the chosen contractor have worked together on previous projects. Somewhere during this association, the contractor might have earned more credentials from the employer. Of course, at the end of the day, it’s the client’s decision that matters, and we respect that. But we won’t stop bidding on other Nakheel projects, and will continue trying to work with them where possible.”
To achieve his ambitions for Beaver Gulf, Krishna is counting on the company’s extensive horizontal operations to accrue financial benefits in the years to come.
The firm boasts in-house mechanical, electrical, and plumbing (MEP), joinery, cladding, and interiors divisions, and its fleet consists of 200 units of vehicles, construction equipment and machinery, all of which it owns.
Purchasing equipment, Krishna asserts, boosts the company’s credentials in the GCC’s competitive contracting market.
“Our strategy has been to own as many assets as possible, because that will reflect in the company’s balance sheet,” he explains.
“An asset adds value to your company. Rent, once paid, never comes back to you, but when you invest in machinery, it offers you paybacks in the long term,” Krishna continues, highlighting the high resale value of well-kept construction equipment.
Beaver Gulf’s own-and-operate model appears to be working. Besides its involvement with other Citymax facilities in various capacities, the company is now working on the Phase 1 of Dubai developer Nshama’s Town Square project.
“With Nshama, we’re over six months into the contract, and the project is on track. In fact, we’re looking at handing it over well ahead of the contractual date. Even the clients acknowledge our pace. Town Square’s Zahra community, comprising 320 villas, is due for handover in April 2017, and Hayat’s 730 units are due in September 2017.
“We’re two months ahead of schedule on both projects,” he explains.
All townhouses of the Town Square development are “completely precast”, Krishna adds, noting that the decision to dismiss in-situ concrete was a pointedly conscious one, aimed at improving quality.
“Precast is very good structurally and in terms of finishing. It is a bit costlier than in-situ, but when you have volumes, you can negotiate better terms with precast factories and can work almost on par with the traditional method – and with advantages of faster construction.
“As far as [Town Square] is concerned, no other contractor could offer Nshama the kind of delivery time and price we did. The volume of precast we prescribed helped us negotiate better terms and prices with our suppliers, which [we] passed on to the client.”
Beaver Gulf has already worked with government and large-scale private developers on projects such as Yas Mall’s Fun City and Geant supermarket, Geant’s outlet in Dubai’s Remraam community, and Ras Al Khaimah’s Al Naem Mall substation building. The company is also working on Citymax Hotels’ Ras Al Khaimah facility, and is looking to bid for works on its Barsha and Business Bay properties.
With Krishna at the helm of this project pipeline, the contracting firm looks ready to take the next step from ‘maturing’ to ‘mature’, and the chairman is confident that market factors will eventually ease this transition.
He concludes: “The market is expected to be slow till Q3 2017, so people need to be a bit patient and work harder on their projects, be it in terms of securing contracts, procurement work, or payment collections.
“Competition is high these days and things won’t come easy, but the situation will improve.”