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How GMR built a multibillion-dollar empire
Karmali Naazneen, Forbes | November 20, 2006
When India announced plans in 2004 to privatize its airports in Mumbai and New Delhi, it attracted many suitors, including Reliance's well-connected Anil Ambani, media baron Subhash Chandra and mining magnate Anil Agarwal, all billionaires.
Also in the running was little-known entrepreneur Grandhi Mallikarjun Rao. At the time few predicted he'd beat the better-known businessmen. But Rao spent $8 million on his bid, dispatching 15 executives to do the groundwork, hiring 16 consultants and persuading Fraport AG, which runs seven airports (including the one in Frankfurt), to partner with him.
In January, after ten months of scrutiny, Rao's company, GMR Infrastructure, and its German partner won the 30-year New Delhi concession with an option to renew for another 30 years. The partners will share 54% of airport revenues, currently at $130 million; the government gets the rest.
But in a country where corruption is common and suspicions run deep, it wasn't long before someone cried foul. Ambani took the government to court, complaining that he'd been unfairly disqualified despite a higher financial bid for New Delhi. India's Supreme Court ruled in the government's favor in November.
Rao was relieved but hardly surprised. "The entire bidding process was transparent and scrutinized by five sets of government committees," he insists. "When you're competing with big names, you can never be overprepared."
GMR's partner, Fraport, concurs: "GMR has displayed an outstanding ability to manage the very complex and sometimes challenging project," says Andrea Pal, a senior vice president. "Execution is its strong suit."
This patient, deliberative nature has served Rao well, particularly in India, where infrastructure projects are hotly pursued but also interminably delayed.
In an even bigger upset, in 2001 GMR, which then had no airport experience, landed a 30-year concession to develop a new airport in Hyderabad, an emerging tech hot spot near Bangalore, but only after it found a qualified minority partner, Malaysia Airports Holdings, and waited three years, until 2004, for an agreement to be signed.
GMR must now live up to high expectations, which include completing the $500 million Hyderabad airport project by 2008 and spending $1.5 billion to expand New Delhi's airport by 2010 in time for the Commonwealth Games.
The company has predicted internal growth of 25% per annum for the next five years. To meet these goals, it must execute flawlessly while also grabbing its share of new contracts; infrastructure spending in India is expected to rise 61% to $109 billion by 2008, according to Merrill Lynch.
Investors are betting on Rao. Since the August listing of his $242 million (sales) GMR Infrastructure, its stock is up 65%, trading at a breathtaking 11.5 times sales. Rao, who owns a 79% stake, is worth $2.2 billion, enough for him to debut at No. 18 on Forbes Asia's third annual list of India's 40 Richest.
He's unfazed: "I used to think business was all about luck. Now I know it's about focus, commitment and patience," he explains to Forbes Asia over a cup of south Indian coffee.
It is a lesson learned over an eventful career. Rao, 57, grew up in a small village in southern India, where his father was a commodities trader. When Rao flunked tenth grade, his father urged him to drop out and work with him.
Rao persuaded the village doctor, a family friend, to lean on his father to let him return to school. Rao was the first in his family to go to college, earning a mechanical engineering degree. Nevertheless he joined the family business soon after graduation.
Rao got a lucky break a decade later when Vysya Bank, a fast-expanding Bangalore bank, asked him to join the board. It helped that he belonged to the Vysya community, a clan of traders. Over time Rao bought up shares in Vysya, raising money by pledging family jewelry.
Restless to move into new areas, Rao parted with the family in 1988 and began making sugar and ferrous alloys. He stumbled into infrastructure almost accidentally. He had raised $13 million to build a brewery in his home state when its government introduced prohibition in 1995. The next year he used the cash for a license to build a power plant in Chennai.
Rao's banking experience came in handy: His was one of a few independent power projects (IPP) to get financing and only the third to be completed in India since the sector opened to private enterprise around 1992. The plant was operating within 21 months, 3 months ahead of schedule.
He soon scooped up another power project and got it online in 15 months. For perspective: India has issued some 500 licenses since privatizing the industry; only 16 projects are finished.
Discovering a knack for infrastructure, Rao sold off other interests in an insurance venture and a brewery and his Vysvya Bank stake (which Dutch bank ING bought) for a combined $250 million. With that cash, GMR was ready to deal when the government announced mammoth road projects in 2001.
It beat out other big players by offering the government more financially attractive deals, says Rao. GMR eventually won contracts to build six highway roads, covering 435 kilometers (270 miles), making it one of the nation's largest road developers. Two of the roads have already been completed, both on time -- and on budget.
"Mr. Rao is able to cut through all the clutter that often surrounds business in India and push, persuade and charm people to move ahead," says Eli Leenars, a director at ING Group. "Things happen when GMR is around."
The airport deals will be a much bigger test of GMR's execution skills. So far, so good. It raised $500 million for Hyderabad: $300 million in debt, $110 million from GMR and its partners, and $90 million in government financing. Construction is more than halfway complete.
It's submitted a $1.5 billion plan for New Delhi, which involves building a new runway and new terminal to accommodate 35 million passengers by 2010. The government must approve before financing can be raised. Longer term GMR plans to develop 250 surrounding acres into an airport city with hotels, convention centers, offices and malls.
One of Rao's challenges is strengthening his management team. While he's been hiring new talent from Athens International Airport and London Luton Airport, he still entrusts his family with the big projects.
Younger son Kiran Kumar heads Hyderabad. Son-in-law Srinivas Bommidala, a former Coca-Cola bottler, oversees New Delhi. Rao, who is chairman and managing director, says his family has a passion to succeed. Adds Bommidala: "We don't sleep, and we don't let others sleep."
Still Rao is preparing for the future by drafting a family constitution and setting up an eight-member family council to meet every two months. "Our strength lies in our togetherness. If we divide, we cannot compete." At least for now, that's not a problem.