GL-E-003

Last Revised: July 22, 2007

Marg Constructions (A)

GRK Reddy (GRK), the chairman and managing director of Marg Construction Limited (MCL),
Chennai, was thoughtful that cool and pleasant morning in early September 2006.

He knew that MCL was at a momentous juncture in its journey – a journey full of promise and
potential – and what he would do in the next year or so would determine its fate decisively.

He also knew that the question he faced was something for which perhaps for the first time he
did not have the answers, or the capabilities, within him.

Over the past 5-6 years he had assiduously and painstakingly developed the business
opportunities for Marg from ground upwards, converted them into firm engagements, put
together the solutions to fund all of them, and had started building the core team of professionals
to man these engagements. All these he could do by his own endowed abilities, things that came
naturally to him. But he could sense that these were not enough to make these projects happen
and be completed – on time and profitably. He felt that Marg needed something more.

GRK stood thus musing, on the balcony of his yet unfinished new house being constructed, while
looking at the brisk multitude of youngsters going in and out of the fast upcoming and already
reputed International Business School across the road, who would be his neighbours once he
moved in.

Prof.R.S.Veeravalli prepared this case – with critique and inputs from Prof S Sriram, and assisted by Arun.
T., faculty associate - as the basis for class discussion rather than to illustrate either effective or ineffective
handling of an administrative situation.
Copyright© May 2007, Prof.R.S.Veeravalli. All Rights reserved. To order copies or request permission to
reproduce materials, write to: Great Lakes Institute of Management, Chennai – 600015, India. No part of
this case study may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in
any form or by any means – electronic, mechanical, photocopying, recording, or otherwise - without
permission of Prof.R.S.Veeravalli, Great Lakes Institute of Management, Chennai, India.
GL-E-003 Marg Constructions (A)

GRK – the protagonist

GRK was born in a family of well educated and cultured Land-owners, in the rich and fertile
coastal town of Tenali, in the state of Andhra Pradesh and grew up in Vijayawada, the virtual
commercial capital of Coastal Andhra.

GRK had done his primary and secondary education in remote areas of Andhra in different
locations. He completed his under-graduation in commerce in 1980 in Vijayawada and moved to
Delhi for further education and did his Masters in Commerce in 1982. By 1985 he had cleared the
Intermediate Exams of the Associate Corporate Secretarship, and had taken up his first job as
Assistant with M/s Sarin Consultants, New Delhi, a boutique investment banking firm in Delhi,
owned by first generation entrepreneurs, at a meagre salary of $20.08 (Rs. 800) per month, doing
things like typing etc, among others.

The grooming years

Mr V.P. Singh was the finance minister in the Indian cabinet under the young, charismatic and
dynamic Mr Rajiv Gandhi, and had been sowing the first seeds of the reforms to come in the
nineties. He had been taking steps that were buoying up the public sentiments towards
Industrialisation and the stock market, and the early lot of Initial Public Offers (IPO) was
happening. The Controller of Capital Issues (CCI) was the regulating authority for all IPOs, and
his consent was required for any IPOs exceeding $2,510.04 (Rs. 100,000).

There were only three notable merchant banking firms – Champaklal Investments (CIFCO), JM
Financial (JM), and DSP - that were in the business of assisting prospective IPO companies in
going through the Public Issues successfully, starting from getting the necessary clearances from
CCI to the successful subscription of the Issue of Shares by the public, as well as in offering Fixed
Deposits (FD) to the public by Limited companies.

GRK came to meet the two people who were to have significant influence on him later, Mr
Kamlesh Gandhi, who took him to CIFCO Mumbai, and Mr Bupen Dalal, who was to become a
mentor of sorts for him. He shaped & polished his financial and human acumen, taught him to
read between the lines and look behind the faces of companies. GRK joined the CIFCO office in
1987-88.

Mr Bupen was a visionary, and in his hey days, was a much sought after person by the doyens of
industry like of Shri Aditya Birla for his insights into financial matters. He was the first to market
IPOs, and under him CIFCO became a premier Merchant Banking firm. He was a Master in
identifying a company and/or a promoter with a vision and presenting them to the Public, who
played the role of the present day Venture Capitalists. GRK learnt fast under him, and was
Bupen’s choice for their New Delhi office.

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GRK went to Delhi to open the CIFCO office, which was to mainly concentrate on the liaison
work with the government – the CCI and the Finance Ministry in particular, for all the IPOs and
the FD issues. Besides these, there was also work related to FERA dilutions etc. During this
period, GRK got to learn the art and science of valuing a company first-hand from the masters,
Mr Bupen Dalal, and a Mr R Venkatraman, who was on the Board of Approvals and was a wizard
at this. GRK also learnt the nuances of liaising in the corridors of the Government offices, the
power-plays and parleys. It is during this time that he came to meet and know of many people
who would play important roles in the times to come. In the process he was becoming a valuable
member in CIFCO, and Bupen took a liking towards him.

During the regime of PV Narasimha Rao as the Prime Minister in the early 1990s, the scholarly Dr
Manmohan Singh, the Finance Minister started scripting the liberalisation and the reforms agenda
for a new economic future super power that India was to become.

SEBI (Stock Exchange Bureau of India) was formed to strengthen the controls and regulating of
the stock market that was raring to go, and the position of CCI in the Finance Ministry was
abolished. It was a boom period for Indian companies that went to the market thick and fast.
(Majority of the blue chip corporates of the present Indian Economy – like Reliance group, Hero
group, Bharti, Ranbaxy, Dr Reddys, Oswal, Gujarat Ambuja, Kotak, Deepak Fertilisers, TVS,
Sundaram, Orchid etc. - were companies that went public during this time). It was also the time
when the leasing and the hire purchase businesses flourished.

The merchant banking firms like CIFCO were incredibly busy. In fact CIFCO became the largest
of these firms in terms of the size of Public Issues handled in that period, and was expanding
across the country.

In between all these GRK got married in 1990. With all this growth, he was also growing, in terms
of position, stature, role, remuneration, amenities etc

GRK was a natural choice when CIFCO opened their office in Hyderabad to head that office.
After having been at the heart of action at Delhi, GRK found Hyderabad to be tame and dull in
comparison, and started becoming restless.

Venturing out

He spent a year with them, before taking the momentous step of venturing out on his own in
1991. His first venture was a stock broking firm – M.S. Reddy & Co – at Coimbatore, an Industry
rich city in Tamil Nadu, where he became a member in the Coimbatore Stock Exchange. They did
brisk business, with all that growth and action in the stock markets

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In 1991 he started another company – Marg Securities – in Chennai, which was to be a Merchant
Banking firm. He also entered in to Aqua Culturing, another rapidly developing business among
the landed gentry, along the Andhra coast near Vijayawada.

Marg marketed some big public issues like Morgan Stanley – $250 million (Rs. 10 billion) – UTI
Mastergain – $1.25 billion (Rs. 50 billion) – Reliance Petro Products Ltd – $ 250 million (Rs. 10
billion) – and were already a Category 1 Merchant Banker in India. In 2 to 3 years they had
become the largest in retail mobilisation of public funds.

In 1992 Marg Securities made their own public issue – a modest $0.22 million (Rs. 9 million) –
which was over-subscribed by a whooping 65 times. Marg had about 100 employees.

Marg started backing a lot of first generation entrepreneurs. Everything was going great and then
it burst in 1993-94.

The Travails

Marg was in the middle of a public issue – M.S. Shoes – where they had underwritten the issue
for $1.25 million (Rs. 50 million). When the crash happened, this IPO was caught in the middle. It
was under-subscribed by $0.25 million (Rs. 10 million), which Marg had to bridge.

When the market started going bad, SEBI had swung into action and enforced a lot of restrictions
on fund raising. The capital market had grown very rapidly without much system and most of
the first generation companies were hit badly. The same was true for Marg Securities as well.
Marg had taken another $0.25 million (Rs. 10 million) from the public by way of Fixed Deposits.
When the downturn happened, the depositors typically wanted Marg to repay these FDs. Put
together, suddenly Marg was saddled with a liability of $0.50 million (Rs. 20 million). Added to
this, they had about $0.20 million (Rs. 8 million) to be collected from people on whose behalf their
broking business had purchased stocks, which got stuck as receivables.

Overnight the dream had turned into a nightmare. All the 100 fair-weather employees left GRK,
not having the faith or perseverance. This mass desertion hit GRK most, because he had expected
them to hang on and rally around in times of adversity like him. The capital markets were in dead
state and there was no sign of revival. With the liabilities GRK was in survival mode and to clear
the liabilities he had the option of liquidation. But he did not choose the liquidation path since he
didn’t believe it was the right thing to do. With his strong belief that those who create a situation
also have power to clear it, he felt that all he needed to have were faith, perseverance and above
all, confidence. With that determination he decided to focus on survival.

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Entry into Construction Business

With all the accumulated liabilities, GRK needed to come up with a way to generate revenue to
meet them. It was then that he considered entering into construction business. His father was a
civil engineer, who had been involved in some of the largest civil constructions in the city (like
the historic Nagarjuna Sagar dam, canals etc). As a result GRK had spent most of his childhood
living at these sites, among earth-movers and other such construction equipment. His brother also
was a civil engineer like his father. Hence construction was in the family.

Also, GRK always felt there was a sense of reality in the construction business. In this business
there was faith of the clients who gave the money, the money was used to get land, and the land
was converted into a concrete property like houses etc., fulfilling that faith.

In the city of Chennai then, the real estate business was doing well. There was a steady demand
for housing.

GRK started Marg Constructions in Dec 1995. And he immediately went for an IPO! Though it
did not get subscribed fully it did not do badly either. He had invested during the good times into
a plot of land in a part of Chennai called Tiruvanmiyur that was near the coast, and he planned
the first project – Sai Subhodaya - on this plot of land, and planned using the funds from the IPO
for the execution of this project.

The Trials of Destiny

Within a year of his entry, the Real Estate business in Chennai crashed! Many of the leading
players at the time – Alacrity, Alsa, Southern Investments – all went bust. The Tiruvanmiyur
project did not take off as expected, and was dragging on. The overheads from the various offices
at Delhi, Hyderabad, Coimbatore and Chennai were adding up, and the old liabilities still
remained, with interests mounting. The total liabilities at this point had climbed to $1.0 million
(Rs. 40 million).

GRK knew the situation was desperate. He needed to do some projects that would give him
positive cash flows. (In all this, it was not in him even for a moment to disown the liabilities.)

At this juncture, Mr V.R. Raghunathan (VRR) who worked with NEPC (the pioneers in wind
energy in India), from whom GRK had purchased his first (and only) windmill, made a
challenging offer to GRK. He asked him to build a 4 storey, 20,000 sq. ft property called ‘Wescare
Towers’ in Chennai, in a flat 110 days, a little over 15 weeks. He promised to release $380,000 (Rs.
15 million) per week for the work. This would give GRK about $60,000 (Rs. 2.5 million) net cash
flow every week, a precious amount in his circumstances.

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GRK said yes, and plunged into the project in Dec ‘97. He was the first in Chennai to use the
ready-mix concrete concept, and worked round the clock, virtually living at the site. The project
was completed and delivered at 3 'o’ clock in the morning on the 110th day in April ‘98!

This project gave GRK the dearly needed cash flow, to pay at least a token sum to most of his
pressing creditors. He had six months of outstanding rent on his house at that time. Was he not
perturbed mentally while undergoing all these turbulences and uncertainties? Curiously enough,
he said he wasn’t. He mused that perhaps the fact that he had 130 acres of family owned fertile
land gave him a sense of solvency, knowing that he could make good the liabilities with that land
as a last resort.

This project generated the dearly needed cash-flow. By this time he also could complete his old
residential flats project at Tiruvanmiyur, which gave further cash flow. But the liabilities were
much more than these, and the cash generated merely allowed GRK to show his creditors that he
was operational by making token payments

GRK decided to close all the branch offices, to stop the overheads. One unexpected outcome of
this was that he was left with 40 personal computers. What to do with these?

Even while he was thinking about this, his partner, unable to take it any more, appropriated all
these computers overnight, and had them locked away at another place.

GRK’s Landlord was an upright IAS (Indian Administrative Services) officer, Mr Velu (who had
risen and became the Union Minister of State for Railways. He was the one who was behind the
scenes quietly contributing to making Indian Railways a super-success story) and one who knew
GRK well. He came to the rescue, and had these computers recovered and restored to GRK.
(While recalling this event, when this case was written, GRK was asked, “Were you angry with
your partner for what he did?” He replied, “I never fight. It fills you with negative energy. That
brings misery. And if misery comes, you are finished. I simply take steps to correct a situation”)

The upshot of all this was starting the “Global Infoserve Limited (GIL)” with all those PCs, a
software company doing work on Y2K, a problem that was looming large before the entire
computer world across the globe. GIL also provided training in the Y2K. This business GRK left
to his wife to run. This generated $1524.20 (Rs. 60,000) per month, and that took care of his house-
hold expenses.

Raghunathan, pleased with the way Wescare Towers was built, offered GRK the next challenge,
one that made the earlier project look like a child’s play. He offered GRK to build 3 wind farms –
one at Chittradurga, Karnataka, one at Satara, Maharashtra, and the third at Tadipatri, a place in
the heart of the naxal-infested interior of Andhra Pradesh – in all a total of 200 windmills, of 50
MW size, in 3 to 4 years. A project that would give GRK $10.04 million (Rs. 400 million) turnover

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and a profit of about $2.01 million (Rs. 80 million) – a sum that could pay off all his liabilities and
leave him with a surplus to start all over again. But, a project that was fraught with danger, to his
life, and many uncertainties. The Naxalites ruled those vast thickly forested waste lands of
Tadipatri, where 120 of those 200 wind mills were to come up. (A short write-up on naxalites in
the annexure)

GRK accepted the project.

Marg Securities had earlier put up one windmill, which was put up by Marg Constructions.
(Putting up windmills was an income tax plan – the subsidy, the depreciation, the trade-off for
the power uploaded into the grid – there were many elements in this.) And hence Marg had
presumptions to be qualified for putting up more of them. Also, the project, with its dangers,
posed challenges that not all were keen to take on. So, in a way VRR also needed someone who
would be willing to take it on as well as was capable of completing.

The location for the wind farm in Tadipatri was in the middle of nowhere, deep inside the
forested wasteland, with a few hamlets that were terribly poor and steeped in a culture of feuds
and violence, each having a faction of the naxalite splinter groups. The primary point of power
was the Panchayat* (President of the village(s)). One group, of some five families out of about a
100 in that village, would thus have one of its members as the President and rule a village, till one
day another group would raid it, kill the key male hands of those group/families, and take
control. The other surviving male (and some time even female) relatives of the first group would
flee the village, gang up in the forest nearby, bide their time, and swoop down on the village in an
early dawn attack to massacre the other group, and take back the village. The Police would come
in each time, only to take stock of the mess left behind. Then there would be some encounters by
some of the brave officers in the Police force that would eliminate some of the chieftains and
hands. Then there would be the ambushes in reprisal, in which bunch of policemen would die. So
the life went on in there.

Into this bizarre world GRK headed into, with nothing more than a painfully small team of
believers, an imperative to put up the windmills, and his courage of conviction.

The work involved first having to blast off a way into the mountain, lay a road that would allow
the 60 feet long truck trailers to take the knocked down parts of the monstrous windmills up the
mountain to the top, dynamite the rocks to lay huge foundations of steel and concrete that would
be 15 to 20 feet across in diameter on which the windmills would stand, erect the windmills, and
put up the power transmission towers and the cables that would take electricity generated by the
windmills out into the cities.

GRK went in, fully knowing what the score was. He knew that they would live for the day, one
day at a time. He knew he had to deal with the terrain, the local people, the naxalites in various

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factions, the local politicians, the police, the government, and the Electrical department in
particular. He did not have money to throw after the huge earth-moving and other equipment.
Instead he was clear he was going to give employment to the local people and make use of them
in putting up the windmills.

He would do the best he could for the local people. And he made it clear to all the surrounding
eleven local villages. He made it equally clear to the local chieftains who came, and they lost no
time coming, that he would not pay them the “protection money” that they demanded, or bribe in
any other form. He said he would not give money, but asked them to tell him what he could do to
their local communities – amenities, support in education or health care – and said he was willing
to do what he could. And that went for the local politicians as well.

He soon had more than 1000 people working on this project, all locals. People started having
regular work and income. He met the local collector and made his stand known to him. The
collector was impressed, and he committed the police to his support. So GRK had a retinue of
police going with him wherever he went.

Every day brought a new challenge that had to be dealt with. The work progressed midst all this.

During this period the tensions between the naxalites factions increased. This led to large scale
violence. Following this the Police swung into action and arrested all suspects, many of them
belonging to the 11 villages around the wind farm site, and this deprived many of the families of
the breadwinners.

GRK arranged to support these families – by giving work to the others in these families, and by
giving them money, provisions etc. for food and sustenance – for the entire duration when their
men folk were in detention. And he also arranged for the transportation of those arrested back to
their villages when they were released finally. This made a dramatic change in the sentiments of
the local people. GRK became a folk hero of sorts. (To this day, GRK is received with great
affection by these people when he visits these areas)

The windmills were all erected, but they were not getting hooked onto the power grid of the
Electricity Department, since it required aligning the Ministry of Energy, Government of India,
with the Andhra Pradesh State Electricity Board (APSEB). Each department had their own
requirements and demands, and the time was running. GRK found that the then Secretary of the
Ministry of Energy was one Mr Sampath, who used to be in Delhi in GRK’s CIFCO days and
known to GRK.

GRK approached Mr Sampath and made a request to resolve this. Mr Sampath personally called
the Chairman & Managing Director of APSEB Mr Kutty for a joint meeting at Hyderabad and
resolved the issues, and had the necessary orders issued for the uploading of the power from the

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wind farm into the state power grid. Thus the impasse got resolved just in time, and, after 24 long
months, the Tadipatri wind farm got commissioned on Sept, 2000, at an hour before the deadline!

All the 3 wind farms got completed on time by 2001. GRK came out of these projects successfully.
He met and discharged all his liabilities, and had a surplus of $1 million (Rs. 40 million).

The Way up

With this sum as the capital GRK approached the Vysya Bank. He met the President of ING
Vysya bank, Mr Iyer, who was the Ex. Senior Vice President of IDBI Bank, who had interacted
with him during the wind farms erection time and had known all about how they were done. He
said, “For GRK I would give a personal guarantee!” The loan was sanctioned.

GRK took a $1 million (Rs. 40 million) loan from Vysya Bank, added his capital of $1 million (Rs.
40 million), and invested in land. He found an area called Old Mahabalipuram Road (OMR) that
was very near the city and yet not developed. He reasoned that this would become a key area of
the city soon, and bought as much of the land that his monies would get him.

While travelling in U.S. in 2000-01, relating to the work done by his wife’s firm, the Global Info
serve, he saw the disturbances there and the frustrations due to the ridiculous people cost of US
$100 per hour there, whereas he could see that for India even a rate of US $10 per hour was big
money.

He could see the boom coming, and with that the need for big format offices as well. And he saw
that the OMR was an ideal stretch for this. He concentrated in getting as much of land as he could
get in that area.

Tata Consultancy Services (TCS) was in need of office space for their rapidly expanding
operations. GRK met them and offered to build 240,000 sq ft of space in 8 floors and give it on
lease. Thus Marg got into their first IT Park project, called DIGITAL ZONE I, in Oct 2002. He
applied to Housing & Urban Development Corporation (HUDCO) – a Funding entity of the
Tamilnadu government for Housing and Infrastructure – and got $4.2 million (Rs. 167.5 million)
for this project.

For his part towards this loan he had the land acquired through internal accruals + enhanced
(market) value of the land + share capital mobilised from friends & relatives + Lease rental
advance/deposit from TCS. He furthered leveraged the leeway in payments to his project
creditors to manage the cash flows. At the stage of doing the fit-outs and interiors after the shell
was ready, he shifted the loan to HDFC Bank for the differential amounts required, against
enhanced value of the land & building. Then he securitised the rents receivable to raise further

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funds, from ING Vysya Bank & Corporation Bank, for 4 floors each, to meet the balance funds
needed to complete the project.

This project was completed by Dec 2004. (GRK says that taking a loan – and servicing it
religiously – was an important credential building process. It became a very valuable
qualification. He showed one loan serviced on time, and took another, a larger loan, and thus
built his credibility. It also established the project execution capacity of Marg, which was again
invaluable. Where there were still no formal credit rating mechanisms in place, this made
tremendous sense)

GRK sensed the opportunities for creating more space for the IT sector, and started contacting
other IT companies. He developed further leads with Standard Chartered (SCOPE), Satyam etc
for building more space. Thus DIGITAL ZONE II project was started for SCOPE in Feb 2005, of
216,000 sq ft, and got completed in June 2007, and MARG SQUARE (240,000 sq. ft) was started for
Satyam Computers in March ‘05 and got completed in July ‘07. These projects were funded in a
manner similar to that of DIGITAL ZONE I, except that in DIGITAL ZONE II he sold 4 floors
outright to augment the funds from his side for the project cost

While he was doing these, he also was getting further understanding into IT as a business from all
the discussions he had been having with these IT Business Managers.

This led to the starting of “RR Infotech”, a BPO company doing medical billing, litigation support
& e-publishing, which was also given to his wife to manage.

He invested all the money generated into parcels of land, generated leasing propositions with
prospective tenants like the IT companies, and securitised these assets and Lease Agreements
with the Banks and raised further funds, to further invest into land and for the construction costs.
He kept churning and rotating this cycle to increase the size of the assets

Marg constructions Ltd (MCL) was the parent, a listed & traded public limited company. Under
this many private limited companies were created – stand alone, or subsidiaries of MCL - to
acquire and own the land up to the limits of the urban ceiling act which restricted the land
owning to a maximum of 45 standard acres (equivalent to about 60 to 70 regular acres), and to
take up the various projects that were developed by Marg. These Special Purpose Vehicles (SPV)
served multiple purposes, and were convenient for aggregation or disaggregation, for business
and tax/other levies purposes. Marg group ended up with nearly a 100 SPVs!

IT corridor along the OMR was estimated to engage about 300,000 employees before the end of
the decade. To serve them residential projects were springing up all along the OMR. Also, all
these IT businesses would have business visitors, and they would ideally like to stay nearby. To
cater to all these, GRK conceived of an Integrated Commercial Complex (ICC) comprising of a

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shopping mall, a cine multiplex theatre and a star hotel all rolled in one. Named the “Riverside
Mall”, this project started in June 2007 and was expected to be completed by Oct ’09.

GRK raised a Term Loan for $24.76 million (Rs. 975 million) from HUDCO in Aug/Sept 2006
towards the ICC project. $7.62 million (Rs. 300 million) from that went to securing the land for
this project, and the rest earmarked for the construction etc. He had deployed the monies from
the corporate Term Loans from catholic Syrian Bank $5.08 million (Rs. 200 million) and ING
Vysya Bank $1.27 million (Rs. 50 million) from MCL side for this project

He also conceived a serviced apartments’ complex having 175 luxurious serviced apartments, to
be managed and operated by M/s Oakwood Asia, one of the world-renowned players in serviced
apartments, to complement the leased residential requirements. This work commenced in July ’07
and was expected to be completed by July ’09.

The human factor

GRK intuitively realised that he needed to bring professionals into the organisation as the
essential ingredient for growth. Not just mere managers but professional business leaders,
qualified from premier institutions, with brilliant track records in reputed organisations behind
them, and potential to lead businesses ahead.

The question was how to do it, as a fledgling organisation with hardly any brand value. What
was it that could be offered to such people that they would opt to join GRK, leaving renowned
established employers? Was it things like more money or higher position? What would get such
people to join up with Marg?

GRK hired the service of the best of the Manpower placement agencies to get him the
profiles/CVs of such people as he wanted. He went through these and zeroed in on the kind of
star material he wanted, and got the agency concerned to set up the meetings with these people
for him. He met them personally, one-on-one, and, in his sincere guileless and forthright style,
presented his case – his past performance, his dreams, his plans and what he had been doing for
realising them. He also offered substantial increases over their previous compensation, perks, job
enrichment and position.

He knew that first he needed to get one senior star professional on board. That would be the first
and key hurdle to cross. Then the others could be recruited on the strength of that one, each
additional recruitment making it that much easier. He knew that good professionals needed a
challenging environment, both by job content and by the peer group in addition to the material
compensations. He was willing to provide all these. He succeeded in recruiting one such key
senior professional, B G Menon (BGM), B.Tech (IIT Kharagpur), MBA (IIM Calcutta), who bought
into his dreams and Marg’s future, and joined him as the CEO of his Infrastructure business,

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leaving an Indian multi-national, Mahindra group, where he was heading their township project,
Mahindra City.

GRK had also succeeded in getting a critical human resource in the form of Mr Bhushan, a senior
finance and accounts professional from Delhi, an MBA finance and Law graduate, through a
common personal contact. This proved to be a crucial and a most valuable acquisition for GRK
and Marg. Bhushan came in to head finance and accounts in Marg and quickly became the key
person in planning the finances and funding of all the plans and projects of Marg working closely
with GRK. From another point of view, one can say that Bhushan was the first senior professional
to buy into GRK’s Vision, and in a way was one of the factors for even BGM to decide to join
Marg.

Soon other professionals followed. (See the annexure)

Such star professionals also brought some of their good colleagues from their earlier teams by the
strength of their personal credentials. GRK actively encouraged it. He erred on the lavish side in
their compensations. Soon he got a Head HR from the Samsung group Mr. Lazar, who took over
the people and recruitment process, which was becoming a mission-critical activity for the
manning of the various rapidly starting projects and growth.

In this frenzied recruitment processes inevitably there were a few who turned out to be not so
good fits. GRK instructed his HR Head to not ask them to go (!) He told Lazar instead to re-
position them suitably into roles that they could fit into. When this was not readily possible he
advised that they be still retained. He reasoned that he did not want any negative feelings or fear
psychosis among his people as yet.

GRK had been demonstrating the caring attitude and expected all Marg employees to
demonstrate warmth, care and respect for their team members. He believed that every member of
the organisation needed to work with a free mind to unleash their potential, with a positive
attitude and take responsibility to achieve the tasks and to live happily. Marg encouraged
employees to express themselves freely. GRK demonstrated dedication, perseverance and high
energy and when it mattered he even worked round the clock with sleepless nights. The team
admired him for his cool-headed nature even under high pressure and for his constant generation
of ideas.

The various opportunities

GRK wanted to enter into the other areas of Infrastructure like Ports, Roads, and Airports etc. He
started looking at the nearby opportunities for ports. He found that both the ports at Pondicherry
and Cuddalore (roughly 150 kilometres from Chennai), had natural impediments, and were not

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going to be conducive to big size operations. He then found that there was a proposal for a port at
Karaikal (roughly 300 km from Chennai) coming under the Pondicherry government.

He proposed a venture with the government of Pondicherry to develop the Karaikal port under
the public-private-partnership (PPP) program on a Build-Operate-Transfer (BOT) model, with an
initial operating period of 30 years, extendable. He was successful in this bid, and was awarded
this prestigious assignment. A separate limited company called Karaikal Port Private Limited
(KPPL) was formed to do this project. KPPL executed a Concession Agreement with the
Puduchery (the ‘official’ name of Pondicherry) government for the BOT of the port at Karaikal on
a 30 year plus extendable by lots of 10 years thereafter. The Puduchery government gave 600
acres of land for this purpose, and the work commenced in Feb 2007 – a project worth $0.66
billion (Rs. 26 billion).

Karaikal

GRK through his networking and contacts got the Deutsche Bank interested in investing in Marg
Constructions Ltd (MCL) towards this project. They provided $12.5 million (Rs. 492 million) as a
Foreign Currency Convertible Bonds (FCCB) in June 2006, frozen into $14.55 million (Rs. 580
million), and convertible into MCL shares within a period of five years at the rate of $3.27 (Rs.
130) per share of face value $0.25 (Rs. 10). The Pre-operative expenses of the port project were
being met out from this fund.

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In addition KPPL achieved the financial closure of $70 million (Rs. 3.02 billion) as loan for this
project from a consortium of 6 banks (led by Indian Bank, with Oriental Bank of Commerce,
Allahabad Bank, Indian Infrastructure Finance Company, Corporation Bank and State Bank of
Hyderabad) in November 2006. Thus out of the total project requirement of $100 million (Rs. 4.16
billion), $20 million (Rs. 1.14 billion) were the promoter’s funds, of which $14.62 million (Rs. 580
million) had been put in through the FCCB, and the balance was to be brought in progressively,
through accruals by MCL. The loan component of $70 million (Rs. 3.02 billion) was in place from
the consortium. With all the required funds tied up and ready the project was in full swing and
on schedule, with a good prospect of finishing ahead of schedule.

In Feb. 2007 MCL went for a Global Depository Receipt (GDR) to augment equity base and the
revenues for the various projects, and got US$ 15 million (Rs. 610 million) as private equity from
overseas sources. This money further added to their borrowing strength as well.

GRK formed a joint venture with HUDCO – called Signa Infra India Ltd with equity of $0.30
million (Rs. 12 million), for participating in the Infrastructure projects. This was a marriage of
complementary strengths, of the strong Balance Sheet & long track record of HUDCO in housing
& urban development since 1972 on the one hand, and the entrepreneurial drive and
development of opportunities by Marg on the other. A shrewd strategic move full of potential.

He brought in a senior professional from the Road Infrastructure sector to explore opportunities
in areas like Roads, Railways, Bridges, Power, Ports & Harbours etc., and come up with prospects

Next he focused on the Special Economic Zones (SEZ) that were being driven as an economic
growth vehicle by the Asian tiger countries like China and India. He located a parcel of 612 acres
about 80 kilometres away from Chennai off the East Coast Road and bought it at the rate of
$20,000 (Rs. 1.05 million) approx. per acre, total cost of $16.14 million (Rs. 640 million), from
internal accruals and corporate loans. He applied for and got sanctioned two SEZs – one for Light
Engineering including auto ancillaries and another for multi-services sector in diverse sectors like
IT, ITES, hospitality, Entertainment, Health care, Education etc. to be put up on these 600 acres, of
300 acres a piece.

The total funding required for these two SEZs was $180 million (Rs. 7.17 billion) – $54 million (Rs.
2.15 billion) by equity and $126 million (Rs. 5.02 billion) by debt. These amounts were planned to
be raised through internal accruals and by part divestment in the ownership for the balance 1.61
billion of equity (540 million already in by way of land), and through term loans and or External
Commercial Borrowings (ECB) for debt portion. This project was likely to generate revenues
progressively through advances and stage wise payments for spaces sold, and through rent
deposits for spaces to be leased, and hence the actual fund requirements and their required
inflows would be decided by these revenue streams.

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He then visualised another SEZ just off the new port of Karaikal that was to come up. He
reasoned that if the port was available, it would make sense to have industrial activities in its
hinterland! Steps were taken to acquire lands for this.

He had been interacting with the Chennai Metropolitan Development Authority (CMDA), to get
the permissions for his various projects. During his frequent visits and discussions he saw that
there was no credible Planning for the city. That meant that the city would become highly
congested and there would be need for a new expanded city for Chennai. He reasoned that this
would happen along the OMR and the ECR where the IT corridor was coming up, and beyond –
right into the area where the SEZs are to come up. He also knew that the SEZs would drive the
urbanisation in the areas surrounding them!!

He acquired some more lands in the vicinity of the SEZs. It was an area full of greenery, peace
and tranquillity – just the antidote to the congested concrete jungle that the city of Chennai was
fast becoming. Three residential projects – El Paradiso, Tranquil Cove & Tapovan – were born of
this. El Paradiso was a residential apartments project at Kalawakkam on the OMR, Tranquil Cove
was a concept of weekend getaways, and the Tapovan an exclusive farm house concept with an
acre of land with already full grown fruit bearing trees around each dwelling with all modern
amenities for the rich affluent upper class. Another term loan for 120 million was raised from
HUDCO towards the El Paradiso project in Dec’06/Jan’07. These projects were funded by the
GDR and other funds mobilised. They are progressing and are expected to be completed by July
09, Dec 08 and March 09 respectively. More residential projects are on the anvil, to complement
the SEZ.

Land Bank

As a strategy, to have access to good pieces of land to develop realty & infra projects, Marg
continuously identified land which was affordable at the time of acquisition and had good
potential for future growth. Marg ensured that land cost in any project was not more than 30% of
the project cost, which acted as a de-risking mechanism. As on date Marg was holding around
1900 acres of land (including the land on which certain projects were in the process of developing)
and the fair market value of the same would be in the range of $175 - 188 million (Rs.7-7.5 billion).

The future

The cumulative value size of all the projects that had been committed to by Marg on date was
about Rs. 53 billion, about $1.3 billion, to be executed over the next three to five years.

A considerable sum, considerable size, and challenge by any standards, from where they were
now.

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The business opportunities had been created. How to ensure successful, timely and profitable
execution of all these projects? And where should Marg go from here? These were the big
questions that GRK faced.

ANNEXURES

1. NOTE ON NAXALITE MOVEMENT (From Wikipedia)

Naxalite or Naxalism is an informal name given to radical, often violent, revolutionary

communist groups that were born out of the Sino-Soviet split in the Indian communist
movement. Ideologically they belong to various trends of Maoism. Initially the movement had its
epicenter in West Bengal. In recent years, they have spread into less developed areas of rural
central and eastern India, such as Chattisgarh and Andhra Pradesh through the activities of
underground groups like the Communist Party of India (Maoist). The CPI (Maoist) and some
other Naxal factions are considered terrorists by the Government of India and various state
governments in India.

The term comes from Naxalbari, a small village in West Bengal, where a section of Communist
Party of India (Marxist) (CPI(M)) led by Charu Majumdar and Kanu Sanyal led a violent uprising
in 1967, trying to develop a "revolutionary opposition" in opposition to the official CPI(M)
leadership. The insurrection started on May 25, 1967 from the village of Naxalbari in the state
when a tribal was attacked by local authorities over a land issue. The tribals attacked the
opposing landlords and the violence escalated. Majumdar greatly admired Mao Zedong of China
and advocated that Indian peasants and lower classes must follow in his footsteps and overthrow
the government and upper classes whom he held responsible for their plight. He engendered the
Naxalite movement through his writings, the most famous being the 'Historic Eight Documents'
which formed the basis of Naxalite ideology. In 1967 'Naxalites' organized the All India
Coordination Committee of Communist Revolutionaries (AICCCR), and later broke away from
CPI(M). Uprisings were organized in several parts of the country. In 1969 AICCCR gave birth to
Communist Party of India (Marxist-Leninist).

Practically all Naxalite groups trace their origin to the CPI (ML). A separate tendency from the
beginning was the Maoist Communist Centre, which evolved out of the Dakshin Desh-group.
MCC later fused with People's War Group to form Communist Party of India (Maoist). A third
tendency is that of the Andhra revolutionary communists, which was mainly presented by
UCCRI (ML), following the mass line legacy of T. Nagi Reddy. That tendency broke with
AICCCR at an early stage.

During the 1970s the movement was fragmented into several disputing faction. By 1980 it was
estimated that around 30 Naxalite groups were active, with a combined membership of 30 000.

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Today some groups have become legal organisations participating in parliamentary elections,
such as Communist Party of India (Marxist-Leninist) Liberation. Others, such as Communist
Party of India (Maoist) and Communist Party of India (Marxist-Leninist) Janashakti, are engaged
in armed guerilla struggles.

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2. VARIOUS PROJECTS OF MARG (Chronological)

Construction Construction
Sl. No Projects Starting Ending Period
Period

1 Sai Subhodaya Project Dec.95 Dec97

2 ‘Wescare Towers’ Dec.97 Apr.98

3 Tadipatri – wind far m Sep.98 Sep.00

4 Chitradurga – wind farm Sep.99 Mar.01

5 Evercon India Ltd Pr oject Dec.99 Mar.00

in Maharashtra – wind
farm

6 Digital Zone I ( TCS IT Oct.02 Dec.04

Project )

7 Digital Zone II ( Standard Feb. 05 June .07

Charted Scope Project )

8 Karaikal Port Feb 07 Oct 08

(Estimated)

9 Riverside Mall June 07 Oct 09

(Estimated)

10 Tranquil cove Jun 07 Dec 08

(Estimated)

11 Tapovan Oct 07 Mar 09

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(Estimated)

12 Serviced Apartments Jul 07 Jul 09

(Estimated)

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3. MARG IT CORRIDOR MAP

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4. LIST OF TOP 10 EMPLOYEES AND THEIR BRIEF PROFILES

1. Mr. B.G Menon, Chief Executive Officer, Infrastructure

B.Tech from IIT and PGDIM from IIM, Calcutta, with 22 years of experience in various
industries, where he was responsible for the top line & bottom line growth of the
organization. Associated with SSI Ltd as CEO of education business, Pepsi International as
Vice President. Last assignment was with Mahindra World City Developers Limited (MCL) as
the Chief Operating Officer (COO).

2. Shankar Naganathan, Business Head Mall and Service Department

Mechanical Engineer and MBA from IIM (Ahmedabad), with over 24 years of experience in
automobile & retailing activities in India and abroad. Had been profit center head for product
verticals for consumer durables.

3. Mr. Sriram Iyer – CEO, Real Estate

BE, MBA, QPMP with over 19 years of experience project management/business development
experience in India and South East Asia as a profit centre head. Hands-on technical skills
coupled with sound financial management background Experience with one of the largest
project/construction management MNC

4. Mr. B. Bhushan – Chief Financial Officer

B.Com, BL, MBA- Has over 30 years of experience of working for different companies with a
wide variety of exposure - finance, management, taxation, accounting, IPO, project
management and secretarial functions etc.

5. Mr. Subramanyam Mutnuru – Head Strategic Planning

Chartered Accountant with 19 years of experience in various facets of accounting, finance,

strategic planning, international finance, costing & treasury. His last assignment was with
Proagro Seed Company, part of Bayer Crop sciences.

6. Mr. Ramakrishna Rao – Chief Technical Officer

BE with over 23 years of experience in Project Planning, Site & Construction management and
Contract Management, co-ordination with well known organisations. Last employed with
Salapuria Properties Private Limited

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7. Mr. Lazar Pilli – Vice President – Human Resource

BE in Electronics and communications from Andhra University College of Engineering (1979-

83) and MBA in Personnel and Industrial Relations from XLRI, Jamshedpur (1983-1985),
having a rich experience of nearly 22 years in HR profession and during this period he was
associated with M/S Hindustan petroleum corp. ltd, M/s Eicher Ltd, and lastly with M/s
Samtel group.

8. Mr. Hari Nair – Vice President (Marketing & Sales)

Over 16 years of experience in various segments of real estate industry viz., planning,
acquisition, project management, sales & marketing, industry, in India and abroad. Last
assignment was with RNA Builders, Mumbai, and a company with a turnover of more than
$76 million (approx Rs. 3 billion).

9. Mr. Malmarugan- Vice President, PORT

Engineering Graduate and Post Graduate Diploma in Management from IIM (Bangalore),
having 14 years of experience in infrastructure and financial services. His last assignment was
with Tamilnadu Road Development Corporation (TNRDC) where he was closely involved in
developing ECR & OMR road belts

10. Mr Gopinath - Vice President technical, SEZ

BE with wide experience in India and abroad. He has spent a major part of his career in
various infrastructure development projects.

11. Mr. Kalyan Jayaprakash, Vice President, Business Development

MBA from Australia, with 13 years of experience in Business Development and has handled
multiple brands in his career both in India and abroad

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1. MARG FINANCIAL STATEMENTS

Note: 1 INR = 0.0253985 USD

Profit & Loss ------------------- in Rs. millions. -------------------

Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 Mar '07
12 12 12 12 12
mths mths mths mths mths 12 mths
Income

Sales Turnover 139.1 22.9 - 158.6 576.3 1,242.1

Excise Duty - - - - - -

Net Sales 139.1 22.9 - 158.6 576.3 1,242.1

Other Income 38.4 8.2 15.9 0.9 26.3 176.4

Stock Adjustments - - - - - -

Total Income 177.5 31.1 15.9 159.5 602.6 1,418.5

Expenditure
Raw Materials - - - - - -

Power & Fuel Cost 0.3 0.3 - 0.5 0.6

Employee Cost 2.8 1.9 3.1 3.8 12.6 56.4

Other Manufacturing
Expenses 156.0 16.7 - 100.4 406.0 818.8

Selling and Admin Expenses 3.6 2.3 4 7 22.1 72.7

Miscellaneous Expenses 0.8 0.6 0.4 1.1 1.5

Total Expenses 163.5 21.8 7.5 112.8 442.8 948.0

Operating Profit (24.4) 1.1 (7.5) 45.8 133.5 470.5

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PBDIT 14.0 9.3 8.4 46.7 159.8 470.5

Interest 1.0 0.6 1.8 19.0 37.8 65.8

PBDT 13.0 8.7 6.6 27.7 122.0 404.7

Depreciation 7.2 7.6 5.0 10.7 18.7 19.1

Profit Before Tax 5.8 1.1 1.6 17.0 103.3 385.6

Extra-ordinary items - - - (0.5) (0.1)

PBT (Post Extra-ord Items) 5.8 1.1 1.6 17.5 103.4 385.6

Tax 0.7 0.7 0.6 3.6 21.4 86.4

Net Profit 5.1 0.4 1.0 13.4 81.9 299.1

Balance Sheet ------------------- in Rs. millions. -------------------

Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 Mar '07
12 12 12 12 12
mths mths mths mths mths 12 mths

Sources Of Funds

Total Share Capital 40.0 40.0 40.0 40.0 100.0 165.9

Equity Share Capital 40.0 40.0 40.0 40.0 100.0 165.9

Application Money 64.6

Reserves 20.7 16.9 18.0 30.8 142.6 1,320.4

Networth 60.7 56.9 58.0 70.8 242.6 1,550.9

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Secured Loans 16.9 99.0 268.2 472.1 516.6 1,034.0

Unsecured Loans 5.0 18.6 17.6 3.9 3.6 100.9

FCCB 574.0

Total Debt 21.9 117.6 285.8 476.0 520.2 1,708.9

Deferred Tax Liability 19.6

Total Liabilities 82.6 174.5 343.8 546.8 762.8 3,279.4

Application Of Funds

Gross Block 28.0 32.1 65.0 513.4 585.6 587.7

Less: Accum. Depreciation 8.1 15.7 20.8 31.4 50.0 47.8

Net Block 19.9 16.4 44.2 482.0 535.6 539.9

Capital Work in Progress - 151.9 254.2 53.5 -

Investments 6.4 - 20.8 15.8 23.3 1,307.8

Inventories 5.3 8.4 8.4 9.2 83.1 303.7

Sundry Debtors 10.0 5.3 5.6 24.1 185.0 505.3

Cash and Bank Balance 4.9 15.4 0.3 4.6 17.6 257.5

Total Current Assets 20.2 29.1 14.3 37.9 285.7 1,066.6

Loans and Advances 107.8 67.3 122.7 181.8 210.8 1,134.4

Total CA, Loans &
Advances 128.0 96.4 137.0 219.7 496.5 2,201.0

Current Liabilities 71.6 89.8 110.7 222.8 282.2 688.4

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Provisions 0.7 0.7 1.9 1.4 12.6 80.7

Total CL & Provisions 72.3 90.5 112.6 224.2 294.8 769.2

Net Current Assets 55.7 5.9 24.4 (4.5) 201.7 1,431.8

Total Assets 82.6 174.5 343.8 546.8 762.8 3,279.4

2. MARG Shares- HISTORICAL PERFORMANCE

From 11/08/05 till July 2007.

3. Marg Funding from Financial Institutions/Banks

MARG CONSTRUCTIONS LTD

Secured Loans with Security Description (As on 31.3.07) / Rs. Lakhs
S. Company Lending Institution Nature of Loan Sanctioned Outstanding
NO Limit as at
31/03/07
1 Marg Constructions Ltd The Federal Bank Ltd Working Capital Finance
2,000.00 1,992.06

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2 Marg Constructions Ltd UTI Bank Ltd Overdraft

500.00 684.42
3 Marg Constructions Ltd UTI Bank Ltd Office Automation,Interior
Decoration 100.00 88.05
4 Marg Constructions Ltd Catholic Syrian Bank Term Loan
Ltd 2,000.00 2,016.14
5 Marg Constructions Ltd ING VYSYA Bank Ltd Medium Term Loan
500.00 368.64
6 Marg Constructions Ltd HUDCO Ltd Construction Loan
1,240.00 728.80
7 Marg Constructions Ltd Corporation Bank Rent Securitisation
2,400.00 2,102.88
8 Marg Constructions Ltd ING VYSYA Bank Ltd Rent Securitisation
2,250.00 1,907.36
9 Marg Constructions Ltd Indian Overseas Bank Rent Securitisation
30.00 8.89
10 Marg ConstructionsLtd Citi Bank Vehicle Loan
79.30 78.36
11 Marg Constructions Ltd ING VYSYA Bank Ltd Vehicle Loan
13.53 4.21
12 Marg Constructions Ltd Kotak Mahindra Ltd Vehicle Loan
2.50 1.61
13 Marg Constructions Ltd ING Vysya- Loan Against 90% of FD
against FD 360.00 360.31
Sub-Total
11,555.63 10,420.09
S. SPVs Lending Institution Nature of Loan Sanctioned Outstanding
NO Limit / Rs. as at
Lakhs 31/03/07
1 Marg Digital Union Bank of India Construction Loan
Infrastructure 1,800.00 1,789.20
2 Marg Realities Ltd Oriental Bank of Rent Securitisation
Commerce 5,570.00 5,467.56
3 Marg Realities Ltd Oriental Bank of Term Loan
Commerce 1,120.00 1,088.39
4 Riverside Infrastructure HUDCO Ltd Construction Loan
India 9,750.00 3,688.84
5 Karaikal Ports P Ltd Corporation Bank Term loan
3,500.00 175.48
6 Karaikal Ports P Ltd Indian Bank Term loan
8,200.00 411.64
7 Karaikal Ports P Ltd Oriental Bank of Term loan
Commerce 7,000.00 357.66
8 Karaikal Ports P Ltd IFFCL Term loan
4,500.00 -
9 Karaikal Ports P Ltd State Bank pf Term loan
Hyderabad 2,000.00 100.40
10 Karaikal Ports P Ltd Allahabad Bank Term loan
5,000.00 251.12
Total
59,915.83 23,672.00

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