|
Dubai: Walk into the Burj Al Arab, Dubai’s super luxurious hotel on the coast of the Gulf, and you are faced with the world’s biggest hotel atrium.
From the outside the Burj resembles the sail of a futuristic dhow. Inside, the 180-metre-high gilded and opulent atrium was built by Depa, the world’s biggest interior contractor by market capitalisation.
The UAE leads the region’s charge to use soaring oil revenues to diversify from energy into tourism. Depa is one of the many beneficiaries of that drive. The company is also responsible for the interior of the $3-billion Emirates Palace in Abu Dhabi. It is working on the interiors of Dubai’s new metro stations and on the Burj Dubai, which, when completed, will be the world’s tallest tower.
Depa operates through more than a dozen wholly- or partially-owned subsidiaries, which do everything from construction and fitting to providing furniture, lighting, carpets and even yacht fittings. Outside designers are hired to work with clients on the look and feel of each development.
Yet even though it has a 35 per cent share of the UAE’s hotel interiors market, the company says its stock price has slipped nearly 10 per cent since it listed on the Dubai International Financial Exchange (DIFX).
In April it raised $432 million for expansion, additional factories and acquisitions, and raised the money on the DIFX to reach international investors.
“A good quarter has passed since the listing, so investors are just waiting to see new contracts come in,” says Mihir Marfatia, vice-president of research at the National Investor, a local investment bank.
Mohannad Sweid, Depa’s chief executive, is unconcerned by the languishing share price. Sweid, a Syrian architect, founded the business in 1996 with Riyad Kamal, chief executive of Arabtec, a leading construction company.
“We believe that as an international company the future lies with the DIFX, so we made the right choice,” he says. “The fundamentals of our business are better than perfect, and when we report our first-half results in August our investors can see exactly what we have achieved.”
The company expects to achieve its forecast of 40 per cent growth in both revenue and net profit this year, according to Sweid. Depa reported Dh1.4 billion ($381 million) in sales last year and a net profit of Dh181 million. It has recently signed contracts worth Dh800 million to provide interiors for eight hotels and a private palace in the UAE.
As the UAE real estate and construction industries boom, several large developers have formed in-house interiors contractors, which has increased competition, according to a Morgan Stanley research note.
Depa’s growth plans call for hiring a further 2,000 workers, Morgan Stanley calculates, at a time of a mounting labour shortage. “A spur in inflation rates in the region and, more specifically, in Dubai, is also driving up the cost of labour dramatically,” the note said.
To obviate these and other risks, the interior contractor is increasingly focusing on the upper end of the hotel market, expanding outside the UAE and targeting new kinds of project — mainly upmarket shopping malls and the recent wave of museums in the Gulf.
Expansion plans
With 282 hotels to be completed in the next four years, the UAE will remain Depa’s main source of business, Sweid says. But the company expects to grow in South-east Asia, India and Saudi Arabia as well. That should bring the UAE’s share of the company’s revenue down to 60 per cent by 2010, from more than 80 per cent today.
According to Sweid, in India alone 400 hotels are being built. “We want to get a good chunk of these,” he says.
Depa expects to spend most of the $432 million raised in April on overseas acquisitions and new factories.
Given the fact that its 2008 order backlog stands at Dh1.5 billion, Depa’s shares “definitely have some upside potential”, Marfatia says. “It is in a sweet spot to capitalise on the current construction boom.”
A lot depends on Sweid, whom Marfatia describes as the “driving force” behind the company’s expansion. Depa employees say the affable and softly spoken Syrian is hands-on in all parts of the business. His relationships have helped the company capture some of the highest-profile work in the region.
Depa’s success in expanding in other regions will depend on how well the acquisitions strategy is implemented, according to analysts. But with demand for high-end hotels, resorts and plush projects showing little sign of slacking, Depa believes its future is as bright as the chandeliers in the Burj Al Arab.
|
