NTPC's Power Ranger: Arup Roy Choudhury and his firm's stock has risen exponentially

Award: Best CEO-Public Sector
Arup Roy Choudhury
Chairman & MD, NTPC
Age: 57
Interests outside of work: Writing (he penned Management by Idiots) and playing the guitar
Why he won this award: For shaking NTPC out of its complacency and increasing its power generating capacity from 1,000 to 3,000 MW annually, in less than five years—the fastest ever in the history of India

Arup Roy Choudhury is not in the habit of “pushing problems under the carpet”. “Instead,” says the chairman and managing director (CMD) of the country’s largest power producer, NTPC, “I like to meet them head on.”

Not many CMDs of India’s public sector undertakings (PSU), most of which are firmly controlled by their biggest shareholder, the Government of India, can make a similar claim and escape scrutiny. But in a career spanning 35 years, Roy Choudhury hasn’t balked at ruffling a feather or two to get work done. And he did just that, a few months after joining NTPC in September 2010.

This happened at a meeting with the company’s top directors while reviewing each nut and bolt of the power behemoth. A civil engineer obsessed with tracking expenditures and timelines of each project, Roy Choudhury was unhappy that it cost the power generator Rs 7 crore per MW (mega watt) to build a plant. “I told them I won’t give anything more than Rs 5 crore per MW.”

The director (technical) almost walked out of that meeting. “He must have thought this guy has come from another industry and doesn’t understand [how NTPC works],” recounts Roy Choudhury without naming his colleague. But that financial target has been met. Within four years of his leadership, NTPC has started spending Rs 4 crore per MW, in line with the industry average.

“It was the best thing that happened to NTPC, that we got a CMD who came from outside the industry,” says UP Pani, director (HR) and a nearly-four-decade veteran in the company. Not only is the PSU Roy Choudhury’s first stint in the power industry—he’s amassed decades of experience in real estate and engineering consultancy—the 57-year-old is a civil engineer heading a company where the majority of employees are mainly electrical and mechanical engineers. Today, the common perception is that his ‘outsider’ status was an advantage which he used effectively. “Till he came, we could not see the forest for the trees and were too obsessed with minute details,” says a senior NTPC executive who declined to be named. “Roy Choudhury changed that.”

The change is visible in the performance of the company, which generates nearly 30 percent of the country’s electricity. Till 2011, NTPC would add about 1,000 MW of capacity per year. Then on, with Roy Choudhury taking over, it has added an average of 3,000 MW annually. Though the power sector is yet to recover from the post-2008 slowdown, NTPC has been able to keep its neck above water unlike its peers such as the National Hydroelectric Power Corporation (a government undertaking) and Jaypee Group (an independent power producer), to name a few.  

NTPC’s revenues have consistently grown from Rs 54,874 crore in 2011 to Rs 71,602 crore in 2014. “While the power sector continues to face constraints in terms of fuel availability and pricing, delayed clearances and rising debt, it is much better placed compared to IPPs (independent power producers) to face these challenges,” write Chirag Shah and Anuj Upadhyay of ICICI Direct in the institution’s August 2014 report.

This is despite some of the structural and regulatory restrictions that plague the Indian power sector. NTPC operates on a regulatory business model with a fixed return on equity (RoE), of 15.5 percent. It doesn’t sell any of its power on a “commercial” or merchant basis as many of its private peers do.

“The PSU has assured fuel supply and offtake pact (for existing and upcoming capacities) with CIL (Coal India Ltd) and SEBs (state electricity boards), respectively, where the fuel risk is a pass through. Furthermore, NTPC’s tariff is based on CERC (Central Electricity Regulatory Commission) regulation and is among the lowest in the country (Rs 2.8-2.9/kWh over FY09-13), which lowers the risk of backdown by SEBs,” write the two ICICI Direct analysts in their report.  

At the same time, Roy Choudhury knows that he can’t afford complacency; there is a lot more to do before NTPC becomes a world-class power generator. Its scrip has underperformed in the Sensex, dropping by 36 percent over the past four years. Its net profits have been erratic: Profits were stagnant in 2011 and 2012 (Rs 9,100 crore and Rs 9,200 crore respectively), improved to Rs 12,619 crore in 2013 and fell to Rs 10,974 in 2014.

To be fair to Roy Choudhury, none of NTPC’s peers have fared better. That said, he is aware of changes needed. “We need to cover the entire power cycle—from mining to generation and from distribution to collection. A halwai (sweet-maker) might make a great ladoo, but he needs to set up a good, efficient operation that is scalable; he should open a shop, make money and bring it back to the business… we at NTPC need to do that.”

It is commonly believed that Roy Choudhury is the best person to get the job done. His stint as chief executive at NBCC (National Buildings Construction Corporation Ltd), from where he moved to NTPC, is now legendary. If he can achieve the same here, he will have cemented his legacy at the power company too.

Rs 300 crore to Rs 3,000 crore
Though his parents hailed from prosperous zamindar (landowner) families in West Bengal, Roy Choudhury grew up in Patna, where he studied in the best of schools. (His paternal grandfather had moved there in the 1920s.) “In school, I was never among those outstanding students who would consider themselves the cat’s whiskers and strut around with lordly disdain about their less celebrated fellow students,” recollects Roy Choudhury in his book, Management by Idiots.

But he was smart enough to get seats at some of the country’s more respected institutions; he graduated in civil engineering from Birla Institute of Technology, Mesra, and got a post-graduate degree in management and systems from IIT-Delhi. He started his career in 1979 and worked in public sector companies RITES and IRCON before joining DLF, one of India’s largest real estate companies.  

In 2001, he got the opportunity to join NBCC and, at 44, Roy Choudhury became the youngest CEO of a public sector undertaking. His wife, Sharmila, however, was not amused with her husband’s decision to return to a PSU in 2001 after a successful stint at DLF. Till then, his rise had been meteoric; at DLF, he was reporting directly to the chairman, KP Singh. “Sometimes, there are uncertainties in a PSU. My wife was worried that we would have to start thinking twice before spending,” says Roy Choudhury.

His wife’s worry was not without reason. When her husband joined NBCC, the company had not paid employees their salaries for almost eight months and Roy Choudhury decided that he “wouldn’t take a paisa” till his workers were paid.

“I didn’t say anything at home. At the end of every month, I would hand over the expected money to my wife… it is important that they [the family] don’t worry and I don’t get any tension from them,” says Roy Choudhury. This is also one of his mantras for balancing work and family.

How did he pull this off? Roy Choudhury was living off his savings. “But within six months, I had the salary going. In four years, I cleaned out the bad projects and then the only way was up,” he says. It helped that NBCC was beginning to take baby steps in real estate and, with Roy Choudhury’s DLF background, the PSU started attracting private and public contracts.

“His marketing skills are unparalleled and NBCC did a few big projects under him, including in Delhi and Kolkata,” says Anoop Kumar Mittal, NBCC’s current chairman and managing director. From Rs 300 crore in 2001, NBCC’s revenue grew by a compound annual growth rate of 25 percent over the next nine years; it was nearly Rs 3,100 crore in FY11. More importantly, the company had turned the corner by 2005 and reported a net profit of Rs 140 crore in FY11. “At any point, NBCC would have 300 projects and over 200 clients. Roy Choudhury would work efficiently to keep each client happy. Within the company, he was unbiased,” says Mittal of his former boss. At the time, Mittal was director (projects).

Ruffling feathers
Roy Choudhury has used his people skills to great effect at NTPC, especially in the early days when he realised that a few senior executives were peeved that an outsider was picked for the top job. “You should know the name of your top executives. But before they think they have you by the leash, also get to know the next rung [below them],” says Roy Choudhury.

NTPC has nearly 50 operating plants and is in the process of adding another 20. While critical functions such as finance and HR are centralised and run from the corporate office in New Delhi, the company’s heart lies in its various sites.

Under the PSU’s structure, India is divided into eight regions, each headed by a regional executive director (ED). While it’s common for CMDs to be in touch with regional heads, Roy Choudhury did one better: He would regularly phone the general managers for updates, even though they reported to NTPC’s executive directors. “This would keep the EDs on their toes as they knew that the CMD had all the information,” says the senior executive.

Next, Roy Choudhury made sure that the company’s “breadwinners” got their due. “In a few families, there is no respect for the breadwinner. Here, too, no one was bothered about the breadwinner… the guy at the station, located in the remotest of areas,” he points out. The changed attitude was taken forward while awarding promotions; a higher percentage of people posted in these sites were given raises. This rankled his colleagues at the head office who were not amused that employees at these remote plants were treated as VIPs.

Roy Choudhury also ensured that the company’s residential colonies and industrial towns were given a facelift with new facilities such as clubs, cinemas and gyms. “The morale of the workforce has improved tremendously,” says SN Ganguly, executive director to the CMD and regional executive director, Western Region (II) at NTPC.

Once he had the support of his people, Roy Choudhury began to focus aggressively on increasing the pace of executing projects. If, earlier, a project was stalled due to delays in procuring approvals from the central and state governments, the leader pushed his people to cut through the red tape. Time and cost are at stake when it comes to awarding engineering, procurement and construction (EPC) contracts for each project.

Earlier, NTPC would award vendors 34 different contracts for a single project. Now they are bundled into three to four contracts. All the vendors were enlisted but a few “frivolous” ones were weeded out. Roy Choudhury had little patience for vendors who either didn’t have the right credentials, or a poor track record with project completion.

The impact has been huge, allowing NTPC to function effectively. But, for Roy Choudhury, it’s not enough. “India’s per capita consumption of power is low. If we need to develop, we need more power. NTPC needs to add more capacity,” he says.

Mapping the future
Even as he steers his ship, Roy Choudhury is making sure that the external environment is as conducive as possible. Even if that means asking uncomfortable questions.

One such question was for Coal India Ltd (CIL), the largest producer of the black gold in the country. Every year, NTPC consumes about 160 million of the 450 million tonnes of coal that CIL produces. But there was one critical problem that the power generator had with the coal: Quality.

On several occasions, the first within months of joining, Roy Choudhury alleged that CIL’s coal was mixed with stones and was of low quality. This, in turn, affected the efficiency of NTPC plants. He called CIL out on it. It was among the rare times when two PSU giants were feuding publicly.   

“I’m not here to earn brownie points or to make people happy. Sometimes, to get a solution, you have to bring it up [in the open],” he says. Though the dispute was settled in 2013, with the two companies signing fuel supply pacts, the problem has cropped up again this year.

Similarly, in May this year, when two of Reliance Infrastructure’s distribution companies declined to pay their dues to NTPC, Roy Choudhury asked his men to approach the Supreme Court. Within a month, the Rs 700 crore-bill was paid.  

These successes have given Roy Choudhury the assurance and confidence that NTPC is on the right course. And there’s far more he wants to do to make the PSU a completely integrated company, one that controls mining operations for coal as well as the power distribution network.

The company has already started making initial forays into the coal mining industry. But the clock is ticking: His five-year term will end in September 2015 and he may get a year’s extension before he turns 60 in December 2016. He has only that much time to cement his legacy. The good news: He is well on his way.