The Blessed 'Cube' of Shahs: A company with a difference

Bharatiya Janata Party President Amit Shah inaugurates a new bus terminus in Ahmedabad, Gujarat, on 27 March 2016. It was a spanking-new, modern construction with a fancy design befitting the ‘Vibrant Gujarat’ label. The terminal was constructed by Cube Construction Engineering Limited through one of its subsidiaries. On its website, the company crows about having built the “best” bus terminal in India.

Cube Construction is one of Gujarat’s most prolific construction companies. It was re-incorporated in 2006 from an earlier avatar. The company has completed 53 large construction projects thus far and is currently executing 14 more. It is estimated that the firm has already executed projects worth more than Rs 3,000 crore in recent years and is currently executing projects worth an additional Rs 2,000 crore. These projects are typically the construction of commercial, educational and residential buildings, many of them in Gujarat. A list of some of the projects with their photographs is available on the official website of the company.

More than 90% of Cube Construction’s previously executed projects and nearly 100% of its current projects under execution are contracts given to it by the Gujarat state government or its affiliated bodies. Put differently, Cube Construction has bid and won contracts for building nearly 60 projects worth around Rs 5,000 crore from various arms of the Gujarat government in less than a decade. That is an astonishing strike rate in a sector where vendors are typically supposed to be chosen through a rigorous tendering process with strict qualification criteria.

Indeed, the company proudly claims on its website that being “well consversant (sic) with local conditions, procedures and formalities at various State Government bodies” is one of its key value propositions. It is a fact that Cube Construction won many tenders awarded by state government bodies in a short span of time.

It is interesting to note that Cube Construction has not only won most of the project tenders it bid for, the company also seems to have executed these projects without too many glitches that typically stymie execution of government construction projects such as problems related to land acquisition, rehabilitation of those owning and working on the land and so on. Cube Construction does not appear to have encountered too many problems in acquiring land and ensuring smooth execution of these projects. A relatively young company has thus been able to execute large construction projects without any of the constraints faced by larger and more experienced companies.

The company’s financial results reflect its robust execution prowess. Cube Construction’s revenues more than doubled from Rs 320 crore in 2012 to Rs 670 crore in 2016 (see chart below). The firm is also extremely profitable. Its net profits have doubled in this period. This is also perplexing since many construction companies executing government contracts rarely show high post-tax profits. On the contrary, Cube Construction’s after-tax profit margins are at a very healthy 7.5% of its turnover – this is rare for a company that derives almost all its revenues from government contracts that are usually awarded to the lowest bidder.

Cube Construction
Moreover, Cube Construction’s net worth, which is the company’s assets minus liabilities, has gone up nearly four-fold in just five years from Rs 65 crore to Rs 250 crore. These figures have been collated from the company’s balance sheets filed with the Registrar of Companies.

The constant complaint of companies that execute construction projects for government bodies is that they are not paid on time. State governments are notorious for delaying payments to their vendors. Here again, Cube Construction stands out. Its receivables, which is the amount due to it from its customers, is remarkably low for a company that gets almost all its revenues from the state government. Typically, receivables for companies that execute government projects work out to more than 150 days. Such companies include some of Cube Construction’s peers that have executed projects for the Gujarat government during the same period. Cube Construction’s receivables position is far superior in comparison. Simply put, the company apparently gets its money from the Gujarat government and its affiliates faster than its peers.

What is the ‘secret’ behind Cube Construction’s spectacular success that has enabled it to bag so many projects from the Gujarat government and its affiliates, execute them rapidly and get its dues expeditiously without delays? Is this a case of an extremely well-run company? Or does it have something to do with the fact that the promoters of Cube Construction – Sanjay Shah and his wife, Bindiya Shah – are reportedly close to BJP President Amit Shah.

Our investigations spanning over a month, speaking to various sources including peers of Cube Construction, serving officers in the state government, friends of Sanjay Shah and Bindiya Shah and employees of Cube Construction, reveal that the company is known in Vadodara and Gujarat for its association with the BJP President.

A random sample of Bindiya Shah’s Facebook ‘friends’ was selected. They were asked about Cube Construction’s promoters’ alleged proximity to Amit Shah. More than three-quarters of the respondents confirmed the company’s proximity to the BJP President while the rest said they did not know.

Bindiya Shah’s Facebook friends network comprises many BJP leaders and party members from Gujarat. There have been various occasions when Amit Shah, ministers in the Union cabinet from Delhi and other senior BJP leaders have been seen with the promoters of Cube Construction, and not only at the inauguration ceremonies of projects.

I unsuccessfully tried contacting the promoters of Cube Construction. After several attempts, I was asked by a company representative to email a questionnaire to her for Sanjay Shah, Chairman and Managing Director, Cube Construction Engineering Limited. The questionnaire was emailed on the evening of 6 December 2017. After reminders, a response was received in the afternoon of 9 December. The questions and the company’s responses are reproduced verbatim (without correcting language or grammar) below:

Can you confirm that nearly all of the projects executed by Cube Construction Engineering Limited are for the Gujarat state government and/or its affiliated bodies?
Cube Construction Engg. Ltd. (CCEL) has been doing projects for many Industrials, Commercial, Residential, Institutional, NGO’s, Government Construction, PPP, turnkey projects within as well as outside the State of Gujarat. The Government projects are floated through e-tendering whereby intending bidders are first checked for qualification to submit bids based on past performances as per specified criteria and only technically qualified bidder’s financial bid offers are evaluated by project consultants and accordingly on merits the projects are awarded to successful bidder.

Can you explain how Cube Construction’s receivables position is far superior to its peers in the same business executing projects for the Gujarat state government?
Since CCEL is not in possession of any such data regarding position of others with respect to their receivables because of their projects of Gujarat State Government, we are not in position to comment on the same. With respect to CCEL’s receivable position for all projects including State Government Projects, as at close of last financial year, the CCEL’s receivables are about 118 days of average per day turnover and 7.5% of receivables are due for more than 180 days after respective due dates against the standard tender payment terms of 30 to 40 days from billing date.

Are there any other companies that have won more construction orders from the Gujarat government as Cube?
We do not have any access to any such information about other Companies’ position of their bid order receipts from Gujarat State Government rendering CCEL not at all being in any position to comment in this regard.

Please confirm if you and/or your wife Mrs Bindiya Shah have a family relationship with the BJP President Shri Amit Shah.
Neither Mr Sanjay Shah nor Mrs Bindiya Shah of CCEL have any family relationship with the BJP President Shri Amit Shah.

The amazing success story of Cube Constructions is narrated in hushed tones across cities in Gujarat. There is a certain aura surrounding this company. What explains this mystique is best answered by the company’s promoters, Sanjay Shah and Bindiya Shah.

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