Building material suppliers – just like developers and contractors – are feeling the pinch because of high concrete and steel prices.

The volatility in the market is occasionally leading to big losses on contracts, making profits very unpredictable, Rizwan Sajan, Chairman of UAE-based Danube Building Materials, told Emirates Business.

"Our profits grew by about 70 per cent last year," he said. "This year, however, we are aiming at 20 to 25 per cent growth."

The company had revenues of Dh750 million in 2007, up from Dh450m in 2006 and is aiming to touch the Dh1 billion mark by the end of the year.

 

Is Danube mainly a trading company or do you also manufacture building materials?

We are primarily a trading company, 90 per cent of our business is trading. We also manufacture but that's only value-addition which makes up about five to 10 per cent of the company.

Contractors and developers have been reeling from the pain brought about by high material, equipment and labour costs. As a supplier, are you a bit more insulated from this market squeeze?

I don't think so. There's volatility in the market and we too are affected by it. In the case of steel, for example, the prices have risen in the last three to four months by 30 to 40 per cent. Today it's about Dh4,000 a tonne while at the beginning of the year it was Dh3,000 and last year it was only Dh2,500. Most of us have suffered a big loss as we took contracts at Dh3,000 and now the price is Dh4,000. With Dh3,000 contracts, we still have to supply the customer at that price. if I take a contract at a certain price and then prices go up I still have to stand by the contracted price. This, in the end, affects the company's profitability.

The reliability of the UAE's property market is being tested because some developers are cancelling projects because high costs make the ventures unviable. Do you think this trend will continue for sometime?

This is a situation where whatever we lost in our previous contracts we can always recover in our next deals and make profits. This is because the market is in our favour. It's a seller's market, not a buyer's market. The situation is bad if the market is not good. But today, the market favours everybody in the construction industry —developers, contractors and suppliers. Everybody is bullish about the property market. My outlook is very bullish.

How long will this bullish sentiment in the market last?

It's very difficult to say but the next two years should not be a problem. The mid-term outlook is difficult to predict because sometimes the growth of this city is so fast. It gets scary sometimes.

Inflation in the steel market has skyrocketed. Is it the same case for other materials such as glass, wood and aluminium?

It's not so high, it's good. There's about 10 to 15 per cent inflation in wood, glass and aluminum despite the 60 per cent increase in demand last year. The inflation in these products is reasonable.

You have 21 branches and are considering expanding into Saudi Arabia, Qatar and Kuwait. What are your plans?

We intend to set up branches in those countries. The set up will be the same as in Bahrain and Oman. But the projects in these three countries are on hold for the next six months as we are busy with our Dubai expansion programme. We plan to build a Dh250m project in Techno Park and we'll announce the details soon. Once we start construction in Dubai we will begin our expansion projects in these three countries.

How much are you investing in your expansion schemes?

It depends on the location and project size but it varies from Dh50m to Dh250m. Every year we plan to have at least two to three new branches. Our Ras Al Khaimah operation cost Dh30m. Our Ajman project, which will be launched in the next two months, cost Dh50m, while we will be investing Dh250m in our Techno Park project and Saudi Arabia will cost another Dh200m.

Has the weakening of the dollar affected your profitability?

That's a big problem for everybody. I think we have to change the scenario – the dirham should not be pegged. Luckily most of my consignments are in dollars but when I have to buy in euros I lose out.

 

PROFILE: Rizwan Sajan, Chairman, Danube Building Materials

Rizwan Sajan was 28 when he came to Dubai in 1992 to take up a job in a hardware store on a salary of Dh1,500 per month. Sixteen years on, he has propelled himself along the path to success with astonishing determination.

Today he heads a company that distributes tens of thousands of products, has retail outlets in the UAE, Bahrain, Oman and India and has three sourcing centres in China and employs more than 400 people.