GE Bets on India Rail, Power Shortage to Meet $8 Billion Target
By Subramaniam Sharma and Abhay Singh
Nov. 25 (Bloomberg) -- General Electric Co., the world’s biggest provider of power-generation equipment, is betting that India’s electricity shortages and the need to replace aging locomotives will help triple sales there in the next two years.
Revenue from windmills, steam turbines and diesel locomotives may help it meet the 2010 local sales target of $8 billion, Tejpreet Singh Chopra, 38, chief executive officer of GE’s India unit, said in an interview in New Delhi. GE had $2.6 billion of revenue from India last year.
Prime Minister Manmohan Singh has said India will need to spend $500 billion through 2012 to build roads, ports, airports, utilities, schools and hospitals. GE gave its 2010 India forecast about two years ago, and Chopra stands behind that projection even as India’s economic growth slows to 7.5 percent in the current fiscal year.
“The reason why my strategy hasn’t changed is because the market dynamics in India haven’t changed,” Chopra said. “The market and demand are there.”
GE said last week it is in discussions with sovereign-wealth funds, including China Investment Corp. and Government of Singapore Investment Corp., on developing partnerships for infrastructure projects. GE, based in Fairfield, Connecticut, has declined 59 percent this year in New York trading after twice cutting its full-year profit forecast.
‘Fairly Robust’
Finance Minister Palaniappan Chidambaram has said India’s economy will rebound to 9 percent growth next year. Asia’s third- biggest economy’s growth outlook is “fairly robust” even as the global recession deepens, Chidambaram said yesterday, highlighting the strength of local consumer spending.
GE, which installed India’s first hydropower plant in 1902, is considering creating factories in the country to build wind and steam turbines, Chopra said.
India’s demand for power may almost triple to as much as 335,000 megawatts by 2017, from 120,000 megawatts now, if the economy continues to grow at an average 8 percent for the next decade, consulting firm McKinsey & Co. has estimated in a report.
To meet this requirement, the world’s second-most populous nation will need generation capacity of as much as 440,000 megawatts, McKinsey said. Half of the $600 billion in investments the country needs by 2017 is required to set up generation capacity, it said.
‘Big’ Opportunity
“The opportunity is big,” Chopra said in the interview yesterday. “The regulatory framework is now in place to encourage a lot of private players in power production. Now is the right time for us to bring the best technologies.”
GE is betting India will add more renewable sources of energy. The government in June said it will promote the generation of energy from renewable sources such as solar and wind as part of its plan to mitigate damage from the changing climate.
“Forget the price of oil, climate change is a far bigger issue,” Chopra said. “Therefore, we as a company will focus on renewables.”
GE is counting on continued government incentives to back wind power as a clean alternative to conventional sources. Starting in 2004, Indian states mandated utilities to buy as much as 10 percent of their power from renewable sources, and companies can claim 80 percent depreciation on equipment costs in the first year.
Size, Growth
“It is a combination of the size of the market, the growth of the market and the incentives the government is giving in order to move toward more efficient windmills,” Chopra said. “The incentive program and the market has developed to the point” where it makes sense to set up local plants.
GE is considering plants in India that will build wind turbines that generate power of 1.5 megawatts and above, Chopra said.
The company will build a factory in collaboration with Indian Railways, the state monopoly, and Bharat Heavy Electricals Ltd., also government-run, if it wins a contract to supply diesel locomotives, Chopra said.
Last month, GE Transportation, a unit of GE, and Bharat Heavy said they will join to compete for a 1,000 diesel locomotive tender issued by Indian Railways, which needs new engines to haul rail cars faster across the world’s seventh- biggest nation by area. GE has been short-listed by Indian Railways to compete.
Joint Venture
The winner of the contract will set up a joint venture company with Indian Railways, the operator of the world’s second- largest rail network, to build the locomotives. Indian Railways will own 26 percent of the venture.
GE and Bharat Heavy are in discussions on the proportion of the stake they will hold, Chopra said. The final bids for the contract are due in the middle of next month, he said.
The locomotive project is key to GE meeting its decade-end India sales target.
“It is a huge focus all the way down from Jeff Immelt to ensure we have the right resources to work on this project,” Chopra said.
Chief Executive Officer Immelt is pursuing work in faster- growing regions overseas as the U.S. enters a recession. The global credit crunch has hurt profit and prompted the company to plan to cut $2 billion in costs next year from its finance division as it prunes the workforce, forms regional units and identifies assets such as overseas home mortgages for possible sale.
GE’s non-finance divisions that include power generation, locomotives and jet engines, will still likely post profit increases, though not at the minimum of 10 percent GE is aiming for, Barclays analyst Robert Cornell wrote in a note to clients Nov. 20.
“The current credit conditions and cautious managements could result in reduced capital expenditures,” said Cornell, who kept his “overweight” rating on the stock. “We think mid-to- high single-digit growth may be more likely.”
To contact the reporters on this story: Subramaniam Sharma in New Delhi at ssharma@bloomberg.net; Abhay Singh in New Delhi at abhaysingh@bloomberg.net.
Last Updated: November 24, 2008 13:43 EST
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