5 Reasons General Electric Company (GE) Deal with India Is A Game Changer
General Electric Company (NYSE:GE) has recently struck a deal with Indian Railways. The order is valued at about $2.6 billion to supply the railways with 1,000 diesel locomotives. It has the potential to be a game-changer at least in respect of the sub-continent. That is primarily because the country is on the liberalization of economic reforms mode and wants to speed up the economic reforms to attract more foreign direct investments. Indian Railways is one of the key parts of transport where the government is trying to attract capital to modernize the Railways. A formal agreement is in the cards though the company has received a letter of the contract. The move would help the business conglomerate in more than one way. Let’s look at five reasons why it should be a game changer.
Upgrading Creaking Infrastructure
One of the factors that will favor General Electric Company (NYSE:GE) is that the Indian Government is interested in upgrading the nation’s creaking infrastructure. The government is planning to invest about $137 billion in the Indian Railways before the end of the year 2020. Therefore, the current deal represented only 2% of the estimated amount to be spent. The contract is valid for a period of eleven years. The American firm can continue to expect more orders from different industries. That’s why the company was ready to invest about $200 million to establish local manufacturing, as well as, service facilities. That would result in establishing a manufacturing facility in Bihar, an Eastern State, and two maintenances sheds in the country to take care of the servicing of the locomotives.
General Electric Company (NYSE:GE)’s winning of contract did not come easily as its rival from Canada, Bombardier, Inc. (TSE:BBD.B) was also keen to grab the order. Similarly, German’s Siemens AG (ADR) (OTCMKTS:SIEGY) also competed in the multi-billion dollar deal to supply electric locomotives. India’s Railways is the fourth biggest network and offered tremendous opportunities to modernize itself. The second reason is that the conglomerate will get the opportunity to get more contracts from the Railways or other government departments as it is involved in a big modernization program to overhaul the Railways network. Its opening up to foreign firms started last year as part of attracting 100% foreign direct investment in certain parts of the Railways. The country provides a perfect opportunity to expand its footprint as Indian government was keen to promote localized content.
Localization Is A Key Part
General Electric Company (NYSE:GE)’s GE Transportation CEO, Jamie Miller, said that in most of its growth markets, localization was the important factor for any infrastructure agreement. The emerging market is also likely to disclose the winner of another multi-billion locomotive contract. Miller’s stressing of localization is the third reason that will have the big potential to change the way it functions from India. The country wants to promote manufacturing in India. Miller said that it would bring technology to the market. GE Transportation CEO pointed out that this was in line with ‘Make in India’ focus.
The fourth reason is that at a time when China is struggling for growth, India provides tremendous opportunities for General Electric Company (NYSE:GE). The recent contract win and setting up of the factory would enable it to expand as the labor costs in India are cheaper, which is critical in pricing. The setting up of manufacturing facility would allow them to use the base to promote it in the neighboring or Asian nations.
A Key Factor For Dividend Investors
Winning of contracts continuously ensures solid long-term growth for its shareholders to stay invested for the dividend. Currently, the dividend provides a solid yield of 3.10% for the dividend of 23 cents a share paid for a quarter. This is the fifth reason that the shares of General Electric Company (NYSE:GE) is a better hedge against not only inflation but also the fixed income instruments like CDs and bonds.
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