Analysis of Companies Launching Manufacturing in Delhi-Mumbai Corridor Townships and Impacts on Industries and Investors
Analysis for Layman
The Delhi-Mumbai Industrial Corridor (DMIC) project is developing industrial smart cities across India to boost manufacturing. Four such integrated townships, spanning 2500-3000 acres each, are now operational – Dholera and Greater Noida in North India, and Vikram Udyogpuri and Shendra-Bidkin in Central India.
Over 20 companies like Inox Air Products, Haier, and Torrent Power have started their manufacturing operations in these townships. These towns offer ready-to-use infrastructure, 24/7 power supply, waste treatment plants, and fast project approvals to enable factories to start their operations quickly.
So far, 274 manufacturing units in sectors like chemicals, engineering, electronics, and auto components are either being set up or already functioning in these townships. 65% of the available land across the four DMIC township projects is now occupied. Efforts are underway to attract more high-tech electronics manufacturers to the Dholera township in the future.
Impact on Retail Investors
For retail investors, the consistent occupancy of DMIC towns by manufacturers is a positive sign. Companies that develop these townships, like Dholera Industrial City Development (Dholera ICD), which is a joint venture with the Gujarat government, may offer investment opportunities through initial public offerings (IPOs).
The presence of manufacturers in these townships validates the expectation of these ventures becoming profitable as more production units lease land. This reduces the risk for retail investors in DMIC township stocks once they are listed.
Additionally, the establishment of plants by electronics and appliance giants like Dixon, Amber, Havells, and Crompton Greaves in these townships indicates strong production prospects. The backward integration by their component suppliers also benefits these stocks. Interest from anchor tenants propels the entire manufacturing ecosystem, which can be a good sign for investors.
Impact on Industries
Industries that are most affected by these developments include chemicals, engineering goods, electronics, and appliances, as they gain access to ready-to-use infrastructure in the DMIC towns. With 65% occupancy across four cities, the availability of affordable land and quick approvals is attracting more players from sectors such as automobiles and technical textiles.
The DMIC’s focus on scaling electronics manufacturing also positively impacts the winners of the Production-Linked Incentive (PLI) scheme who are setting up display and semiconductor fab units in India, including Tata Group and Vedanta Foxconn. This helps improve supply chain efficiencies as more electronics suppliers co-locate around their production hubs in these townships.
In the long run, developing these industrial clusters nurtures a technically skilled labor force, benefiting precision engineering and defense manufacturing as well. Overall, improved infrastructure access helps build manufacturing capabilities across various sectors.
Long-Term Benefits & Negatives
In the long term, the DMIC townships, by aggregating component suppliers, manufacturers, and warehouses around key nodes, can transform India’s export competitiveness. This plug-and-play infrastructure reduces lead times and logistics costs for producing high-quality goods for export.
However, it’s crucial to maintain policy stability over 20-30 years in these locations to prevent the risk of stranded assets. Promises related to power costs, environmental norms, and other factors must be upheld. Proactive zone administration and dispute resolution systems are needed to address tenant issues over decades.
Additionally, ensuring responsible water usage, waste disposal, and maintaining a mix of renewable energy sources are crucial from a sustainability perspective at these mass production hubs. Considering future climate risks, resilience measures need to be incorporated.
Short-Term Impact – Positives & Negatives
In the short term, the operations of early tenant manufacturers serve as examples for other producers considering capacity expansion. Companies like Haier and Dixon starting appliance production in the DMIC towns validate the viability of these locations. This could accelerate the occupancy of industrial real estate in the next 1-2 years.
However, investor expectations of significant land monetization by DMIC township special purpose vehicles (SPVs) within short timeframes may be premature. Building entire cities has long gestation periods, and patience is advisable before these visionary urban projects achieve profitable scale.
Companies Impacted by Delhi-Mumbai Industrial Corridor Progress
The news of 20 companies starting operations in the Delhi-Mumbai Industrial Corridor (DMIC) smart cities could have ripple effects across various sectors:
Indian Companies that may Gain:
- Industrial and Infrastructure Developers:
- DLF Ltd.: A major developer involved in Dholera, the corridor’s hi-tech electronics hub. Increased demand for industrial space and infrastructure could boost their business.
- Larsen & Toubro Ltd.: A leading infrastructure player with expertise in building smart cities. Their involvement in DMIC projects could strengthen their order book and brand image.
- National Building Construction Corporation Ltd. (NBCC): A state-owned construction company with experience in developing industrial townships. Increased government focus on DMIC could provide them with new project opportunities.
- Logistics and Transportation Companies: Improved connectivity within the corridor and increased industrial activity could benefit companies like:
- TCI Ltd.: A leading logistics provider with a strong presence in North India.
- Concordia Maritime Logistics Ltd.: A major player in port and coastal logistics, potentially benefiting from increased cargo movement within the corridor.
- Indian Railways: Improved infrastructure and efficiency within the corridor could lead to higher freight volumes for the railways.
- Ancillary Businesses: Increased industrial activity in the corridor cities could boost demand for services like waste management, hospitality, and security, potentially benefiting companies like:
- Waste Management: Ramky Enviro Engineers Ltd., Antony Waste Handling Cell Ltd.
- Hospitality: Indian Hotels Company Ltd., ITC Ltd.
- Security: Force Motors Ltd., SIS Ltd.
Indian Companies that may Lose:
- Existing Industrial Zones: Companies operating in older industrial zones outside the DMIC might face competition for land, labor, and infrastructure from the new smart cities.
Global Companies that may Gain:
- Foreign Manufacturers: The easing of FDI restrictions for land-bordering countries after Press Note 3 could attract companies like Haier Appliances and Chenfeng to invest further in DMIC projects.
- Infrastructure and Technology Providers: Global companies with expertise in smart city development and technologies could find opportunities to collaborate with Indian partners in DMIC projects.
Global Companies that may Lose:
- Companies from Countries Facing FDI Restrictions: The continued restrictions on FDI from some land-bordering countries like Pakistan could put them at a disadvantage compared to other global players.
- The news of progress in DMIC could boost investor sentiment towards infrastructure, logistics, and ancillary service companies.
- Companies actively involved in DMIC projects could see their stock prices rise due to improved business prospects.
- However, the long-term success of DMIC will depend on factors like efficient execution, attracting diverse industries, and managing environmental and social concerns.
Remember, this is an analysis based on the provided information. The actual impact on individual companies and the market will depend on various factors beyond the scope of this article.
ET Bureau, “Twenty Cos Begin Operations from Del-Mum Industrial Corridor Cities”, ET Bureau, Dec 27, 2023.