Wednesday, April 5, 2017

100 cities million opportunities


The future of India lies in its villages,” said Mahatma Gandhi. Self-reliant villages formed a sound basis for just, equitable and non-violent order, he believed. Decades later, his ardent follower Narendra Modi thinks otherwise. He is pinning hopes on building a better India through ‘smarter’ urban cities.
About 25-30 people are expected to migrate every minute from the rural areas to the cities in search of better livelihood and lifestyles. By 2050, about 843 million people are expected to reside in the urban areas — accounting for about 50 per cent of the overall population.
The Smart City Mission of the Centre is part of the overall game plan to accommodate the massive urbanisation that is expected in the future — by modernising the existing mid-sized cities.
What is a smart city?
‘Smart City’ is a relatively new concept. While there is no specific way to define it, the most popular is from Frost and Sullivan. The research and consulting company defines Smart Cities as those built on smart and intelligent solutions and technology that lead to at least five of the following smart objectives — smart energy, smart building, smart mobility, smart healthcare, smart infrastructure, smart technology, smart governance, smart education and smart citizen.
Smart energy, for instance, could be introduced using digital technology for optimal management of demand-supply situations or theft detection. Smart building, in turn, controls aspects such as lighting and temperature in an energy-efficient way through automated infrastructure.
As recently as in 2011, there were no smart cities in the world. However, there will be 26 of them by 2026, according to Frost and Sullivan estimates. Beijing, Tokyo, Singapore, Sydney and Amsterdam will be among them, while there will be none from India. Yes, you read it right, none.
Indian cities have got a long way to go before they qualify as ‘Smart Cities’; may be another 15-20 years. The Indian government’s Smart City Mission (SCM), which is essentially a five-year game plan, is actually just one baby step towards forming Smart Cities in the real sense.
However, the good news is that the SCM is already gathering steam. Round 3 of the “competition”, as it is called — which recently invited proposals from various cities – will soon short-list 40 more cities,taking the overall tally to 100 cities.
Investment boom
The Centre proposes to develop 100 smart cities over the next five years with overall budgetary plan of about ₹1,00,000 crore. It will be investing ₹100 crore every year for the next five years in each of the short-listed 100 cities.
Additionally, it will spend nearly ₹50,000 crore under the AMRUT (Atal Mission for Rejuvenation and Urban Transformation) scheme over the next five years.
Its investments — which are just the tip of the iceberg — will be routed through special purpose vehicles (SPV), floated in each of these cities. On an average, it currently holds about 20 per cent in such SPVs, for the 60 short-listed cities.
Another 80 per cent of funding will come from the State government, PPP (Public Private Partnership), existing Central or State schemes, loans and other sources. In all, about ₹5,00,000 crore of project investments is expected from SCM, according to Jones Lang Lasalle — opening a door of big opportunity for the private sector.
Most of the projects, about 85 per cent, are area-centred projects. They focus on local area issues instead of implementing it throughout the city. As per the Ministry of Urban Development, ₹1,30,000 crore worth of projects have been awarded and are invarious stages of implementation.
A cursory look at the project plans of 60 cities shows that the plan content varies drastically with the needs of cities. For instance, in Ahmedabad, it’s largely about township development, while NDMC (New Delhi Municipal Corporation) fixes the niggling power issues. While Pune focusses on transport, Raipur looks toward developing local market.
Moreover, while some are greenfield projects, others are retrofits. However, there is some method in the madness. Basic amenities such as housing, water, electricity, transport as well as infrastructure remain the major focus. For the sake of analysis, we will classify projects into housing, transport, energy, technology & infrastructure and water & waste management.
For the benefit of investors, we have looked at the nature of SCM projects in major cities and identified listed entities that could benefit from it.
Housing
Housing is the biggest opportunity emanating from SCM. For cities of Surat, Ahmedabad, Thane, Indore, Bhopal, Jabalpur and Bhubaneshwar, it is the single largest project. However, the nature of projects differs. While in places like Surat, the focus is on affordable housing, in Indore, it is about slum redevelopment.
The relatively better-off cities of Ahmedabad and Thane focus more on township development to accommodate more people into the city. In Chandigarh, it’s a mixed bag with about ₹4,000 crore going towards property development — residential, office, retail and hospitality.
With 40 more cities expected to get qualified for Smart City funding, the opportunity for residential housing is huge. Moreover, improved urbanisation will result in more people moving into the city, triggering demand for more houses.
Moreover, the ‘satellite towns’ around these Smart Cities will be a good opportunity to develop affordable housing. With the recent Budget doling out ‘infrastructure status’ to affordable housing projects, many real estate players are jumping on the bandwagon.
Godrej Properties is our preferred choice in this segment. It has pan-India presence and has developed properties in many of the Smart Cities, including Ahmedabad, Kalyan-Dombivali and Thane.
Moreover, it is looking at affordable housing projects, which could benefit from SCM initiatives. Not the least, with a reputed brand name and good execution skills, it has the capability to bag key SCM projects.
Energy
Many of the cities have taken up energy-based projects in a big way to address power shortages. NDMC is looking at spending about ₹1,500 crore in building smart grid for efficient energy management. It is also investing into alternate energy by building 40-MW solar power plants at a cost of ₹430 crore.
Belagavi (erstwhile Belgaum) is also betting big on alternative energy. It is investing about ₹200 crore each into solar rooftop panelling and wind power generation to generate power of 30 MW each.
It also plans to lay underground cables worth ₹300 crore and install smart meters to ensure two-way communication between the meter and the central system — for efficient monitoring and billing. About 131 million smart meters are to be installed across the country by 2021, according to Government estimates.
Many of the cities, including Raipur, are installing SCADA (Supervisory Control and Data Acquisition), which will gather data in real time from remote locations to enable central control of equipment and monitoring of conditions. Relatively better-off Chennai is looking at cutting power costs by installing street light monitoring system (worth ₹250 crore) across the city.
Siemens and Honeywell Automation are our recommended bets in the energy space. Siemens is a global player in building smart cities over the last 10 years, with New York and Vienna being prime examples. It has already floated a consortium with global technology vendors to bid for Smart City projects in India. Moreover, it is business as usual for the company. Under the R-APDRP (Restructured-Accelerated Power Development and Reforms Programme) of the Government of India, Siemens has been installing Smart Grid solutions in several cities in India for many years now.
Honeywell Automation, which globally earns half of its revenue from energy-efficient products and related activities, is another player that is expected to benefit from SCM projects relating to energy. Opportunities in energy are diverse — from service and asset management, software development and installation of equipment. These two players, with diverse experience, are better poised to bag the opportunity.
Transport
Transport is another big focus area for many cities, including Pune, Raipur, Thane and Great Warangal. SCM projects relating to transport broadly address issues of high travel demand, last-mile connectivity, traffic management and transit. Investments into development of back-bone infrastructure and transport systems are also common.
Pune is looking at faster transit by investing ₹210 crore into BRT (Bus Rapid Transit), while another ₹500 crore goes towards developing back-bone infrastructure. It is investing heavily towards roads and road widening as well as into buying of 100 electric buses.
Thane, on the other hand, is looking at launching a new railway station, improving road junctions as well as providing multi-modal facilities at various junctions in the city. Great Warangal, in turn, is looking at redevelopment of state bus stands and multi-level parking.
Also, to reduce the carbon footprint, many cities are introducing electric rickshaws (e-rickshaws). As against the regular autorickshaws that run on CNG or petrol, e-rickshaws will be powered by batteries charged from solar power.
Also, the focus is to manage high travel demand by promoting non-motorised transport (NMT) by making footpaths and spaces for riding bicycles. Coimbatore, for instance, is investing ₹50 crore in the bicycle sharing system. Chennai and Bhubaneshwar are investing heavily into intelligent traffic management system. This will monitor and regulate traffic on a real-time basis using video surveillance and incidence management and simulations.
Some of the offbeat beneficiaries of this could be the bicycle manufacturers. In Singapore, already, people cycle their way to nearby railway stations and neighbourhood centres, which is the way forward for aspiring Smart Cities. Players such as Atlas Cycles and Tube Investments are well-entrenched in the bicycle market.
Water and Waste management
Smart waste management could be classified as that relating to waste handling, its sorting and segregation, transportation and its disposal. Sensor-based collection, for instance, helps identify the status of bins and optimise pick-up routes and schedules. Automated waste collection systems, in turn, reduce the need for manpower.
Indian cities going the smart way are focussing either on waste handling or its intelligent transportation. Lucknow, for instance, is spending about ₹300 crore towards sewerage lines while Bhagalpur invests another ₹120 crore towards building an underground sewerage system. Many others are going for RFID tagging of waste collection vehicles while cities such as Kanpur are spending a little bit on building public toilets.
In the case of water, SCM project opportunities could be from building water sources, its storage and purification, distribution and its discharge & treatment. Smart water metersinstalled at the consumer level will help detect usage levels and price it according to the extent of usage. A ghost pipe detection systemwill detect theft.
NDMC is spending about ₹200 crore towards water and waste-water management, while Kanpur is investing ₹70 crore towards water metering and strengthening of its existing water supply network.
Many of the smart cities are also building infrastructure to manage storm water, rain water harvesting as well as lake rejuvenation. Thane, for instance, is spending ₹240 crore towards lake and waterfront development, while Faridabad is spending ₹45 towards revitalising its Badkhal lake.
Thermax, which provides water and waste-water treatment plants including recycling, is expected to be a major beneficiary from the above mentioned projects. VA Tech Wabag, a market leader in water treatment solutions in industrial water, desalination as well as waste and drinking water, is another of our favourites.
Technology and Infrastructure
ICT (information and communications technology) plays a critical role in the building of Smart cities. According to Nasscom estimates, anywhere from 10 to 15 per cent of the total project investments or about $30-40 billion is the opportunity for software companies over the next five years.
For instance, in the case of citizen services, technology plays an integral role by providing access to online citizen engagement and participatory process. Provision of Wi-Fi services at public places and online service delivery are other ways. Moreover, ICT plays a key role in improving city governance by building city command and operations centres. Many of the cities have lined up huge investments in this space.
Since software development is crucial for remotely controlling water and power systems, NIIT Technologies is our favourite in this space with its specialities in digital analytics and infrastructure management services. It recently launched ‘geodesign’ , a Geographic Information System framework for planning smart cities in India. For more details on NIIT Technologies, see ‘Firm Calls’ page.
Jabalpur and many other cities are looking at significant investment in optic-fibre cable. Electricity companies also extensively use optical fibre cables for monitoring and control purposes. Sterlite Technologies, which has a 40 per cent market share in the domestic optic fibre/cable space, is expected to benefit from such projects.
Infrastructure is another big opportunity that involves diverse activities — road and flyover building, development of city centre, lake development, river bridges and so on.
NBCC, the only public sector Infrastructure player, is expected to be a major beneficiary, eyeing 15-20 of the 100 smart city projects in the country. Over the next five years, it is expected to increase its order book levels to ₹1,00,000 crore (it is ₹70,000 crore today), growing its revenues at the rate of 25-30 per cent annually. Moreover, players like Siemens and Larsen & Toubro too are expected to benefit from a range of infrastructure-based projects.

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