Home

May 28, 2015

Tata to Tebma, everyone wants a piece of India’s defence business


Indian companies—big and small, known and unknown—want a piece of the defence equipment business and have applied for industrial licences from the ministry of commerce to locally manufacture military equipment, including airplanes and warships.
The list of companies, now up on the website of the ministry, makes for interesting reading.
For instance, among the applicants is telecom infrastructure company Himachal Futuristic Communications Ltd (HFCL), as famous for its outrageous bids for telecom licences in the late 1990s as for its run-ins with the stock market regulator. Both are now behind the company, which is seeking an industrial licence to make airplanes, weapons and ammunition.
The office of Mahendra Nahata, managing director of HFCL, did not respond to queries.
There are several other small companies in the race to manufacture defence equipment. Here’s a sample: Tebma Shipyards Ltd (seeking permission to build submarines), Chowgule and Co. Pvt. Ltd (warships), Neco Defence Systems Ltd (unmanned aerial systems), Maini Precision Products Pvt. Ltd (rocket launchers), Pipavav Defence and Offshore Engineering Co. Ltd (aircraft and spacecraft parts), Ois AeroSpace Pvt. Ltd (aircraft sub-systems), Solar Industries India Ltd (helicopters), Titagarh Wagons Ltd (armoured vehicles), Modest Infrastructure Ltd (warships) and JSW Projects (unmanned aerial vehicles).
Besides these companies, there are bigger and better known entities eyeing a piece of the action as well, making the battle more intense. Companies such as Bharat Forge Ltd, Reliance Industries Ltd, the Tata group, Larsen and Toubro Ltd, the Godrej Group and the Mahindra Group are fairly well entrenched in the business and are looking for more opportunities.
Anil Ambani’s Reliance Group and the Adani Group’s Adani Defence Systems and Technologies Ltd are the latest to enter the race.
The scramble is partly the result of Prime Minister Narendra Modi’s emphasis on defence equipment as part of his Make in India campaign.
“We are reforming our defence procurement policies and procedures. There would be a clear preference for equipment manufactured in India… We are expanding the role of the private sector, even for major platforms,” he said in February.
India is the world’s largest importer of defence equipment, according to Stockholm International Peace Research Institute. It spends around $24 billion a year on defence equipment.
Kabir Bogra, associate partner at law firm Khaitan and Co., said many Indian companies see defence equipment as an opportunity to redefine themselves and develop new revenue streams.
“Further, Bharat Forge, Pipavav, Tata and a few others with historical linkages to the armed forces now have an opportunity to leverage their vast manufacturing bases and expertise. Foreign vendors looking to invest in India need partners who can provide the relevant scale of manufacturing and match the capital costs,” he said.
Bogra pointed out that Indian businesses can also provide the necessary guidance to offshore partners in navigating regulatory and legal hurdles.
“Therefore, an Airbus tying up with Tata is a mutually beneficial relationship. With respect to smaller companies engaged in precision engineering, it’s a significant opportunity for them to upgrade their skills and technical know-how and be able to become suppliers in the global supply chain and expand their markets,” Bogra said.
Opportunities in defence manufacturing are equally relevant for both big and small players, he said.
“From a sustainability perspective, we believe that a large percentage of the ventures will be successful since the small and mid-sized businesses cannot afford to waste this opportunity,” added Bogra, who specializes in defence contracts.
The scramble can also be explained in terms of the near-term opportunities on offer. On 17 February, the Cabinet Committee on Security approved plans to build six nuclear-powered submarines and seven stealth warships at a cost of about Rs.1 trillion.
There is more in store. India’s defence spending is expected to hit $620 billion between 2014 and 2022, with half of it going into capital expenditure, potentially turning a leading buyer of expensive arms into an arms supplier.
Driven by both domestic and external demand, the annual opportunity for Indian companies—both public and private sector—is expected to reach $41 billion by fiscal 2022 and $168 billion between fiscal years 2014 and 2022, according to a report by industry lobby Federation of Indian Chambers of Commerce and Industry and financial services firm Centrum Capital Ltd.
In August last year, the foreign direct investment (FDI) limit in defence manufacturing was raised from 26% to a composite cap of 49% (FDI and foreign institutional investment).
Rahul Gangal, partner at Roland Berger Strategy Consultants, said aerospace and defence were emerging as an attractive business segment for small and medium enterprises as they see significant indigenous supply gaps they can fill.
“They find comfort not only in India’s continued uptick in military spend but also in its strong and renewed focus on local manufacturing and sourcing—especially with the new government’s Make in India initiative. Companies are also getting attracted to this segment as defence manufacturing is justifiably considered the cutting edge of technology and usually benefits manufacturers with subsequent technology adaptations in civil businesses,” Gangal added.
Another reason for the rush is offsets—a policy that requires any foreign arms manufacturer securing an order worth more than Rs.300 crore from India to source components worth 30% of the value of the order from India.
The offsets opportunity is expected to be worth $15 billion in the next 10-15 years, assuming that several proposed purchases are completed on time, according to KPMG.
 
 livemint

1 comment:

  1. This blog is very helpful and informative for this particular topic. I appreciate your effort that has been taken to write this blog for us.
    Rubber products manufacturers.

    ReplyDelete

Note: Only a member of this blog may post a comment.