Bangalore: State-run radar and electronics maker Bharat Electronics Ltd (BEL), is in talks to invest in Astra Microwave Products Ltd after a planned joint venture (JV) with the Hyderabad-based microwave and radar component maker did not take off, people familiar with the development said.
If BEL goes ahead with the new proposal, it will be the first investment by an Indian defence public undertaking in a domestic firm to gain committed resources and technology from its vendor.
In February 2009, BEL and Astra Microwave had signed a pact to set up a JV to service BEL’s customers locally and execute offset orders for overseas firms.
The JV, in which Astra Microwave was to hold a 51% stake, was planned to be a platform for designing and manufacturing microwave-intensive products such as antennas and receivers for BEL’s defence, space and telecommunications customers.
Much of this is now being done by Astra Microwave.
“There was a concern that you were creating a third company to do the same job. Instead, the thinking came why not make BEL invest in Astra,” said a BEL executive, who did not want to be named.
The investment details are being worked out, he added.
Astra Microwave spokesman Gurunatha Reddy confirmed the investments talks with BEL, but said the specifics were not finalized.
Bangalore-based BEL is Astra Microwave’s largest customer. In 2009-10, Astra Microwave earned 30% of its Rs108 crore revenue from the electronics maker.
In the previous fiscal, BEL contributed more than 60% to Astra Microwave’s revenue, Reddy said.
Public sector companies such as BEL, military plane maker Hindustan Aeronautics Ltd and rail coach maker BEML Ltd have built a huge vendor base by sub-contracting component work, investing in machinery and helping the suppliers build scale to meet a growing demand for parts and sub-systems.
Indian companies are also looking at exports triggered by offset orders. India is expected to spend $100 billion (Rs4.5 trillion) by 2022 on buying new aircraft, helicopters, ships, tanks and missiles for its military, the Confederation of Indian Industry and audit firm KPMG said in a joint report in March.
Of this, one-third is expected to be spent locally following an Indian government mandate to foreign arms makers to source systems and arms from local firms for at least 30% of the value of the goods they sell to the Indian military.
BEL’s plan to invest in Astra Microwave could see more such deals by other public sector firms, which would help push the government’s stand for greater indigenization, say analysts.
“Now, you are putting your money where your mouth is. When you are talking of indigenization, this is the type of proactive policies that the PSUs (public sector units) and (the) government needs to do,” said Dhiraj Mathur, head of aerospace practice in India at PricewaterhouseCoopers Pvt. Ltd. “It will encourage (the) domestic defence industry” he added.