BEL seeks JVs to bridge gaps in tech3 min read . Updated: 25 Aug 2009, 01:39 PM IST
BEL seeks JVs to bridge gaps in tech
BEL seeks JVs to bridge gaps in tech
Bangalore: As competition from private companies increases in what was once its exclusive domain, Bharat Electronics Ltd (BEL), India’s largest listed public sector defence firm, is in talks with at least a dozen global and Indian companies to set up joint ventures to bridge gaps in technology and business segments and double its revenue to Rs10,000 crore in three years.
The state-owned company has traditionally been a preferred vendor to build radars and communication and electronic warfare systems for the Indian military, but was deprived of the status after India allowed private firms to compete for defence orders. Companies such as the Tata group, Rolta India Ltd, Alpha Design Technologies Pvt. Ltd, Data Patterns (India) Pvt. Ltd and Astra Microwave Products Ltd have won orders competing against BEL.
BEL also has a problem of underutilization. The turnover at six of its 19 strategic business units is low because of technology obsolescence, such as the switches it was making for the Centre for Development of Telematics and terrestrial television towers. Imports of some electronic components are cheaper, making it more economical to buy them from overseas than to produce them in-house.
The average productivity of BEL employees is Rs38 lakh while the target of doubling revenue would mean productivity per employee more than doubling to reach Rs1 crore.
“Joint ventures are a necessity. We will conclude one venture this year, next year it should be better," BEL chairman Ashwani Kumar Datt said in an interview. “While setting the target (of Rs10,000 crore), we are stretching ourselves, we may not achieve it by the given time frame, but we must give a clear message (that BEL has) to grow fast enough so that (the) company remains profitable," he said.
The Associated Chambers of Commerce and Industry of India, a trade lobby, expects India’s military to spend Rs1.46 trillion by 2012 to buy artillery guns, helicopters, fighter jets and radars.
BEL makes electronic communication equipment including transmitters, receivers, microwave radio relays and radars as well as night vision equipment such as binoculars, and periscopes and gunsights.
The company says it has identified missile electronics, guidance systems, microwave components, electro-optics, homeland security, coastal surveillance systems and airborne electronic warfare systems as focus areas to tap the opportunity.
For that, it is in talks with Thales Group of France, MBDA Italia, Israel’s Elbit Systems Ltd and Rafael Advanced Defense Systems Ltd, Elisra Group, Israel Aerospace Industries Ltd and India’s Astra Microwave. The firm has pacts to build simulators with Boeing Co. and Bharat Heavy Electricals Ltd to enter the photovoltaic business.
India allows only 26% foreign direct investment in defence, a policy that is delaying firming up some joint ventures, said Datt. He, however, did not name the potential partners.
BEL is working with consultant KPMG Advisory Service Pvt. Ltd to build new businesses in homeland security and railway signal equipment, each of which it expects will generate Rs500 crore revenue in two years.
It expects non-military business to contribute at least Rs2,000 crore in revenue by 2013.
While competition is catching up, BEL has won new orders for radars and electronic warfare systems of Rs3,400 crore from April to August, adding to the backlog of Rs10,200 crore in orders it had in March. It expects to finish the year with orders of Rs12,000 crore.
As a short-term measure, some of these orders would be outsourced to units that are underutilized to deliver equipment to the Armed Forces faster, said Datt.
“We have done a thorough scan of all our business, what it means (in gaps) and the technology we need to strengthen ourselves. We have set a time frame (to bridge those gaps)," he said.
Analysts say that despite the entry of private firms, BEL is expected to gain from increased defence capital expenditure and the offset policy.
India’s offset policy mandates foreign arms makers to source locally at least 30% of the value of goods sold under every contract exceeding Rs300 crore.
While defence public sector undertakings (DPSUs) “are likely to lose market share (as private sector players gain from the offset clause), overall market size could expand substantially", analysts Deepak Jain and Nilesh Shetty of brokerage Edelweiss Securities Ltd wrote in a 22 July report.
“Apart from strong technology and a long track record in defence manufacturing, BEL has the added advantage of being a DPSU which is well entrenched in the defence establishment," they wrote.
BEL reported profit of Rs1,095 crore on revenue of Rs4,618 crore for fiscal 2008-09.
BEL shares closed on Friday at Rs1,466.95, having gained about 75% in the past six months.