Contractors such as Zen Technologies are in the red as PM Narendra Modi's plan to spend $150 billion to spur local defence production remains a non-starter
New Delhi: A fizzling boom in the shares of Zen Technologies Ltd, a designer of military simulators, shows how expectations of a rapid improvement in the nation’s armed forces are ebbing.
Prime Minister Narendra Modi outlined a plan of spending $150 billion to modernize the military and spur local defence production after taking office two years ago, stoking a surge in contractors such as Zen Technologies. The stock has fallen in 2016 as the pace of orders fell short of the expectations of the company and investors, according to managing director Ashok Atluri.
“We can’t blame the government, but our expectations weren’t realized," Atluri said in an interview. “We were communicating to shareholders that we expect the orders to come through by this time, and that didn’t happen."
Modi’s modernization drive has met with mixed success. Among the few signed orders are deals for Boeing Co. naval patrol aircraft and military helicopters, as well as for a clutch of warships to be built domestically.
But a scaled-back purchase of 36 Rafale fighter jets from Dassault Aviation SA to bolster India’s ageing squadrons has stalled over price.
Zen Technologies climbed 1,172% from when Modi took office in May 2014 to a record in January this year, but has since dropped about 37%.
An index of four defence-related companies, including the simulator maker as well as BEML Ltd, Bharat Electronics Ltd and Astra Microwave Products Ltd, is down about 12% in 2016, compared with the S&P BSE 500 index’s 105 rise.
Atluri said he’s seeking $120 million of domestic revenue in the next three years and double that from exports.
The company, based in Hyderabad in the southern Indian state of Telangana, has an order book of ₹ 100 crore and is in talks with at least four other countries for exports, according to Atluri. Zen Technologies reported a loss for the past four quarters, according to data compiled by Bloomberg.
A new Indian defence procurement policy implemented in April that seeks to encourage local design and production should help speed up purchases, Atluri said.
“There has been a little delay," he said. “We’re confident the orders will come."
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