Aero India 2017: Strategic Partnership policy to shake up Indian firms’ portfolio
- China fails to get Indian support for Belt and Road ahead of summit
- Govt acts against rape, but make sons more responsible: PM Modi at rally
- How 3% yields could reshape the investing landscape
- Cryptocurrencies climb again as April rally storms toward 75%
- Celebrating TCS’s triumph and the spunk of Flipkart
Mumbai: The much-awaited strategic partnership (SP) policy, expected to be announced by defence minister Manohar Parikkar at the upcoming Aero India show, is expected to prompt Indian conglomerates, engineering and capital good firms who are betting big on the sector to rationalize their presence and focus on specific businesses as against the current trend of focussing on multiple segments said analysts.
For instance, while Reliance Anil Dhirubhai Ambani Group (RDAG) and Larsen & Toubro Ltd may focus on shipbuilding due to extensive capital expenditure already done into the sector, Bharat Forge Ltd may do so for artillery, ammunition and land systems, even as Tata group may capitalize on its strength in land systems, aero structure and electronics, said an analyst at a consulting firm declining to be identified.
SP, which was not part of the defence procurement programme (DPP) released by Parikkar on 28 March 2016 at the Defence Exposition in Goa, holds the key to kick-starting defence deals worth Rs2 trillion across the various sectors.
“The future of the industry, unlike the past will be determined by the large make programme,” said the analyst cited above pointing out that defence public sector undertakings will continue to get a lion’s share of the programme award and Foreign companies will increasingly use G2G (government-to-government) route to sell to India, he said.
Prime Minister Narendra Modi’s emphasis on defence equipment forming part of his ‘Make in India’ campaign to encourage manufacturing and attract foreign investments has seen a scramble among companies for licences to manufacture defence equipment.
India imports 70% of its defence requirement making it the world’s largest spenders.
Defence sector in India is expecting an expenditure of $130-150 billion on modernization and restructuring in the coming decade to achieve the goal of self-reliance. With compound annual growth rate (CAGR) of 10%, the government has allocated over $41 billion for the defence sector development in this fiscal year, said Gaurav Mehndiratta, Partner Tax, KPMG in India.
Here’s sneak peek into the defence play of some of India’s large corporates:
Reliance Defence: The ADAG arm has close to 11 joint ventures in the defence business and is pursuing partnerships with the leading international (Original Equipment Manufacturers) OEMs. Reliance Defence Ltd, a subsidiary of Reliance Infrastructure Ltd. The defence arm of the group aims to develop in-house expertise in land based weapon platforms and systems, avionics and aircraft, missiles, unmanned systems, surface and sub surface shipbuilding and development.
In March 2016, Reliance Defence and Israel’s Rafael Advanced Defence Systems Ltd agreed to set up a joint venture (JV) in the specialized areas of air-to-air missiles, air defence systems and large aerostats. Last month Reliance Defence and Engineering Ltd (RDEL) won a contract to build 14 Fast Patrol Vessels (FPVs) for the Indian Coast Guard.
Tata group: In the last five years, revenue from the defence and aerospace business for the Tata group has grown at a CAGR of 18%, a Tata Sons official said in March 2016. Tata group firms engaged in the defence and aerospace sector include Tata Advanced Systems Ltd (TAS) and its subsidiaries, Tata Advanced Materials, Tata Motors Ltd, Tata Power Strategic Engineering Division, TAL Manufacturing Solutions, Tata Technologies, Tata Consultancy Services Ltd, Tata Steel Ltd, and Tata Elxsi Ltd.
Defence has the potential to contribute 15% to Tata Motors’s revenue from the current 3% if the company managed to get the Indian Army’s FICV (futuristic infantry combat vehicle) order.
Mahindra Defence: The Mahindra group subsidiary operates through its multiple subsidiaries in aerospace, land and naval defence. In July 2016, Europe’s Airbus Helicopters awarded a contract to Mahindra Aerostructures Ltd to make airframe parts for the AS565 MBe Panther military chopper. In July 2015, Airbus Helicopters and Mahindra’s defence division had said they are in the process of forming a JV to target India’s military helicopter programmes such as the naval utility helicopter, the naval multi-role helicopter and the reconnaissance and surveillance helicopter.
In February, BAE Systems Plc said it has selected Mahindra Defence Systems Ltd, the defence production firm of the Mahindra Group, as its business partner for the proposed in-country assembly, integration and test (AIT) facility for the M777 Ultra Lightweight Howitzer.
Larsen & Toubro: The engineering firm expects that has close to six joint ventures in the defence sector, plans to close the current financial year with orders worth up to Rs8,000 crore, Bloomberg Quint reported on 8 February, citing group executive chairman A.M. Naik. The Rs4,600-crore order for field guns is expected by next month-end, the report said.
L&T has tied up with Korea’s Samsung Techwin to supply self-propelled, tracked howitzers to the army, it said. An announcement is expected on Monday. L&T also specializes in underwater platforms and avionics and defence electronics. In an interview to Mint in April 2016, Jayant Patil, senior vice-president (head - defence and aerospace) and member of the board of heavy engineering at L&T had said the firm was chasing a market of over Rs80,000 crore and hopeful to secure at least Rs50,000 crore worth of orders.