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Aim to generate $50mn each from JVs: Mahindra Defence
Chief executive of Mahindra Defence Systems Khutub Hai tells CNBC-TV18 that they aim to generate USD 50 million from their joint ventures with Telephonics Corp and Rafael Advance Defence Systems. "In both these joint ventures our investments would be Rs 100 crore each, out of which 74% equity will be held by M&M and the balance 26% by our partners," he added.
Hai goes on to say that revenues from the JV with Rafael could increase if they get selected for the Futuristic Infantry Combat Vehicles project.
The JVs will also concentrate on communication systems, radars, air traffic management systems and underwater weapons systems.
Since private players have only recently entered the defence space, Hai says that they see business opportunity of USD 18-20 billion in the next 10 years.
Below is an edited transcript of his interview with Latha Venkatesh and Gautam Broker. Also watch the accompanying video.
Q: You have announced two JVs in the defence sector. Can you give us details on both in terms of how much money is involved and how much stake M&M will have? Also, what is the investment required from M&M?
A: Last week we announced two joint ventures. The first one was with Telephonics Corporation, a US-based high end technology company that makes radars, communication systems, IFF (Identification Friend or Foe) devices, air traffic management systems etc. The second one is with Rafael Advanced Defense Systems of Israel where we will be concentrating firstly in underwater weapon systems and thereafter in some aspects of our FICV (Futuristic Infantry Combat Vehicles) project.
Coming to our first JV with Telephonics, we signed the MoU in November last year. We have applied to the FIPB (Foreign Investment Promotion Board). I am told that the meeting of FIPB was held last Friday so we do expect approvals to come in pretty soon and in the next two to three months we will have the joint venture operational.
In both these joint ventures our investments would be Rs 100 crore each, out of which 74% equity will be held by M&M and the balance 26% by our partners which is Telephonics and Rafael Advanced Defense Systems. When both JVs get operational, we hope that the revenues would be about USD 50 million each. As far as the joint venture with Rafael is concerned, if we are down selected for the FICV program then we see the revenues in this increasing substantially.
Q: So you received the EOI (Expression of Interest) for Futuristic Infantry Combat Vehicle orders from the Government of India. What's the status on that, what's the size of the order and how hopeful are you about getting the order?
A: This is a very major project and the first of its kind that India has launched ever since independence in fact. This is for approximately 2,600 Future Infantry Combat Vehicles and it is under the make procedure of our defense procurement. It is a very new procedure that's started off where the government will invest 80% of the government cost and the balance 20% would be invested by the company that is short-selected.
We are hopeful of being short-selected, we have excellent partnerships to provide us the necessary technology, we have Defense Land Systems India, our joint venture with BAE Systems from where we will get technologies for the entire mobility systems of the FICV and through our joint venture with Rafael we will get technology relating to lethality and some very high end technology items. So we are very confident.
It's a very large order, it could be in the region of USD 12-14 billion over the next 12 to 15 years. We are told that the Expression of Interest has been evaluated by the Ministry of Defense and they are now lying with the Ministry of Defense and we hope in the next couple of months maximum that the down-select will be announced.
Q: What's the total order book currently in the defense sector? What is the growth plan? How much are you planning to grow in the next couple of years?
A: I will answer it a slightly different way. As you are aware that defense business has been opened up to the private sector only a few years ago and defense business always has a long gestation period.
Today we have joint ventures that we have established with BAE Systems in land systems and with Rafael for naval systems and with Telephonics for defense electronics. We also have armoring company in the UAE called Mahindra Emirates Vehicle Armory. So together with all the joint ventures that we have established, we are targeting a business opportunity of USD 18-20 billion over the next 10 years. That is what we are prepared to do if we get 50% of this market, 25% of the market, depends on how the programs roll out. So that's what we are looking at at this moment.
Aim to generate $50mn each from JVs: Mahindra Defence - CNBC-TV18 -
