Mahindra’s Defence Ambitions Take Flight

[Zarvan]

Mahindra's Mine Protected Vehicle
Mumbai: Can’t wait to get those choppers in the sky,” Anand G. Mahindra, chairman of the $17 billion Mahindra Group, tweeted on Sunday after Mahindra Defence Systems Ltd signed a statement of intent with Airbus Helicopters of Europe to make military helicopters.

The deal with Airbus is one of many such agreements that the Anand Mahindra-led conglomerate plans to enter into in the coming months as it positions itself as a serious contender in India’s defence space, said two people familiar with the company’s plans. Both asked not to be identified.

“Mahindra Group is a serious defence company. It has carefully chosen its strategy of collaborating with international companies to bid for Indian opportunities. There will be more collaborations in the making,” said the first person.

The second person said the group will announce more joint ventures with international defence companies in the coming weeks.

Sunday’s deal with Europe’s Airbus Helicopters is part of this strategy. It is among the 16 agreements signed between India and France on 24 January—the first day of French President Francois Hollande’s three-day visit to India.

In July, the two firms had signed an in-principle agreement to make helicopters in India, seeking to tap a military hardware market estimated to grow to $41 billion in seven years.

As part of the plan, the two companies plan to set up a final assembly line in India, develop tier-1 and tier-2 suppliers and undertake extensive transfer of technology to achieve 50% indigenous content.

Mahindra’s aspirations are not restricted to air.

It already makes military vehicles, select artillery systems and land-based weaponry. And last July, Mahindra Group’s unit Mahindra Defence Naval Systems Ltd tied up with UK’s Ultra Electronics to build equipment for underwater warfare.

The Mahindra group’s strategy for the defence business is largely inorganic. Over the last eight months, the group has stitched together at least four alliances with global engineering and technology firms to strengthen and expand its capabilities in the defence business as the Mahindra Group, like others including the Tata group and Larsen and Toubro Ltd, seeks to benefit from the government’s focus on encouraging local manufacture of defence equipment. At least three of the four alliances are in the aerospace sector.

At the helm of it all is S.P. Shukla, group president and chief executive, aerospace and defence sector, who has been living out of his suitcase, travelling the globe for relevant technologies and companies. Shukla wasn’t available for comment.

The government’s offset policy requires foreign military aircraft and defence equipment manufacturers to source 30% of the components locally in the case of contracts worth Rs.300 crore or more. A new policy has, however, increased the offset threshold for defence deals to Rs.2,000 crore. The enhanced limit will apply to defence deals once the policy is notified.

India may buy at least $100 billion worth of defence equipment over the next 15 years, according to estimates by industry lobby Confederation of Indian Industry.

“Mahindra Group has a fairly long track record in defence production, mostly in land-based systems. Its foray into aerospace is fairly recent. It will take a while before its performance as a systems integrator is assessed,” said Deba R. Mohanty, chairman and chief executive of Indicia Research and Advisory, a research and consulting firm focused on defence equipment.

“Mahindra has taken a preferred route of collaboration in aerospace through joint ventures with Airbus as it does not have aerospace design or manufacturing expertise on its own. Most of the other Indian private companies are likely to follow the collaborative route as well,” Mohanty added.

“I hope the JV works.”

Mahindra’s ambition to make it big in aerospace took root seven years ago.

In December 2009, the group became the first Indian conglomerate in the private sector to acquire the capability to build aircraft. Until then, most Indian firms only had the ability to make components and sub-systems. The group, along with Kotak Private Equity Group, bought 75% in Gippsland Aeronautics Pty Ltd and Aerostaff Australia Pty Ltd. While Gippsland manufactures aircraft, Aerostaff makes high precision metal components for companies in businesses such as aviation and defence equipment.

Success, though, won’t be easy.

“... it will depend on how the state treats private companies in defence production for the very simple reason that it is the state, who is the largest customer of defence items as well as executor of defence production policy,” said Mohanty.

Competition is also Intense.

Companies such as Bharat Forge Ltd, Reliance Industries Ltd, the Tata group, Larsen and Toubro and the Godrej group are fairly well entrenched in the business and are looking for more opportunities in defence equipment.

Anil Ambani’s Reliance Group and the Adani Group’s Adani Defence Systems and Technologies Ltd are the latest to enter the race.

The scramble is partly the result of Prime Minister Narendra Modi’s emphasis on domestic manufacturing of defence equipment as part of his Make in India campaign.

“We are reforming our defence procurement policies and procedures. There would be a clear preference for equipment manufactured in India… We are expanding the role of the private sector, even for major platforms,” Modi said in February.

India is the world’s largest importer of defence equipment, according to the Stockholm International Peace Research Institute. It spends around $24 billion a year on defence equipment.

Some analysts remain sceptical about the attempts to localize defence manufacturing. “We see limited scope in this aspect. Across platforms, indigenization has more or less trailed intended goals, with imports inevitably making up for shortfalls,” said brokerage house ICICI Securities Ltd in a 21 January note.

“While DPP (defence procurement procedures) 2013 has created excitement along with Make in India projects, it may take significant time to fructify. Over the next five years, we see limited prospects of meaningful indigenization barring radars and missiles,” said the report.

http://www.livemint.com/Companies/M.../Mahindras-defence-ambitions-take-flight.html

 

[Skull and Bones]

If Indian PSUs stick to only domestic R&D, and sells the IP to the private players, then Indian manufacturing will grow in leap and bounds. NAL should sell the IP of Saras to Mahindra.

 

[Water Car Engineer]

They recently opened up their assembly, fabrication plant. This is mostly servicing for the utility aircrafts they will build from their Australian subsidiary for now, however.

I cant wait to see this helicopter plant they will raise with the help of airbus. It's going to be world class.

HAL is building a dedicate helicopter facility. Now Reliance and Mahindra as well.

Future of defence and aeropace in India looks bright.

 

[chhota bheem]

future of Indian defence industry looks bright.

 

[Tshering22]

future of Indian defence industry looks bright.

But for the commission-hungry corrupt top brass, Parikkar or other DMs must shove it down the military's throats. They will reject indigenous JV products so that they can import and earn commissions. Unless MOD forces indigenous goods by banning 100% imports on those goods that are already being developed in India (along with foreign partners or standalone) the military will continue rejecting the options.