Now, Aditya Birla Group Plans Foray into Defence Segment
Group in talks with Lockheed Martin, US helicopter maker Sikorsky and Israel’s Rafael Advanced Defense
Mumbai: The Aditya Birla Group has decided to enter the defence sector, following at least seven Indian corporate houses that have ventured into the segment and adding heft to the government’s ‘Make in India’ initiative.
The conglomerate with interests from metals-to-mobile telephony intends to form joint ventures with US, Israeli and Russian companies to make components for aerospace and combat vehicles, two people with direct knowledge of the plan said. The Kumar Mangalam Birla-controlled group has started exploratory talks with companies such as Lockheed Martin, the world’s largest defence contractor, US helicopter maker Sikorsky and Israel’s Rafael Advanced Defense Systems. The $47 billion group has appointed one of the Big Four global consultants to help them with strategies and identify partners.
The new division will be led by former strategy head Dev Bhattacharya and will soon start hiring to roll out its plan. An Aditya Birla spokeswoman declined to comment on the group’s defence foray.
Private Indian companies are expanding into defence after the government took several policy measures to encourage the local manufacture of equipment for the country’s armed forces to achieve self-reliance. The steps include allowing foreign direct investment
to enter defence sector by forming series of business units
with global defence equipment makers
may lead their defence units with groups like Tata, Mahindra, Bharat Forge, L&T
be of key interest for the group up to 49% in the defence sector and liberalising the licensing regime for Indian manufacturers.
“The ‘Make in India’ focus, coupled with the easing of defence manufacturing and exports, is making a compelling case for large Indian business houses to foray into this sector,” said Ankur Gupta, vice-president-defence, EY.
“The private sector’s belief now needs to be crystallised by the ministry of defence through long-term sustainable orders and the companies themselves forging global supply chain partnerships.”
The Aditya Birla Group’s challenge will be to find the right partners to work with on casting and forging, besides making equipment for aerospace and combat vehicles.
Flagship Hindalco Industries, India’s second-biggest producer of alumini- um, has been a supplier to India’s defence equipment makers. Its overseas subsidiary, Novelis, the world’s largest can maker, supplies aluminium to plane makers. Aluminium is extensively used in main battle tanks, missiles, weaponry systems and boats, among others. Other Indian business houses have a head-start over Birla in the defence business. The Tata Group, Mahindra & Mahindra, Bharat Forge, Larsen & Toubro, Godrej and the Anil Ambanicontrolled Reliance Group have started making equipment for India’s defence forces. Adani Group’s Adani Defence Systems & Technologies is the latest entrant. The Tata Group has targeted an order book of .₹ 10,000 crore from defence for the financial year ending March 2017. Revenue from the sector in 2015-16 increased 7.5% to .₹ 2,650 crore.
In the past few months, the Mahindra Group has signed pacts with global companies to make parts of military vehicles, select artillery systems and land-based weaponry. Some analysts believe there is still enough room in the defence market for private companies. “Private firms like Tata and Mahindra became part of the global supply chain only in the last two-three years. So for Aditya Birla, it is not a later call,” said an analyst who declined to be identified as he is not authorised to speak to the media.
India’s military spending in 2015 was $51.3 billion, the sixth-highest in the world, according to the Stockholm International Peace Research Institute. The country plans to increase military expenditure by about 8% (in real terms) in 2016, partly to fund many large ongoing and planned procurement programmes, it said. The Indian government has approved 34 FDI proposals/joint ventures for the manufacture of various defence equipment with Indian public and private sector companies, Minister of State for Defence Rao Inderjit Singh said in Parliament in February. FDI amounting to .₹ 24.84 crore (5.02 million) was received in the defence industry sector from April 2000 to September 2015.
To have alliances Dev Bhattacharya Aerospace to