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

The Economic Times - - Economy: Macro, Micro & More - Dev­ina.Sen­gupta@ times­group.com

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

Widen­ing Port­fo­lio

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

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