First to utilise raised foreign investment cap in the sector...
Heralding strong flows of foreign capital and technology into India’s underdeveloped defence production sector, long dominated by domestic state-run firms, the $2.5-billion Kalyani Group on Thursday announced a joint venture with Israel’s Rafael Advanced Defense Systems to develop and manufacture advanced missile systems, remote weapons and latest armour solutions at a facility to be set up on the outskirts of Hyderabad.
The venture, in which the Indian company will hold 51% and Rafael the rest, will among other things manufacture components for the latter’s Spike missiles, a fourth-generation man-portable fire-and-forget anti-tank guided missile. The Kalyani-Rafael deal would be the first to fully utilise the raised foreign investment limit in the sector announced in August 2014 and is expected to mark the beginning of an era of robust, technology-pervading and job-creating alliances between global defence majors and domestic private sector companies in India.
The development is also in snyc with New Delhi’s plan to cut its defence imports from an onerous 60% now to 30% in the next five years and boost the “Make in India” programme flagged by Prime Minister Narendra Modi.
Pertinently, at the venue of air show Aero India 2015, where the deal was announced, Modi had said a day earlier that the government could consider allowing majority foreign ownership in defence production, hiking the current foreign investment limit of 49% further and improve the offset policy even as he stressed seamless technology transfer as a reciprocal gesture expected from foreign defence giants.
Baba Kalyani, chairman and managing director of the Kalyani Group, said: “From the Kalyani Group’s perspective, we are a manufacturing company and we want to add our muscle and might to the ‘Make in India’ campaign. Defence and aerospace are now a strategic part of our growth programme and we are moving in this direction.” The site of the proposed plant near Hyderabad, however, is yet to be identified, and the group was also non-committal on the investment planned.
Thursday’s announcement came a day after Bharat Forge, the group’s flagship firm, signed a multi-year contract with Boeing to supply titanium forgings for wing components for the next-generation 737 and 737 MAX passenger planes. Kalyani’s defence projects are currently being run by a special purpose vehicle, Kalyani Strategic Systems, which is focusing on land systems like artillery, missiles, ammunition and specialised vehicles.
Amit B Kalyani, executive director of Bharat Forge, said: “Our target in the overall aerospace components business is to hit $100 million (in revenue) in the next two to three years and then scale it up from there to multiple times that. Defence will obviously be significantly larger than that.”
The Rafael JV will produce the Spike anti-tank missile in India as a Tier-1 supplier to the state-run Bharat Dynamics, which will be the lead integrator. However, orders have not been placed yet for these missiles. “What is important is to not wait for the contract but to start setting up manufacturing and get the process rolling. That’s really what we are doing,” said Amit Kalyani. “This is a leap of faith, we are doing this without having orders on hand. But this how within the Kalyani Group we have built our business.”
Rafael’s CEO, vice-admiral (retd) Yadida Yaari, said that as many parts as possible will be produced in the JV, which is expected to identify land and facilities in three to four months.