Pic - :: The Graph Of The " KEY" Companies Of India And Their Performance In defense Production
Despite
formidable stock returns in the defence sector, analysts feel there is further
steam left in it on the back of robust order books and improving earnings
quality
Why there ought to be a ‘
parallel ’ system of enhancing the “ NATIONAL
– ECONOMY ”
India for centuries and over centuries toget has alwqays
remained a country whose main economy jhas been -;
A ). Agriculture
B ) . Cows
C ). Milk and Milk Product.
Over the years majority of the agricultural land has been so
divided that these lands after the division amongst the one’s who were the
holders of those land, have converted it into the non-agriculture land and have
sold it to the builders. Hence the production of the grains from the
agriculture have come down by means and by modes.
The necessity of all the nation to safeguard it’s sovergnity
and serenity has increased multifold and multi-dimensional.
This has propelled all the nations to have their Army with their defense system
to stand very stolid with the Army of their nation to safeguard it’s boundaries
and the attacks on them. This has raised the level of thoughts to have the most
sophisticated armaments to safeguard
them from the external threats. Hence the need of the military arms and
ammunitions to do that
This need has given the opportunity and the space for every country
to produce arms and ammunition and supply them or sell them.As India has a
multitude of a very sound system of production and with the TECHNI-COLLATERAL
system of production that is vailable at India, it can now enhance it’s G.D.P
by having a parallel system of economy enhancing procedure to completely raise
the earning avenue of the country through arms production and it’s sale.
Only a PURE heart and an effort very
sincere to export these to the under developed nation is required and if India
can do it India will seit’s its arms production and its export zooming to a new
height. That is the need of the hour, minutes and seconds for India.
The MATRIX that raises the hope for India To
add defense sale to enhance the G.D.P
Buoyed by healthy order books, revenue expansions and the
government’s major push for localisation, India’s defence sector has turned
attractive for investors. However, analysts caution that steep valuations,
execution hiccups, competition pressures and cash flow generation risks may
poise threats to the bumper rally defence stocks have seen recently.
India first has to completely make its defense production
system and the places where it ought to produce it more sophisticated and add
many features of modernity to upscale its defense production
Having said that the three components that would require
india to always stand against the compititors for its sale in the foreign
market would be-;
A ). The QUALITY by 100% QUALITATIVE
B ) . The MAINTENACE of FINNESSE
and PRECISION
, and above all,
C ). The complete CONTROL on price being ACCOMODATIVE
and COST
– CONTROL – CONFORMITY
Assertion
And Positive Research Outcome :: It Raises Hopes With Some Addition
Sachin Trivedi, head of research and fund manager, Equity,
UTI AMC, believes that the defence sector is still favourably placed, given the
opportunity size (domestic and export) and potential growth over many years.
Recent conflicts closer to India, Europe, and other parts of the world
strengthened the urgency and need to increase capex and localise
production, which made the sector attractive to investments.
“ In
recent conflicts, we have seen the importance of new defence equipment such as
drones, anti-drone systems, missiles, air-defence systems, etc. Countries at
war have struggled to get reliable supplies during a tough time. Therefore, India can’t afford to rely on
the external supply of equipment and critical components. Thus, pushing
for localisation of production is essential, which will generate large and
sustainable opportunities for domestic players,” Trivedi
says.
The recent and the classic example has been the supply of the
S-10
which India
ought to get it from the Russian government. Order have been placed and India
still awaits Russia to supply this. However the sudden war by Russia on Ukraine
has put this to a place where one really cannot say that when will India get
this arm from Russia This has hit the OVERALL confidence of the Indian Army.
The
S-10 is what the HEART is and the S-10 along with the Rafael
that India has received from France can put the Chinese and the Pakistanis to RETHINK
about what would be their condition if they launch a FULL SCALE WAR on
India. DOUBLE CLAW LION would be the Indian Army with Rafael
operating from the sky and the S-10 from the land. This would have given the
Army a FOUR HANDS AND TEN MINDS to rethink and keep on changing
their PLANS when on attack and it would have FINISHED the enemy.
The MUTE point for the Modi Government is WHAT SO EVER IT IS , THE SUPPLY OF S-10 HAS TO BE DONE BY RUSSIA AT
ANY COST. The External Affair Ministry has to DIPLOMATICALLY get this from Russia and that is the need of
the hours, minutes and seconds.
Need
To Get The PERMISSION To
Produce S-10 Also In India
The
transfer of technology now has taken a very important stand and a place to
manufacture and produce these arms in a place congenial and conducive
for production. There cannot be a better place as compared to India
for the same. The Indian Government now for the future beside buying the
weapons from the other countries, should go in for the TRANFER OF TECHNOLOGY for
these weapons here itself.
It
can produce for self, it can produce for the country that seels these
technologies. For example Russia which is on war with Ukraine has completely
ran short of the arms now to use it for the war. It cannot manufacture the same
as its economy has gone into doldrums. In this case say if India has the
facility for the same to manufacture, it could have procured the orders from
Russia and could have manufactured those to supply it to Russia on an INTERNATIONAL
– BARTER – SYSTEM where the factors of BALANCE OF TRADE
and BALANCE
OF PAYMENT would have played a crucial role.
This
trade would have brought down the internal debts of India and
would have raised its money value against the dollars
to a large extent. This is the need and the food for thoughts.
Reforms Of Indian Defense Systems :: Import
Dependence To Be Curbed As Much as Possible-::
India’s defence sector has undergone major reforms as the
government is trying to strengthen the nation’s defence prowess by reducing
dependence on imports. Measures such as simplification of procedure for
procurement of defence products, provision for funding of up to 70 percent of
development cost by the government, and a hike in foreign direct investment (FDI) to 74 percent through the
automatic route are expected to further boost investments in the sector.
“In addition, the Ministry of Defence has banned the import
of several components over a period of time, thus encouraging indigenisation.
This clearly shows the favourable tilt of policy framework for defence
companies,” says Gaurav Dua, head, Capital Market Strategy, Sharekhan by BNP
Paribas. Indigenisation in the defence sector refers to increasing
manufacturing capacity within the country, create research and development, and
boost exports.
The government has introduced a series of booster schemes and measures
that have resulted in a steady flow of capital and investment opportunities in
the sector. The cumulative FDI inflow in the defence
industry stands at $15.71 million, during the period April 2000 to
September 2022, according to the Make In India website.
Earlier in 2020, the government had increased the FDI limit to 74 percent from
49 percent, under the automatic route, and up to 100 percent through the
government route in the defence sector.
Start Up :: This Can Fuel The
Needs For Defense Production - ::
Horrible it is, that NO talks
or LECTURES has been given on the start – ups of the defense manufacturing
system as a process of manufacture.This is the area where the
Government needs to introspect, see
the possibilities and the modalities and encourage the young guns to
come forward and start the process of star-ups in the defense system
A ). Add more to the production in terms of the production
index
“ The Indian private sector has grown since opening of the
defence sector and evolved from producing components and sub-systems, to
developing complete equipment and systems, system of systems and platform level
solutions,” says Jayant D Patil, member of executive
committee and advisor (Defence and Smart Technologies), to CEO and MD, L&T.
“ This
is clearly visible from the quantum [more than 90 percent] of defence exports
by private defence companies. Going forward, the industry looks forward to
stepping up and empowering itself with latest manufacturing practices including
industry 4.0, for efficient serial production and additive manufacturing
towards faster development and limited series production of high-tech parts
agglomeration,” Patil adds.
Order book growth and margin guidance :: There Is A Hope For A Solid Performance And Possibilities
Key defence stocks like Bharat Electronics, Hindustan
Aeronautics, Bharat Dynamics, Solar Industries, Garden Reach Shipbuilders &
Engineers, Cochin Shipyard and Data Patterns have jumped 30 to 145 percent in
2022 so far, outperforming benchmark indices Sensex and Nifty in this period.
Despite formidable stock returns of over 70 percent on average over a year,
Amit Dixit, analyst, ICICI Securities feels there is further steam left in the
sector on the back of robust order books and improving earnings quality.
However,
valuations in certain stocks seem to have run ahead of fundamental post the
sharp rally in the past few quarters.
So, investors need to have mid-to-long term investment horizons to make
meaningful gains from investments in the defence sector, cautions Dua.
Based on the September-quarter earnings, order books of most
defence sector companies are expected to grow, margins are likely to expand on
sourcing efficiencies, focus on enhancing exports and peak earnings are likely
for naval shipyard companies by FY25.
“All the companies mentioned that the order book position is likely to
improve further compared to the first half of FY23. Almost all the companies
under our coverage reported higher margins year-on-year and quarterly basis
owing to change in product mix [Hindustan Aeronautics and Astro Microwave] and
raw material efficiencies [Mishra Dhatu Nigam, HAL and Solar Industries]. All
in all, the companies have raised their revenue/margin guidance for FY23,” adds
Dixit.
PSU-led company HAL expects its order book to
increase by Rs 50,000 crore in the next six months from manufacturing orders. Bharat
Electronics expects order book accretion of at least Rs 20,000 crore each in
FY23 and FY24. Bharat Dynamics sees its order book growing twofold to Rs 25,000
crore in the next two to three years.
Solar Industries expects its order book to increase to Rs 6,000 crore by
year-end, with exports and defence as key enablers. Astra Microwave estimates
Rs 8,000 crore worth of orders over the next six years. Garden Reach Shipbuilders
& Engineers Ltd is also looking forward to tenders worth Rs 76,000 crore
for next-gen corvettes, fast patrol vessels and landing platform docks.
Complete Change Over Seen By H.A.L Limited
Hindustan Aeronautics Limited ever it was set was only
manufacturing some of the helicopters and some aircrafts on the basis of the
money given to it by the ruling Government.
For a number of years , some of the brilliant heads who had
joined this organization could not produce their output in terms of the end
result to show case it and to show the world about the tremendous potential and
the brain that it had to manufacture the best of the fliers and its ammunition.
There have been many brains which felt that the BRAIN-DRAIN
was the only method left for them to move over and fulfil their promise which
was being unearthed at India. The ruling Government could not encash the
diamonds of the brain and their results in
terms of the end result.
The Modi Government after many a research and after their outlook now has
changed the PHILOSOPHY of the
H.A.L It has manufactured TEJAS and has taken the TRANFER OF TECHNOLOGY from RAFAEL to manufacture that
aircraft at India beside manufacturing the engines for some of the
aircraft.This has set the trend and this is the first step toward many such
steps that could be envisaged for the future.
H.A.L now has changed itself from waiting for the money that
would be transferred to them by the Government and then to manufacture the
aircrafts.It now plans to manufacture the components, export them, reuse that
money for manufacturing again, and thus TURN-OVER the system of
production.The healthy trend has completely brought a shift in the paradigm of
the manufacturing process and the recent reports could vouch b the same.
Post September-quarter earnings, HAL has raised earnings
before interest, taxes, depreciation, and amortisation (Ebitda) margin guidance
to 26 to 27 percent. BEL has
raised the lower-end of Ebitda guidance to 22
to 23 percent from 21 to 23 percent earlier and reiterated revenue
growth guidance of 15 percent. Solar Industries has raised its revenue growth
guidance for FY23 to 50 percent (year-on-year). Astra Microwave expects Q3FY23
revenue at Rs 200 crore while estimating FY23 and FY24 revenue at Rs 850 crore
and Rs 1,000 crore respectively.
Analysts will keep a close watch on requests for proposal (RFP) and
award of orders, particularly for light
combat helicopters (LCHs), light utility helicopters (LUHs), quick reaction
surface-to-air missiles (QRSAM), medium-range surface-to-air missiles (MRSAM),
and Akash prime and nex-gen corvettes as these are critical for the companies
to meet their guidance.
Well in nutshell , H.A.L now has been made a FUTURE-EXPORT –
HUB of aircraft and its component production and this change is a boost to the
export sector of India which can add much to the wallet of the Indian
Government to enhance its G.D.P Revenue generation through the defense s system
of manufacturing and its sale to the other countries is actually the area and
the arena which actually is the NEW area to G.D.P
to boost its revenue to enhance itself as the most important area of concreting the
foundation of this nation and also to open many an avenue for job creation.
One also needs to take
up the stock of the situation of the private players which also manufactures
the components and the product of the defense system of this country.
L&T’s current order book for defence is around Rs 14,000 crore, which is about 3.8
percent of its consolidated order book of Rs 3.72 lakh crore.
Defence and aerospace electronics solutions provider Data
Patterns expects Rs 200-250 crore worth of orders in the remaining period of
FY23. Data Patterns plans to deliver upwards of Rs 400 crore in
FY23. Its order book at the end of Q2FY23 was Rs 837 crore, with an order
intake of Rs 471 crore in first half of FY23.
“ With
orders received in October 2022 of Rs 47 crore and orders negotiated and
finalised of Rs 128 crore, the order book was Rs 1,012 crore at the end of
October. Data Patterns’ order book increased from Rs 181 crore at the end of
FY19 to Rs 476 crore as on March 2022. Increase in order book was mainly due to
repeat production contracts for products already developed and accepted by the
customers. We expect our order book to grow to Rs 2,000-3,000 crore in the next
three to five years based on potential repeat contracts. We are also
participating in many MoD tenders; success in such tenders will add to our
order book ” says Srinivasagopalan Rangarajan, chairman and managing director,
Data Patterns.
Drones which would play a very crucial role in fighting the terrorists also needs to be added more to add to the strength of the defense system beside giving the Army to flex their muscle with the far advanced generation of fighters to fight to battle within the nation. The terrorists now have to be fought on a different method and by a different strategy and technique.
No more the fights with the terrorist can be done on a ONE-TO - ONE basis if the fight is at the hillocks and hills of Kashmir or at any part of the N-E states. The high points of the hills at Kashmir is occupied by the Pakistani army and infiltrators who have the advantage of firing from the top to us.The same is the case with N-E region and the opponent to the Army gets that pivot to command themselves for they are at the advantageous p[osition.
The fight now has to be through the drones. This will add many a dimension to the Indian Army and the precious life lost would be saved The paradim now needs to be saved by and through every manner The incursion to be negated now from onwards has to be through the drones.
IdeaFIorge, manufacturer and supplier of drones, has grown its revenue by 10 times in the last two fiscal years as push for Make in India products, simplification of drone regulations, the PLI scheme and the Prime Minister’s initiative to make India into the “Drone hub of the World” by 2030 has opened up multiple applications for drones in India.
“The fast track procurements that happened post the Galwan incident and the Armenia-Azerbaijan war in 2020 led to a rapid procurement of our drones for our northern borders and further repeat orders for the same accentuated the acute need for homemade drones as well the confidence of the Indian Army in our capability to deliver,” says Ankit Mehta, co-founder and CEO, IdeaForge.
Key challenges
According to Trivedi, the defence sector is prone to risks.
“This sector is prone to long delays in order finalisations and deliveries,
given the customer's need for extensive trials. Another challenge for the
investor is assessing the players' capabilities, as we may overestimate the company's
ability. And as the industry grows, it will attract newer players, putting
pressure on their profitability,” he says. Another issue, Trivedi points out,
is that many private sector defence businesses are either unlisted or part of
large listed conglomerates. “Few listed standalone defence businesses still
need to achieve the desirable scale. So the private sector valuations should be
looked at in the context of the individual company's ability to scale up,” he
adds.
Others
concur. “As there are frequent changes, priorities and procurement schemes get
modified and delayed considerably. Normal capital procurement process takes a
long period from RFI to RFP as well as from RFP to contract. The actual time
taken is far higher than the stipulated time frame. Such frequent delays
disrupt the plans and investments made by the Indian defence industry as well
as their financials. Acquisition plans are made in three stages: 15-year,
five-year and two-year. There has to be a focussed effort by the government as
well as services on sticking to two-year acquisitions made by services for each
financial year and accountability has to be brought in for delays,” says
Rangarajan.
Rangarajan expects the government to extend PLI schemes for
defence equipment manufacturing companies and offer incentives to domestic
manufacturers in the upcoming Budget. “Tax holidays for new investments in the
defence manufacturing sector will motivate existing players to expand their
activities and new players to making investments. The government may also
consider additional tax deductions and incentives for R&D in the defence
sector,” he says.
According to Trivedi, while India’s defence budget to gross domestic
product (GDP) 2 percent looks comparable to other economies, there is a need to
increase allocation towards acquiring capital equipment.
He adds that to achieve self-reliance, defence has a priority position
as it saves the country’s forex and assures the smooth supply of defence
equipment in times of geo-political conflicts. Further, as we develop the local
value chain of the defence Industry, Indian companies will start to win more
export opportunities. The multi-domain engineering talent pool, low
manufacturing cost and cordial relations with most nations make us well placed
to grab the potential export opportunity.
That Is It and that speaks all about it .
Regards and Thanks
Shyamal Bhattacharjee
Mr Shyamal Bhattacharjee, the author was born at West Chirimiri Colliery at District Surguja, Chattisgarh on July 6th 1959 He received his early education at Carmel Convent School Bishrampur and later at Christ Church Boys' Higher Secondary School at Jabalpur. He later joined Hislop College at Nagpur and completed his graduation in Science and he also added a degree in B A thereafter. He joined the HITAVADA, a leading dailies of Central India at Nagpur as a Sub-Editor ( Sports ) but gave up to complete his MBA in 1984 He thereafter added a Diploma In Export Management. He has authored SIX books namely Notable Quotes and Noble Thought published by Pustak Mahal in 2001 Indian Cricket : Faces That Changed It published by Manas Publications in 2009 and Essential Of Office Management published by NBCA, Kolkatta in 2012, GOLDEN QUOTES on Inspiration, Sorrow, Peace and Life, published by B.F.C Publications, Lucknow, and QUOTES:: Evolution and Origin of Management Electives by Clever Fox Publishing, Chennai and From Dhyan To Dhan :: Indian Hockey - Sudden Death Or Extra Time published by Clever Fox Publishing House . He has a experience of about 35 years in Marketing .
Signature Of Shyamal Bhattacharjee
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