ANALYSIS OF THE INDIAN

DEFENCE EQUIPMENT
INDUSTRY
(with special emphasis on private players
in general and TATA Advanced System
Limited in particular)

GROUP - 9
Aayush Raghuvanshi
B14125
Manvi Govil
B14153
Mugdha Gupta
B14157
Nikhil Arora
B14159

nt Scenario Analysis
India is on a spree of obtaining defense independence and more
domestic
development with respect to defense manufacturing.
Impact of Politics on Indian Defence Policy

Impact of Budget 2015 on Defence

Relationship With China

Relations have been
characterized by border
disputes which have
resulted in three major
border disputes.
Bilateral trade has been
growing along with
development of strategic,
economic ties
India has not been able
to solve the boundary
disputes with the country.
Both the countries have
employed huge military
infrastructure at their
border
India has always trying to
benchmark its military
Industry:
expenditure
with China.
The table
below shows a
Overview
glimpse

full
exemption
from basic
customs
duty and
excise duty

Other Factors
US defence
Policy

Focus on
Indigenisation

Industry:
Analysis

Intra country
disputes

Terrorism threat
with
neighbouring
countries
Financial
moves by
private players
like Pipavav

Industry:
Strategy

The ban on
FII has been
revoked by
the current
government

Current budget
is lacking in
overall attempt
of capacity
building of our
forces to cater
to threat
perception

Removal of
mandatory
51% Indian
ownership
clause, thus
more FDI
expected

Make in India
policy
focusses on
greater self
sufficiency

TASL: Overview

The limited
rise in the
military
budget

Delay in 126
fighter aircraft
197 light
helicopters,
145 Ultra-light
Howitzers 22 CH47F Chinook
medium lift
helicopters

TASL: Strategy

an Defense in a Global Perspective

Despite being one of the top spenders in Defense---2% share in global
expenditure
---60%
imported---50% obsolescence in the
domestic
Current
Policy Structure
Indiasequipment
Annual Defenceare
Expenditure
In
production
ve
Pro
2467
2036
1417 1474
930
810 860

Cutting Edges

2290

1644

1056

2013-14 Defense expenditure

(US$ billion)

Industry:
Overview

Industry:
Analysis

3rd largest armed

forces in the world
in terms of active
personnel
3rd largest armed
forces in world
Make in India policy
has been launched
for defence stability
$20 bn opportunity
for private sector

Industry:
Strategy

cur
eme
nt
Poli
cy

Lic
ens
e
Poli
cy

TASL: Overview

Join
t
Ven
ture
Poli
cy

stm
en
t
Po
lic
y

Of
set
Poli
cy

Ind
ustr
ial
Poli
cy

TASL: Strategy

path well trodden

Gradual deregulation of the Industry in face of patchy Public Sector
performance
Evolution of defense industry in
Major Players

India

Larsen & Toubro

Establishment of 8
DPSUs-1954

Globalization>Mo
re involvement of
private players1991

Mahindra
Defence
Systems

Establishment of DRDO-1958

FDI limit raised to 26%2001

100% Participation
by private players2001
Defence moved
from reserved
to licensed
category-2001

Hindustan
Aeronautics
Limited
Tata Advanced
Systems
Bharat
Electronics
Limited

Industry:
Overview

FDI limit further

raised to 49%2014
Industry:
Industry:
Analysis

Strategy

Largest private player

Warships, Submarines, RADAR,
Unmanned Aerial vehicles, Helicopters
Leaders in Armory vehicles
Recently entered into surveillance
systems
Biggest Public player
Development of Aircrafts, helicopters
and their accessories
Missile systems, aerospace, RADAR and
homeland security
JV with Lockheed Martin for helicopters

Development of state of the art

electronic equipment

TASL: Overview

TASL: Strategy

w do the processes stack?

Managing Investment and
Technology

Factor market

FDI

Easily Available through domestic suppliers

Ofset Policy mandates minimum 30% procurement
Raw
from local industry to develop a strong domestic
material network of suppliers

We must allow greater FDI on a case by

case basis or in particular areas of the
defense industry

Budget
Labour

Sufficient cheap labour for the Industry

Allocation of greater funds to the defense

sector

Incentives and Exemptions

So far the biggest barrier

Technolog Need for more JVs with foreign players or Product

licensing
y

Defence is a capital intensive industry

The budget allocated is not sufficient
Capital Need for more FDI in specific areas

Industry:
Overview

Industry:
Analysis

Exemption from Basic customs Duty,

Countervailing Duty and Tax Incentives

Market Share (Defence Equipment)

20%
5%
75%

Industry:
Strategy

TASL: Overview

DPSUs
Private
Imports

TASL: Strategy

do the processes stack?

Defence Value Chain
Technology/
R&D

Design &
Developmen
t/
Integration

Manufacturi
ng &
Software
Developmen
t

Factory
Acceptance
Tests

Documentat
ion &
Training

Site
Installation
&
Integration

Site
Acceptance
Test

Upgrades

Technology
Provider : Foreign
Prime

Make

Domestic Route
Technology
Provider DRDO
+ Indian
Prime + Foreign
subsystems/Fore
ign
Technology
Partners

Industry:
Overview

For every 25%

Reduction in
Imports

Foreign Prime

Buy
&
Mak
e

Buy

mport Route Buy / Buy & Make

Co
Installatio Maintenanc
Production
n
e
SKD / CKD /
Service
Service
Component
Provider
Provider
Prime Contractor (Overall responsibility

Upgrade

Sub-Contractor (Design)
Domestic Prime Contractor (Overall
responsibility)
Upgrade

Industry:
Analysis

Industry:
Strategy

INR 5000 crores GDP

increase on average
Acceleration in
Manufacturing Growth by
4.2% average
Additional 75000 jobs on
average.
Fall in outflow of wealth
by $2.6 billion
Increased Soft & Hard
Power

TASL: Overview

TASL: Strategy

Mechanics of Defense
Drivers
Defence Growth
Procurement
Policy (2011)

Challenges Faced

Raising the FDI cap from 26% to

49%
14% CAGR in defence spending from
$30.52 billion(2009) to $47.4 billion
(2014)
India will spend $620 billion by 2022
with 50% going into Capex
Entry of new players in
the market (e.g. Reliance)
Indian market
sourcing hub

No clear Policy Framework

Technical Disadvantages such as

lack of skilled manpower, R&D
Political Hurdles

Inefficient Procurement Policy

Competition with Domestic and
Private Firms

Overview

Analysis

Build
Private
Capabilities
with
emphasis on SMEs

Sector
special

Enhancing value obtained from

Intellectual Assets and IPRs
Facilitating adoption of product
quality and process standards
Promoting Collective Action and
Cooperation

Replacingobsoleteequipment&repl
enishing inventory levels
Increased focus on internal security
Industry:
Industry:
requirements

for Capability Building

Streamlining
the
Defence
Procurement Infrastructure

Government Policies

as a defence

What the Strategy should

Focus on?
Create Enabling
Infrastructure

Industry:
Strategy

TASL: Overview

TASL: Strategy

utive Summary - I
TATA Advanced Systems is well positioned to take advantage of
Indias Defense
Boom but problems remain on political, economic, internal and
SWOT
Porters 5 Forces
technological fronts
Strength

Weakness

TATA Brand
High Social Capital
Leverage Ratio is less
than 1
Labour Arbitrage
opportunities
Availability of advanced
indigenous
technology
Opportunity

High Gestation period

which leads to blocking
of working capital
Demand is highly
unpredictable
Limited R&D
expenditure
LimitedThreat
expertise

Make in India Campaign

Strategic presence in
South-east Asia
Sunrise Defense Industry
having high growth over
last decade.
Buy & Make Indian DPP
reform and ofset
incentive.
Industry:

Overview

DI Increase from 26 % to
49%
Global players having
better advanced &
technology
Strong Market share of
DPSUs in India
Government Policies
Other Private Players
Industry:
Industry:
such as Reliance ,
Analysis
Strategy
Mahindra , L&T

Bargaining
Power of
Supplier
MEDIUM
Low
dependence of
subcontracted
and specialized
items

Threat of
New Entry
LOW
High entry
barriers
High upfront
investment and
clearances

Degree of
Rivalry
LOW
Limited
players with
patented Bargaining
technologies
Power of
Threat of
Buyer
Substitutes
LOW
Long term
contracts and
JVs in place

TASL: Overview

HIGH
Individual
buyers giving
few large value
contracts

TASL: Strategy

utive Summary - II
Segment growth is constrained by limited capacity in the short
term,
but promises long-term potential towards 2020
Is there sufficient Demand?

Is there available capacity?

While Defense sector has seen a gigantic

boost in the recent past, and demand
grows by the day
Why growth bides well in long term

problems lie ahead if TATA doesnt

consolidate on current gains and capitalize
on prospective ones.
Why will growth be constrained in short term

Cost Efficiency

Talent & other factor costs are very cheap

Quality components at substantial savings

Poor logistical and Technical capacity

Unemployable engineers and substandard products

Stunted infrastructure growth; Small facilities

Governmental Influence

Modi regime is extremely growthoriented

Infrastructure growth at a 10 year

Fewer obligations
high

Lower risk for Foreign firms in India

India is a neutralist nation

Industry:
Overview

Industry:
Analysis

Unstable Political Scenario

Opposition
is
status-quoist
&
unconcerned

Slow Land Acquisition & Communist

Risk from Foreign organizations
movement

Manufacturing base remains stunted

Technology transfer is slow & conditional

Industry:
Strategy

TASL: Overview

TASL: Strategy

is TASL trying to do now?

There is a whole bunch of areas where, as projects become
complex, Tata companies
will work together and provide
convergent solutions for the defence services

Sikorsky
Lockheed-Martin
Israel Aircraft
Limited
Urban
Joint
Ventures with
Aeronautics

TATA Motors/ TCS

links
MoD
of 60
Focus
oncontacts
Integration
years and
systems

Diversification

Foreign companies

PPPs and
International Market

Industry:
Overview

Industry:
Analysis

UNSC deal
FCIV Contract
Missile Integration
platforms (IndoIsrael)

Industry:
Strategy

Financial Snapshot
INR 17 billion in revenues in FY
2013
Exports worth INR 3 billion in FY
2014, up from INR 1.5 billion in
FY 2013
Current Order book in excess of
INR 80 billion in FY 2014
Revenue expected to grow by
40% annually
TATA Sons to invest $35 billion in
next 3 years

TASL: Overview

TASL: Strategy

should be the road ahead?

If you know the enemy and know yourself, you need not fear
The Way Ahead

Current oferings are inadequate

TASL can realistically

target only 35% of Indian
market.
Focus on Aeronautics
hasnt yielded tactical
gains for West.
Technology transfer
remains unsteady.
No guarantee of steady
Infrastructure growth over
next decade.
Falling TATA Group profits
might impact Bull-headed
approach

Industry:
Overview

Industry:
Analysis

Look
South-East

Heavy
Armored
Vehicles

Integrated
Missile
Defense

Second Largest
Defense Import
Market

100% of Indian
market open

Existing
Capabilities are
good

Low-cost, High
Volume Market

Mature
technology,
Mass production
possible

Increasing
demand from
both India and
Israel

Good Power
Projection
capabilities by
India

Low chance of
Foreign players
entry

Technologysharing
capabilities with
both DRDO &
ASEAN

Industry:
Strategy

TASL: Overview

TASL: Strategy

THANK YOU