In a move to boost domestic industry of the country, which imports up to 70 percent of its military hardware, the government on Saturday cleared defence projects worth Rs 80,000 crore.
Pipavav Defence and Offshore Engineering Company, a beneficiary from defence project announcements has put in bids of Rs 30,000 crore for new projects, as they claim to be well poised to secure and execute large government contracts, says company Chairman Nikhil Gandhi in an interview to CNBC-TV18.
The industry is delighted to see government thrust on defence orders, says Nikhil Gandhi, Chairman, Pipavav Defence adding that he expects clearance for more such proposals for Army, Navy and Air Force.
Going forward, the company hopes to benefit even more as complex assets like ships and submarines provide reasonable margins for companies, he adds.
Below is the verbatim transcript of the interview:
Q: The NDA government has given defence sector a priority. The latest news being that the Centre has given a nod to Rs 80,000 crore worth of projects. Could you tell us what kind of opportunity this open up for Pipavav Defence?
A: The private industries per se who are engaged into defence manufacturing are extremely delighted to see the kind of encouragement and policy initiative given by the current government. This will ensure that the industry becomes self-reliance and millions of new jobs will be created. Pipavav is the largest in terms of the infrastructure investment in the defence space particularly naval defence, will be one of the few beneficiary in a significant manner. We are very happy and delighted to know this development and we are expecting few more such actions on the part of the government that will benefit the private industry engage into defence manufacturing in the country.
Q: What is the exact order book that Pipavav Defence is sitting on at this point in time and given the increased opportunity, how much do you think your revenues could grow ballpark in the next couple of years?
A: Currently our order book is Rs 7,000 crore. We have put in a bid worth Rs 30,000 crore over the last three months and with the new opportunity, we will be able to put significant amount of bids over the next few months of time. In addition, being the largest infrastructure in the country and one of its kind in the world we will tend to benefit significantly on a very transparent and open basis.
Q: In this Rs 80,000 crore of defence projects which were clear over the weekend. What would be the quantum of orders that Pipavav Defence has won, if any?
A: This is a bid that has been approved by the government, which means people who are capable of building the complex warships and submarines will be allowed to submit the bids. Pipavav is one of the largest infrastructures in the world for naval defence, will be able to garner significant order book because of our ability to put in competitive bids as well as build the assets well on time.
Q: You did mention that you put in bids for about Rs 30,000 crore worth of order. How do you expect to service these orders? Will you be increasing your capex, will you be investing more into the company, are you looking to raise any money?
A: I think Pipavav is well invested. We have the necessary infrastructure including the second largest dry dock in the world; absolutely in place. We have a very modern modular construction facility and to replicate anything like this will take years and years. So we are happily placed and poised to secure large contracts and execute them on time.
Q: Are you aware if the Centre is planning to meet again, the defence sector will be meeting again and clearing any more contracts?
A: India has a very large amount of demand and supply gap and certainly, government has given indication that it wants manufacturers of India under the visionary policy called ‘Make in India.’ With that, government in the coming months is likely to clear many more proposals for the Army, Navy and Air Force and this is a right step, which has been in demand by the industry for a very long time.
Q: What is the current margin that Pipavav Defence is working with and with these new orders will the margin profile go up for the company?
A: When you make the complex assets like submarine or warship, there is a reasonable margin and it is not cyclical also it is ring fenced any potential threat that one sees time and again due to the several developments in the global markets.
Q: In FY14, your margins were at around 30 percent or so.
A: We are not talking about margins. I am just giving you the ballpark information only that in complex assets like this, the margins are reasonable otherwise, people will not be encouraged to make the large capex.
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