The Modi government adopted a multi-pronged strategy to boost India's defence manufacturing capabilities. 30 months ago, the government decided to jumpstart the public sector undertaking (PSU) dominated defence production arena by pitching it as a lead sector for its 'Make in India' scheme.
While the high-pitched campaign has led to record foreign direct investment (FDI) inflows overall, foreign companies are still not convinced about Indian defence opportunity.
In an interview with CNBC-TV18, GK Pillai, MD & CEO of Walchandnagar Industries spoke about the latest happenings in his company and sector.
Below is the verbatim transcript of the interview.
Prashant: There is a lot of hype around the entire defence opportunity but why haven't inflows into the sector picked up according to you?
A: As you rightly said, when the new government came into power, a lot of emphasis was put with regard to opening up of the defence sector to both Indian private sector as well as also opening up with foreign partners and allowing FDI starting from 49 percent to even up to 100 percent but in spite of that the real inflow of FDI has been very low and at the same time even for the Indian manufacturers of defence products, they also did not have much of a euphoria in terms of inflow of business.
If you analyse the whole thing, one has seen that there has been some sort of scepticism among foreign manufactures that how Indian system will work with regards to the defence production in public or private sector, so that has slowed down. In spite of making it even 100 percent, one of the points which were there the state of the art technology was put as for allowing 100 percent which they have now changed to modern technology. I think that will make some change as far as the foreign investments are concerned.
Let me talk about the Indian manufacturers, the existing Indian manufacturers who are already in the defence sector, companies like Walchandnagar Industries or others who are there, a midlevel player, we were very euphoric when this announcement came about three years back, but for the last three years there has been not much of a positive activity as far as order inflow was concerned, things were still going very slow. Having said that I would also say that the last three-four months has seen a big positive change, a lot of the defence related orders are getting finalised in the last couple of months and I have a feeling that perhaps the next couple of months, the Q1 and the Q2 of this financial year, there will be a positive change. I am also looking at some of the large deals which
Having said that I would also say that the last three-four months has seen a big positive change, a lot of the defence related orders are getting finalised in the last couple of months and I have a feeling that perhaps the next couple of months, the Q1 and the Q2 of this financial year, there will be a positive change. I am also looking at some of the large deals which has happened in the recent past, with regards to various guns etc, many of the offset requirements again will be met by the Indian companies. So though the sector has not witnessed a growth what we have been expecting but perhaps let us hope, let us be positive and see that the next one-two years there should be some improvement in the inflow of orders for defence manufacturers.
So though the sector has not witnessed a growth as expected, let us be positive and see that the next one-two years there should be some improvement in the inflow of orders for defence manufacturers.
Ekta: What about your company in specific? There were some reports that maybe you would even like to diversify your business beyond defence.
A: As I said, as far as Walchandnagar Industries is concerned, we were traditionally manufacturers and engineering, procurement, construction (EPC) contractors for sugar, cement and cogen power. We are slightly diversifying our range or trying to make this company's DNA become defence, nuclear, aerospace (DNA). The DNA of Walchandnagar Industries henceforth will be only DNA and all our existing strengths will be actually toned towards putting an emphasis on this segment. So, Walchandnagar Industries hitherto where we have been putting more focus on the sugar business, we are not going to put much focus on sugar and cogen power and we are definitely going to put more focus on the DNA sector.
Prashant: Very briefly, if you could tell us, are these numbers, looking at 2015, 2016, 2017 really the right way of analysing the success of what the government has been trying to do because A] the space is complex. The gestation period involved while ordering, finalising, testing, finally placing a final order, it takes some time. So, is it the fact that things will really pick up, for example, as you said, over the next year, two years. But just looking at the last three years' numbers FY17 included, is that the right way to say it has not amounted to too much? How would you respond to that briefly?
A: The 2014-2015 and 2015-2016 numbers, one cannot expect it to be very high because defence is a segment, unlike a consumer segment where you start foreign direct investment (FDI) and the very next day people start putting money into it. But 2016-2017, it should have been a little bit more, the numbers are still very low. So, that feeling is still there. 2017-2018 people have been a bit cautious in their approach. As I said some time back the modern technology wording in place of the state-of-the-art technology, that itself will make a big change into it.
Prashant: Will you revise your revenue guidance lower? You had put out a revenue number of Rs 550 crore. Nine-month revenue is about Rs 275 crore.
A: As I said, our topline which was slightly higher in the earlier days, that is basically on account of EPC business and we have actually started slowly withdrawing from the sugar related EPC business and that is the reason why our topline comes down. But our focus will be basically on the manufacturing. Walchandnagar's strength has been heavy engineering, manufacturing and engineering. So, the topline though is going to come down, definitely in the years ahead the profitability will be more because we will be only focusing on the manufactured products.