The Mahindra Group has grand plans for the defence industry. Bhupesh Bhandari finds out more
The factory south of Faridabad looks nondescript. There’s nothing to tell this is India’s first private factory dedicated to defence production. It belongs to Defense Land Systems India (DLSI), owned 74 per cent by the Mahindra group and 26 per cent by BAE Systems of Britain. In two sheds, spread over 110,000 sq ft, dozens work on armoured and bullet-proof vehicles — the Rakshak (on the Armada platform) for the Jammu & Kashmir Police, Scorpios, and even a Mahindra Navistar bus.
There are four 6X6 Ural trucks at one corner, on which will be mounted bullet-proof hulls made of imported steel once the body has been taken off the chassis. The mine-protected vehicle (it is yet to get a name) can seat 16 passengers, run 800 to 1,000 km on a fuel tank of 200 litres and can withstand 14 kg of TNT under the body and 21 kg under the wheel. The design of the hull is angular so that the pressure waves caused by the blast aren’t absorbed and get deflected. The company claims it’s just the right armoured vehicle for paramilitary operations in Naxalite-affected areas.
The factory has got an order for six from Jharkhand, and more are expected from Jammu & Kashmir. A prototype has been sent to Maharashtra, and a team from Nepal has shown interest in the vehicle. Once the orders are in, the factory is hopeful that it will roll out a mine-protected vehicle every two days. “I have told the home ministry,” says DLSI Managing Director & CEO Brig (Retd) Khutub A Hai “if the government puts in Rs 200 to 250 crore (in this vehicle), the casualties to the paramilitary forces will come down 90 per cent.”
In the basement of an adjoining building, overhead projectors create a 3D video of an infantry combat vehicle. With the help of a keyboard, one can see it from inside, behind and underneath. Any defect in design can be corrected here before the drawings are sent to the factory. There are simulators for the driver as well as the gunner seated next to him. This is the first step in Anand Mahindra’s plans to make it big in defence. It’s driven by more than just a citizen’s concern for the country’s security — various think-tank estimates suggest that the Indian armed forces will buy equipment worth $75 to 100 billion over the next seven or so years. Defence production has been opened up for the private sector with 26 per cent foreign participation. The procurement policies have been amended to allow companies to bid for orders. The flip side is that very few purchases have been made through this route.
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Hai, commissioned into the cavalry in 1966, left the armed forces in 1998 to join Mahindra & Mahindra. The government had sent out the first signals that the monopoly of the state-owned ordnance factories and the public sector in defence could end and there could be a role for the private sector. Mahindra & Mahindra, aware that the demand for deference equipment would stay buoyant for some time, started a division called Mahindra Defence Systems. It started out by supplying to the armed forces the utility vehicles the company made. The next step was to armour-plate some of these.
Sometime in 2003, the government announced in Parliament that Mahindra & Mahindra had been issued a licence to make small firearms. The government was keen to replace the sten-guns of World War II vintage with better guns. It would initially procure 50,000 of these, and, if the quality was good, place an order for another 200,000. The licence was a huge leap of faith for Mahindra & Mahindra. It tied up with an Austrian company called Steyr. To begin with, Mahindra Defence Systems would market these guns in India; subsequently there was to be local production in a joint-venture with the Austrian company. “We did a lot of work to customise it (the gun) to Indian conditions. But no decision came for five to six years; so we exited,” says Hai who is also the chief executive of Mahindra Defence Systems. That decision, for the record, has still not been made. The licence has expired and Hai no longer wants to be in that line of business.
Around the same time, Mahindra Defence Systems got into naval systems – parts for torpedoes, decoys, mines et cetera. Over the years, its factory near Pune has also developed and sold torpedo launchers, gun cowls for anti-aircraft guns and sea mines to the Indian Navy. But its bread & butter is armour-plating. The market is worth Rs 200 crore per annum, of which Mahindra Defence Systems claims to have the biggest share. Its financials are not known because it’s a division of Mahindra & Mahindra, though Hai says the division is small yet marginally profitable. Also, armour-plating is low-tech. Clearly, if the business has to grow, it needs to move up the value chain. The answer, Hai says, resides in joint ventures. “Where we lacked was the latest technology; so we wanted joint ventures to leapfrog.”
In 2008, Mahindra Defence Systems initiated talks with BAE Systems. It then applied to the government for a 51-49 joint venture, but the proposal was turned down because foreign participation was allowed only up to 26 per cent. Last year, the venture was finally put in place in its current form (74-26). The licence it owns allows it to make armoured vehicles, infantry combat vehicles, artillery guns and even tanks. First off the block is the mine-protected vehicle. Next, Hai says, could be artillery guns. The armed forces have aRs 20,000-crore programme to modernise its artillery — towed guns, ultra-light howitzers, track-mounted howitzers and self-propelled guns. To begin with, BAE Systems will source 50 per cent of the work from Defence Land Systems India. “Ultimately, five to seven years later, it is every intention to make the full artillery gun here,” says Hai. “It may not be at the Faridabad factory. We will need 30 to 40 acres; it will be a separate factory.”
BAE Systems, to be sure, has already got an order (through the governemt-to-government route) for howitzers worth Rs 3,000 crore, but has decided not to participate in a Rs 8,000-crore tender for 1,580 towed guns. It so happened that BAE Systems was the only bidder in the fray, which the rulebook doesn’t allow. The government subsequently came out with newer specifications for the guns in the hope that these would attract more vendors. Instead of altering the specs, BAE Systems has decided to withdraw from the bid. Undeterred, Hai has his eye next on a $12-billion order to replace old infantry combat vehicles of Russian make. “We hope to be the largest defence land systems player in Asia in the next three to four years,” says Hai. “We are now applying for an all-encompassing licence for defence systems which is under process now. Small arms have been kept out of it, though it includes artillery guns, rockets and missiles.”
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The next joint venture could happen in naval systems. “We are close to signing a memorandum of understanding with a leading company of the world,” says Hai. “This would go into niche areas because the payoff is good as there is less competition. We have stuck to underwater weapon systems. The joint venture will extend what we are doing with superior technology and a wider range of products like sonar, sonar buoys and torpedo defence systems.” After that could be the turn of communications. “It is an area which interests us. We have land systems, naval systems and hopefully at some time air systems also (we have Mahindra Aeropsace); electronics goes into all,” says Hai. “I would call it systems integration — electronics, hardware and software. We have plans to inorganically acquire that capability.” Since the country lacks these capabilities, it will have to be a global acquisition. “Ultimately, we want to become a large scale integrator of weapon platforms,” Hai adds.
In addition, Mahindra & Mahindra has set up at Ras Al Khaimah in the United Arab Emirates a company called Mahindra Emirates Vehicle Armouring to sell in markets like Afghanistan, Iraq and North Africa. (Mahindra & Mahindra owns 51 per cent of it, the rest of the stake is with Arabia Holdings and Ras Al Khaimah Investment Authority). It started operations in April. Hai, whose third hat is the chairman of this company, says a sizeable order has come from Ghana for armoured Scorpios. Oman is keen to order the Marksman light bullet-proof vehicles build on the Scorpio platform. “Ultimately, we will have to look at the international market,” says he. But there will be some restrictions. BAE Systems, thus, will not take DLSI products to sensitive markets like Pakistan and China, while Mahindra Defence Systems won’t take these products to markets like Iran which BAE Systems could be sensitive to.
But that’s in the future. Before that, Hai wants to leverage the capabilities within the Mahindra group to augment his product portfolio. His division already uses utility vehicles and buses made by the group for armour-plating. In the days ahead, Mahindra Systech companies, which make automotive components, will be called for help in making the infantry combat vehicle. “We are using Mahindra Satyam for work around battlefield management systems and Tech Mahindra for telecommunications,” says Hai. “Now we have got SsangYong as well.
Who knows how we may use it in the future.”
