India Aerospace & Defence Sector Report

Foreword
Dr. A. Didar Singh

Secretary General, FICCI
India has emerged as the worlds largest arms buyer over the last couple of years and is in the process
of replacing an ageing Soviet-era military hardware with modern military weapons from major defence
manufacturers such as USA, Israel, Russia, UK and France. The Indian defence sector is set to embark on
a significant growth path in the near future as a result of a slew of initiatives taken by the Ministry of
Defence, such as increase in FDI, delicensing of non-lethal and dual use items and a declared export
strategy. With the announcement of the Make in India campaign by the government, the
manufacturing sector is likely to gain momentum to which the defence sector expected to make a
significant contribution.
FICCI has been a votary of a vibrant defence manufacturing base with a level playing field for the
private sector. Ever since the defence sector was officially opened to the private sector in 2001, the
Indian industry has welcomed the move and has expressed its desire to repeat the success stories of
the space, atomic energy and automotive sectors in defence. This strategic sector till date has
progressed slowly and India has taken gradual strides in evolving industry and investor-friendly
policies. Defence has been accorded the highest priority by the present government with the Honble
Prime Minister himself emphasizing the commitment and focus on defence on every major occasion.
The government is further streamlining the acquisition process by simplifying the Defence
Procurement Procedure to eliminate red tape and facilitate speedier acquisition for meeting the
operational requirements of our forces.
FICCI has been at the helm of the policy dialogue with the Ministry of Defence, user and other
stakeholders towards establishing a modern Defence Industrial Complex and many of its
suggestions have been built into the policy framework.
The FICCI-Centrum Report has highlighted the recent initiatives undertaken by the government to
encourage industry, to come forward to partake of the growth of this strategic sector. I believe that this
report will help readers to gain a 3600 perspective on the Aerospace & Defence sector and
opportunities in India. The snapshot of a few selected defence companies (representing Public, Private
and MSME segment) has given valuable information which can be used by corporates to analyze the
sector from an investors perspective.
India : Aerospace & Defence
Foreword
Chandir Gidwani
Founder, Centrum Group
Indias security environment is defined by a complex interplay of regional and global imperatives and
challenges. As India seeks to achieve transformative national growth and development internally, we
have to pursue a robust defence strategy and policies which aim to address the wide spectrum of
conventional and non-conventional security challenges faced by the country.
We at Centrum believe it is time for Aerospace & Defence Sector to be given its long over-due
recognition as a core industry as is the case in most developed countries. With the Honorable Prime
Ministers call for Make in India we believe the national priorities have been set and the Aerospace &
Defence Sector will meet the challenge in building a vibrant Defence Industrial base in India. This
would also encourage and attract investments in indigenous strategic Defence programs and the
Indian Defence industry to be SFDLPOFEXJUI.
Emphasis should be given on public-private collaboration to bring in an efficient system in place and
promote Bcompetitive environment whichXPVME help in setting up Bdefence industrial base in the
DPVOUSZSimultaneously, there is a need to identify areas and critical technologies which are essential
UPDSFBUFrobust Defence capabilities and to develop such technologies indigenously.
This is possible only through an investor friendly regulatory regime that provides for technological selfreliance in defence systems and encourages investment in developing critical infrastructure for the
Aerospace and Defence industry. The report is also a ready compendium of the opportunities based on
the current policy framework and assessing the future demand-supply scenario besides showcasing
the way forward.
I am sure stakeholders across the value chain of Aerospace & Defence Sector will find this report useful.
India : Aerospace & Defence
About Centrum
Focused Approach to Defence Sector Advisory
Centrum Capital Ltd. is a diversified financial services company listed on Bombay Stock Exchange
with market capitalization of Rs8bn1. Centrums primary area of business is:
x
x
x
x
x
x
x
Syndication (Debt & Equity)

Mergers & Acquisition Advisory
Joint Venture Advisory
Institutional Broking
Portfolio Management Services
Wealth Management
Money Exchange
Defence Sector is covered extensively at Centrum as we believe the sector presents a huge
opportunity for Indian players in various segments. This coverage is under the guidance of Brig.
Chacko Ipe (Retd) and supported by Sandeep Upadhyay and his team. We have handled advisory
mandates in the Defence sector for leading players across various products including:
x India Entry Strategy
x Joint Venture
x Fund Raising
Some transaction closures in the past across sectors:
x Leading Defence Company of USA
India Entry Strategy
x Adlabs Imagica (Theme Park)
Debt Syndication of INR Rs14,000 Mn
x Adlabs Imagica (Theme Park)
Equity Syndication
x Hindustan Dorr Oliver (EPC)
Debt Restructuring
x Dighi Port Limited
Debt advisory of INR 15,500 Mn.
x Transpole Logistics
Raised PE of ~INR 70 mn from Fidelity
x Hemavathy Power and Light Ltd
M&A advisory for 100% sell out to Greenko Group Plc
x Indrajit Infrastructure
Debt advisory for 80 MW power project
x Soham Renewable Energy India
Private Equity
x Aqua Logistics
Lead Manager for the IPO
x Aegis Logistics
Advisor for raising Equity
x Innovative B2B Logistics
Raised debt for capital expansion
As on 29th January 2015
INDIA
6th Feb 2015
India: Aerospace & Defence

Sector Report
Today India, Tomorrow World Secular Growth Sector

After growing in line with nominal GDP in the last decade, we believe Indian companies in the defence sector (in
aggregate) are poised for sustained high growth in the next decade and address an opportunity that could reach
$41bn in size by FY22 (7xFY14). We believe this will be driven by both higher domestic and external demand
unlike in the past when it was entirely by the former. While higher indigenous content (currently at 30%) in the
Indian defence capital spend will be the near term driver, we expect exports (hitherto negligible) to be a key long
term factor (offsets to begin with, cost effectiveness driven outsourcing later on). We believe fiscal constraints in
developed markets over the next 5-10 years will put defence spending under pressure. With intensifying
competition between US and European systems integrators, price pressures are a certainty. Over the past 4-5
years we have seen an explosion in partnerships (JVs and MOUs) between Indian and global players (likely due to
relaxation of controls on export of defence technology by the US and other countries and also by lack of choices
as China is still on the banned list). These partnerships will exploit offset and indigenization related demand,
near term. These would also set the stage for India becoming a critical part of the supply chain of global players
for components and sub-assemblies, driving export growth, long term. There is evidence that such a move is
already on. We believe India has some of the basic ingredients (large and relatively low cost engineering talent
pool, comfort of western nations with India from a geo-political perspective) to deliver on this opportunity but
will have to significantly improve on some others (technology, lack of a defence manufacturing ecosystem, etc).
Besides, we believe the nature of warfare is becoming more software intensive, which plays into the strength of
India with IT Sector Growth and its diversified presence. Post 10-15-year learning curve we expect some Indian
companies to move up the value chain to become independent systems integrators across technology-designsystem integration value chain in their own right or be part of significant consortia.
The opportunity has critical mass, good growth and longevity: As it repairs its finances, we expect US to play a less
active military role in the Asian region in the foreseeable future. This will coincide with the economic and military
ascendancy of China that could lead to greater tensions with India. Already China has widened the lead with India in a
number of areas of defence (3.5x Indias military spend in 2013 vs. 1.5x in 2000). With troubled borders, India will have to
increase its defence spend/NGDP to 2-2.5% (vs. FY14 spend of 1.79%) to close the gap. This is also required to correct
under spending on capex in the last 20 years. While the revenue part (60%) of the defence spend is largely internal, the
capex (~40%) is largely import focused (70%+, India is among worlds largest arms importers) leading to a relatively
small domestic defence sector with Defence PSUs (HAL, BEL, BEML, BDL, MDL, GRSE) having a significant share. Private
companies, restricted from defence production until 2001, seem to have caught up lately. We believe the low base sets
the stage for strong growth ahead for private companies. Credible defence initiatives have been taken over two decades
by large industrial groups like Tatas, L&T, and in the past decade by M&M, Bharat Forge, Godrej, Pipavav, Rolta, among
others.
Competitive moats are fairly wide: Technology is the key driver of competitiveness. For Indian companies this has to
be accessed either through DRDO, a foreign JV partner or developed through internal R&D spend. This we believe puts
larger Indian companies (both PSU and private) in a significantly better position to be system integrators compared to
smaller ones that will assume tierised roles. The role of MSMEs will be significant as they are houses of innovations and
champions of niche technology and products. These niche technology and products along with system integrators will
play a critical role in building Indias defence manufacturing base.
With homegrown technology developed in a few segments and relatively under-developed in others, credibility and
flexibility of foreign partners and their governments on flow of technologies and joint development will be winning
This sector report Is prepared
factors for Indian players. However, in the long term, just as in the pharma, automotive and IT sectors we believe India
jointly by:
has the capacity to be an R&D base. Also, with global systems integrators restructuring in the new normal defence
Federation of Indian Chambers spending era, and looking to diversify revenue streams, there will be many opportunities to buy assets in the developed
of Commerce and Industry world. Indian companies with deep pockets can potentially hasten their process of becoming systems integrators by
buying some of these entities (eg: Mahindras bought Gipps Aero Australia and Aerostaff Australia, Piramal bought
(FICCI)
Bluebird Aero).
Exports to be a large opportunity; driven by significant cuts in US spending: Of the $1.7trn defence spend (2013
SIPRI estimate), ~55% comes from the developed world with 37% from the US alone. With pressure to control fiscal
deficits and lower Debt/GDP ratios, we believe defence spending will be a major casualty. Despite the financial crisis in
2008, defence spending sustained because of Iraq and Afghanistan wars. Post that, US indicated a cut of $450bn to
$1.1trn over 10-12 years if other deficit reduction plans do not materialize. Western nations will however not want to
compromise their national security even under these circumstances. This will lead to higher level of outsourcing as
defence forces world-wide will seek better price from vendors.
AND
Opportunity for Investors will open up: We believe opportunities will expand both in PSUs (as government divests)
Centrum Capital Ltd
and private companies (as conglomerates spin off defence entities, new pure play defence entities execute well and
become larger) for financial investors. Defence sector has size, steady growth, longevity of opportunity, returns ratios,
etc which will work in its favor compared to many other sectors in India. We believe large Indian private conglomerates
with varied skill-sets currently housed in multiple unconnected subsidiaries will pounce on the opportunity. Frugal
engineering and manufacturing practices, design skills and competence in software, metallurgy, understanding of
export markets, ability to build relationships with foreign government will be the winners in the long term.
Executive Summary
Indian Defence Sector Secular Growth Story
Indian defence sector is at the cusp of an inflexion point wherein the future growth will be propelled
by indigenous manufacturing both for domestic & global clients. We believe the sector will witness
strong growth over the next decade due to its current size, longevity, and competitive advantages.
Indian defence spend is large when compared to other spends in the economy but is underrepresented in terms of market capitalization on listed stock exchanges. The defence spend has
been in the 2-2.5% range of the nominal GDP in the past decade while market capitalization of
Indian defence companies has never been above 0.7% of the GDP at any given point in time. The
key reasons for this are:
A large part of spend (60% currently) is revenue expenditure which is internal in nature. Unlike
in the US where some non-core functions are outsourced, Indian armed forces have always
relied on doing these functions internally. We see these functions changing over the next 5 - 10
years though we believe this area is unlikely to grow as fast as the capex.
Of the capex (40% of the budgeted spend) about 70% is imported in fact India is among the
largest importers of weapon systems globally. This is reflected in lower revenues of Indian
corporates.
Major defence PSUs are HAL, BEL, BEML, Mazagon Docks Limited and Bharat Dynamics Limited.
Of these, BEL & BEML are listed on Indian stock exchanges BSE & NSE.
Large private sector firms are all part of listed entities like L&T, Tata Power, Tata Motors, M&M,
Bharat Forge, or unlisted unlisted holding companies like Tata Sons.
However we see this situation changing over the next 10-15 years. Our belief is based on the
following:
We expect defence spend to move closer to 2.25% (from the lowest ever number in FY14 at
1.79%) of Nominal GDP as US repairs its financials. This we believe will be accompanied by an
assertive and high spending China, which India will try to counter by increasing its own level of
spending. While the Indian fiscal may not be in the best shape currently, we believe relatively
better growth and increase in Tax/GDP ratio post implementation of tax reforms, widening of
tax net and removal of exemptions, will give it fiscal firepower.
We believe the Capex/opex mix will shift towards capex in the coming decade. We expect the
mix will shift towards 50:50 or higher vs. 60:40 in favor of opex now. We believe the focus will
be on smaller, smarter and a more effective armed force.
o We believe indigenization will take center stage and gather pace going forward. Government
took a number of steps in this direction, by opening up defence production to the private sector
and allowing 26% FDI in 2001 and defined categorization hierarchy in favour of indigenous
procurement in 2013. Recently, the FDI limit was further raised from 26 percent to composite
cap of 49 percent (FDI and FII) through the Foreign Investment Promotion Board (FIPB) route
with full Indian management and control. With technology transfers becoming easier in recent
times, we believe this will gather pace. DPP 2013 furthers the cause of developing domestic
defence sector by prioritizing procurement from Indian companies and buying from global
companies as the last resort.
Under the Make in India initiative introduced by Honble Prime Minister Narendra Modi,
simplification of the Make procedure, financial incentives in terms of a tax holiday and
incentivizing R&D were announced. GoI has streamlined the offset policy with innovative
components by giving thrust to MSME sector and streamlining export procedures. It has also
been decided to promote defence and aerospace exports through an export promotion body.
We believe that this initiative will incentivize private players to invest more into Aerospace and
Defence sector and help exports grow.
The offset clause (which stipulates that 30-50% of the armament purchase value should be
spent on buying Indian components, sub-systems and products) introduced in capital purchase
agreements with foreign defence players will ensure that an ecosystem of suppliers is built
domestically. Besides helping build domestic capabilities, it will bolster exports in the long
term.
We also believe India will become a large sourcing base for components and sub-systems in the
years to come for foreign systems integrators. We believe this will happen as these companies
face price pressure in the years ahead as the large arms consumers US and the western
developed world seek cut backs on defence spending to improve their financial position and
rein in fiscal deficits and debt/GDP ratios. Already a number of JVs have been signed between
Indian and foreign players. We also see initial signs of global players setting up R&D divisions in
India and sourcing parts of final products from Indian vendors.
We believe India has some of the basic ingredients (large and relatively low cost (Frugal)
engineering talent pool, comfort of western nations with India from a geo-political perspective)
to exploit this opportunity but it will have to significantly improve on some others (technology,
lack of a defence manufacturing ecosystem, etc). Also, we believe the nature of warfare is
becoming more software intensive, which plays into the strength of India considering IT sector
growth in the past two decades.
In the next 5-10 years we expect Indian players to become systems integrators. We believe this
process could be hastened by inorganic initiatives by groups with deep pockets (L&T, Tata,
Mahindra & Mahindra, Reliance Industries, Bharat Forge, etc) who may pick up assets divested
by foreign defence players as they restructure and become trimmer (eg: Piramal bought
Bluebird Aero of Israel in 2012).
While our expectation on defence exports ($17bn by FY22) may seem audacious considering
the very small base, we have been in similar situation in other sectors too in the past (IT services,
Pharma and Auto). Catalysts have brought out inherent strengths of the Indian corporate
sector.
a.
In the case of IT services it was Y2K phenomenon and the development of the
internet (which made offshore delivery possible in large quantities). Later, it was
the moving up the value chain from pure IT to IT enabled - Engineering Services
offering high-skill high-talent pool for offloading design and engineering services
to India.
b.
In the case of the Pharma sector it was the genericisation of the space as patents
expired in the developed world.
c.
In the case of the Auto sector, it began with auto ancillaries and then low
employee costs combined with an extensive supplier base led India to become the
worlds small car hub.
Recently, during the US President visit, Indo-US ties reached a new high with President Barack
Obama and Prime Minister Narendra Modis announcing the renewal of the expansive defense
ties for another 10 years. India and the US decided to kick off joint manufacturing of four
relatively modest military products and explore the development of two more high-end
technologies. The two nations agreed to step up joint combat exercises, maritime security
endeavors, intelligence-sharing mechanisms and military exchanges.
All these involve active support of the government through appropriate incentives.
Financial Investors Should Look Forward to Increased Activity & Stable

Returns
Significant wealth creation likely: While current investible universe is very small, we believe
opportunities exist in both the PSUs (as government divests) and private companies (as
conglomerates spin off defence entities, new pure play defence entities execute well and become
larger). In our opinion, this is a sector where size, steady growth, longevity of opportunity, returns
ratios, etc. will work in its favor compared to other sectors in the Indian investible universe. We
believe large Indian private conglomerates that bring varied skillsets currently housed in multiple
unconnected subsidiaries will pounce on the opportunity frugal engineering and manufacturing
practices, design and software skills, expertise in metallurgy, understanding of export markets,
ability to build relationships with foreign governments, will be winners in the long term. We see
credible defence initiatives being taken up by large industrial groups like Tatas, Larsen Toubro,
Mahindras, Bharat Forge, Rolta, SKIL Infra, among others. Besides these we believe PSU entities like
HAL, BEL, BEML, BDL, MDL will also be significant beneficiaries.
We believe investors will have to look at the following points when considering investments:
That the opportunity will move up 7x over the next 8 years; Growing at rates higher than NGDP,
this sector could be dubbed a growth sector attracting premium valuations. While some
amount of competition driven margin pressure is likely, earnings growth should be higher than
NGDP, if not in line with industry growth.
We believe return ratios of some leaders should be significantly better than those of most other
companies/sectors in the market.
Risks of investing in the sector

Significant slippages on the fiscal front, lengthy procurement and evaluation processes and
frequent changes in procurement organization, controversies related to corruption and disputes
over short listing in competitive bids and public private partnerships will delay acquisition plans of
the armed forces and impact timing of revenues and earnings of companies. With a stable
government in place and its commitment on modernization and indigenization of the armed forces,
we hope acquisition programs will be executed in a time bound manner.
Deals in Aerospace & Defence Sector

Though deals in the defence space are very few, we believe, this sector will witness increasing
number of deals as regulatory policies are streamlined driving the overall defence sector.
Exhibit 1: M&A Deals in the Defence Sector
Target
Aviation Software Devlp &
Consult
Spectrum Infotech
Avalon Aviation
AST Security Equipment
VISaer
Mahindra Aerospace Ltd &
Kotak Private Equity
Indamer
Vaksh Steels
GKN Aerospace Engineering
Services
3B The Fibreglass Company
Aurora Integrated Systems
Bluebird (Israel)
Tesco GO
BF Elbit Advanced
Cambric Corp
Thales Software India
Rangsons Electronics
Acquirer
Industry
Year
Amt
(US$
mn)
TCS
IT Products (Aviation)
2004
N.A.
Larsen & Toubro

Aptech
MKU
IBS Software Services
Buyout of Aerostaff Australia
& GippsAero
European Aviation Hold.
Pitti Laminations
Defense Electronics
Aviation Training
Defense Products
IT Services (Aviation)
High-precision aircraft components
and assemblies
Aviation (MRO)
Manufacturing
2006
2006
2008
2008
N.A.
5
4.5
2009
$35mn
2009
2011
N.A.
-
Quest Global
BPO (Engg. - Aerospace)
2011
N.A.
Binani Industries
Tata Advanced Systems
Piramal Enterprise
JBM Group
Bharat Forge
Tata Tech
L&T Tech
Cyient
Mfg- Fibre Glass

IT & ITES
Defence (Tactical UAV Systems)
Aerospace
Aerospace & Defence
Aerospace & Defence
Aerospace & Defence
Elect. & Mfg (ESDM)
2012
2012
2012
2012
2013
2013
2014
2015
360
8
N.A.
N.A.
N.A.
N.A.
NA
Source: Venture Intelligence
Exhibit 2: PE Deals in the Defence Sector

Target
Investor
Industry
Year
Astra Microwave
Turbotech Precision Eng.
Adayana
Pipavav Defence
Delopt
Air Works
Delopt
Trusted Aero & Engg.
MTAR Tech
Dynamatic Tech
Dynaspede Integrated
Trident Infosol
Aero Facility India
Air Works
Maini Global Aerospace
Air Works
Frontline Strategy (29%)

Micro-Turbines
Kubera Partners
Citadel, Trinity & 2i
Axis Holdings
GTI Group
Axis Holdings
Subhkam Ventures
Blackstone
New Vernon, Others
Kotak PE, SIDBI VC
SIDBI VC
ME Sovereign Fund
NEA & Elephant Capital
Pinebridge
KKR
Microwave
IFC
IT & ITES
Shipping & logistics
IT & ITES
Aviation MRO
IT Services (A&D)
Aerospace & Medical Comp
Defence Tech
IT & ITES
Manufacturing
IT Products (Defense)
Aviation MRO
Aviation MRO
Aerospace
Aviation MRO
2002
2004
2007
2007
2007
2007
2007
2007
2007
2008
2008
2010
2011
2011
2011
2012
Amount
(US$ mn)
N.A
0.6
20.05
77
1.58
10
N.A.
N.A.
65
16.2
8
3.3
10
27
10
N.A.
Source: Venture Intelligence
Current Domestic Defence Production is Insufficient

Although private players were allowed entry into the Indian defence market in 2001, they
have struggled to gain significant market share until lately. For the better part of the last
decade, defence PSUs dominated the market and continued to be nominated for almost all
major orders. Compounding the late entry was lack of access to technology from western
countries as export of military technology and dual use technology was banned post
Nuclear Explosion in 1998. This is one of the main reasons behind domestic industrys lack of
capacity in defence production outside Defence PSUs with a few exceptions in the private
sector. This is despite the private sectors reasonably well-developed manufacturing
capabilities. The AVRO case is a glaring example of public sector stalling private sectors effort
to develop second line of aircraft manufacturing in India. In 2012, to meet the requirement of
the Indian Air Force, the Defence Ministry tendered out 56 AVRO aircrafts for the IAF. The
situation has changed with focused indigenization agenda starting with Defence Production
Policy 2011 and Defence Procurement Procedure of 2013 that mandates hierarchical
categorization of procurement in favor of indigenous buying. Along with it controls by
foreign countries and OEMs on export of military technology to India were eased.
Key Players in Indian Defence Industry

Historically, the government restricted private sector participation because of inherent securitysensitive nature of the industry. As such, the private sector is relatively young and is behind the
DPSUs/OFs in terms of infrastructure and DRDO in terms of R&D capability. However, in recent years
private sector has found favor with government and attracted increased interest from foreign
systems integrators. With this combination of legislative support and capital/expertise inflow,
private companies have experienced notable growth. They still have room to increase their market
share. Exhibit 3 shows the current estimates of the market structure in the domestic defence
industry.
Exhibit 3: Breakup of Domestic Defence Market
SMEs
17.5%
DPSUs
37.5%
Large enterprises
32.5%
Ordnance
Factories
12.5%
Source: Institute for Defence Studies and Analysis
1) Defence Public Sector Undertakings (DPSUs)

The Indian government first created the DPSUs in early 1960s to demonstrate their intention to
pursue self-sufficiency in defence production. Although the liberalization process in the 1990s led to
India opening up private participation to 100% in the defence industry in 2001, the public sector still
dominated. Currently, the public sector including OFB accounts for 60% of indigenous defence
manufacturing and around 3/4th of which can be attributed to the 8 DPSUs. DPSUs have significant
advantages over private peers because of their MoD ownership. Critically, they receive the following
benefits and still enjoy their share of autonomy.
Access to latest technologies through DRDO and till recently, exclusive rights to ToT (transfer of
technology) from Foreign OEMs
Beneficial tax policies to DPSUs and their foreign partners
Nomination for / Prioritization for defence contracts
Favorable Payment terms (advances as well as multiple progress payments) and risk coverage
by Government for Forex content of nominated contracts
Indexation for Local Inflation
Despite these benefits, DPSUs have grown at best in line with the defence spend and have not been
able to displace foreign systems integrators and have borne the brunt of criticism from the armed
services and government representatives. Problems include lack of emphasis on in-house R&D,
technology dependence on Foreign OEMs for successive generation of equipment and systems and
for upgrades, low labor productivity and decreasing value addition as a percentage of production.
DPSUs have also been blamed for depending too much on external sources for production
requirements, thus directly contradicting their main objective of achieving self-sufficiency. Ironically,
most of this is outsourced to domestic private companies at prejudicial terms (delivery based
payment terms) even though DPSUs themselves have been very vocal in their opposition to
governments continued support of private participation in the defence industry.
Exhibit 4: Defence PSUs and their activities
DPSU
Product areas
Hindustan Aeronautics
Limited (HAL)
Design, development, manufacture, repair and overhaul of aircraft, helicopters, engines and their accessories
Bharat Electronics Limited

(BEL)
Design, development and manufacture of sophisticated state-or-the-art electronic equipment components for the use of
the defence services, para-military organizations and other government users
Bharat Earth Movers Ltd

(BEML)
Multi-product company engaged in the design and manufacture of a wide range of equipment including specialized
heavy vehicles for defence and re-engineering solutions in automotive and aeronautics
Mazagon Dock Limited (MDL)
Submarines, Larger Warships - destroyers, frigates and corvettes for the Indian Navy
Garden Reach Shipbuilders &

Engineers Ltd (GRSE)
Builds and repairs smaller warships and auxiliary vessels for the Indian Navy and the Coast Guard
Bharat Dynamics Limited

(BDL)
Missiles, torpedoes, torpedo counter measure system, counter measures dispensing system
Mishra Dhatu Nigam Limited

(MIDHANI)
Special Ferrous and Non ferrous Alloys for Aeronautics, space, armaments, atomic energy, Navy special products like
maraging steel, molybdenum wires and plates, titanium alloys and stainless steel tubes, alloys etc.
Goa Shipyard Ltd (GSL)
Builds a variety of small size, special purpose ships and auxiliary vessels for the defence, Indian Coast Guard (ICG) and civil
sectors
Hindustan Shipyard Ltd (HSL)
Acquired from Ministry of Surface transport. Engaged in Ship and Submarine repairs, commercial ships and repairs of
offshore rigs
Source: Respective Organization Website
2) Ordnance Factories
The Ordnance Factories Board (OFB) is by far the most experienced defence manufacturing entity.
First established in 1775, the OFB now operates directly under Ministry of Defence with the primary
objective of achieving self-sufficiency in equipping the Indian Defence Forces. Currently there are 41
factories spread across the country active in the production of military equipment for the Army,
Navy, and Air Force. Recent estimates put its contribution to total domestic defence production at
10-15%. As with the DPSUs, ordnance factories enjoy government funding and the latest available
technology. They are often criticized for very low labour productivity and poor quality and
increasingly subcontract to MSMEs
3) Defence Research and Development Organization (DRDO)

The government established DRDO in 1958 as the research and development wing of the Ministry of
Defence. DRDO receives allocation of 5% of total defence budget. Its primary objective is to develop
cutting-edge technologies that can be implemented in weapons systems. Although DRDO has
made good strides, with Rs1 trn worth orders for its systems to date, it has had to do so without
technology from foreign sources. Till recently, the lack of transfer of technology provisions in
partnerships with foreign contractors limited the ability of the DRDO to integrate new complex
technologies in their systems.
10
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2013
2014
Increasing FDI Limit is Not the Ultimate Remedy for Addressing

Core Issue of Transfer of Technology
The Indian government has been taking steps to develop a sophisticated domestic defence
industry. To truly achieve self-sufficiency in military procurement, it still has some decisions
to make and reforms to enact. FDI in the defence industry currently has a limit of 49% with an
option to increase it to 100% if the deal involves high-end technology transfer and is
approved by MoD. Post partial success of opening up the sector to foreign players on 49%
FDI through automatic route, many stakeholders are seeking further increase in FDI cap up to
100%.
We believe mere increase in FDI does not necessarily lead to Technology Transfer.
FDI limit has the potential to have the largest impact on shaping the industrys future. If we consider
that many other sectors have had their FDI caps lifted (private banking at 49%, non-banking
financial companies at 100%, power at 100%, pharma at 100%, real estate at 100%, public
transportation at 100%) it is not unreasonable to expect the FDI cap in defence to be done away
with completely.
Key Issues to be Given Importance While Approving Increased Defence FDI:
14
Control in Indian hands: Defence being a strategic sector, the domestic partner should
maintain 51% stake and Majority control in the JV all the time.
OEMs Host Government Must Approve Transfer of Technology Agreement: It is a major

factor affecting OEMs capability to share technology despite increase in FDI share. This is
mainly because defence technologies are strategic assets and funded through taxpayers
money limiting the intent to transfer / share with another country. Hence, the OEMs Host
government should approve of the ToT Agreement with the Indian government / partner.
IPRs to reside within India: The technology developed by the Indian Joint Venture should be
of global standards and the IPRs should reside with the JV in India.
Give Priority to Indian nationals in hiring and recruitment: The JVC should hire Indian
nationals at operational and supervisory levels wherever possible. Only in situations, where it is
imperative to have foreign nationals, such as in technology transfers, training etc, should they
be hired.
Technology Development
MoD revises offset policy to include Transfer of Technology (ToT)
The governments general stance on ToT was not conducive to domestic industrys development
until two years ago. ToT was not included in the eligible product/service list for discharging offset
obligations. A popular concern cited by the government was that no country, especially the United
States, will be willing to hand over defence technology regardless of policy. Another reason for
abstaining from this revision was the difficulty to quantify the value of technology, and that this
could lead to foreign contractors misusing the policy to discharge offsets quickly.
However, MoD has included ToT in offset discharge obligation. In fact, if the technology is delivered
to DRDO or MSME, the multiplier effect also comes in to play.
India is on a similar trajectory as other countries, and they have all at some stage realized that the
pros far outweigh the cons. All of them have seen that developing technology is the single, most
important step to establishing a sophisticated, self-sufficient defence industry. We believe this
realization of the government is a positive step.
15
DPP 2013 Provides Priority to Domestic Source of Acquisition

One of the major changes in DPP 2013 is the change in order of priority for procurement from
indigenous sources. As per DPP 2013, the statement of case (SOC) seeking acceptance of necessity
(AON) is required to include detailed justification for recommending categorization as well as
reasons why each of the higher preferred categorization was not considered.
Exhibit 7: Preferred Categorization Of Capital Acquisition in DPP 2013
Buy (India)
Buy & Make (Indian)
Make (Indian)
Buy & Make
Buy
(Global)
Source: Ministry Presentation
Key Highlights of changes in DPP 2013

x Indigenous content requirement will now extend all the way to lowest tier of sub vendor
making way for opportunities for vendors making components to compete against cheaper
foreign components
x Penalties for not achieving stipulated indigenous content levels at each stage with a scope to
make up for the deficiency at a later stage
x Inclusion of Field Evaluation Trials (FET) stage in maintaining offset requirement
x Reducing validity of AoN from 2 years to one year except Buy and Make (Indian)
x Provision of ToT to Indian Public/Private entity, for providing Maintenance Infrastructure, would
be applicable for BUY (Global)
In a boost to the micro, small and medium enterprises sector, while DPP 2011 had identified setting
up of a fund to provide resources for development of defence equipment, the source has been
specifically identified in DPP 2013. Small Industries Development Bank of India (SIDBI) will earmark
an amount of Rs. 500 crore for providing loans, and further, a fund of Rs. 50 crore for equity support
out of India Opportunities Fund managed by its subsidiary SIDBI Venture Capital Ltd. Union
Budget has made provisions for Rs1bn Technology Development Fund to support research and
development of defence systems resources. The technology development fund will act like a
venture capital fund for SMEs doing R&D in design and development encouraging innovations.
(ToT is also defined in various categories in DPP 2013, which had not been included in DPP
2011. This will overcome ambiguity existing at present. There are five categories of ToT with
the highest involving complete transfer and lowest where there is no transfer.
Category 1: Complete transfer of technology.
Category 2: Complete transfer of technology of sub-vendor.
Category 3: Partial transfer of technology with non-transfer of technology of sub-vendor.
Category 4: Only drawings will be provided.
Category 5: Proprietary item no transfer of technology.
16
Major developments for Defence sector in the past year

x
Indo US Ties (Early 2015)

o Indo US ties reached a new high when President of USA visited India for its Republic
day celebrations. Renewing their expansive defense ties for another 10 years, India and
US decided to kick off joint manufacturing of four relatively modest military products
and explore the development of two more high-end technologies. The two nations
agreed to step up joint combat exercises, maritime security endeavors, intelligencesharing mechanisms, military exchanges and the like through the framework, which
has the key new element of Defence Trade and Technology Initiative (DTTI) to bolster
India's fledgling defence-industrial base.
o The four products to be co-produced are the next-generation Raven unmanned aerial
vehicles (UAVs), "roll-on, roll-off" intelligence-gathering and reconnaissance modules
for C-130J Super Hercules aircraft, mobile electric hybrid power sources and "uniform
integrated protection ensemble increment-2 (chemical, biological warfare protection
gear for soldiers)".
o The Raven, for instance, is not an advanced spy or combat drone. A hand-launched
mini drone, it is used by soldiers in the battlefield to keep tabs on enemy formations
within a range of 10km. The two sides, however, plan to extend its range to 18km and
flying endurance to six hours from the existing four hours. Similarly, the 12 C-130Js
acquired by India from the US for over $2 billion since 2007 did not have the requisite
surveillance modules that they will now get. They decided to setup working groups to
explore development of aircraft carrier technologies and jet engines.
Strong Push for Make in India Initiative for boosting manufacturing sector (Late 2014)
o The current focus as envisaged in recent statements and policy initiatives of the
government has focused on the desire of not just greater indigenisation or India has a
favorable manufacturing hub, but also India as exporting defence equipment and
solutions to global market.
Budget (Early 2014)

o Defence budget marginally rose from Rs 2.24trn to Rs 2.29trn, an increase of Rs 50bn.
o The government has budgeted Rs. 946bn under capital outlay. This amounts to Rs50bn
more than sanctioned in the interim budget of February 2014.
o This increase of Rs 50bn (capital outlay) includes a sum of Rs 10bn for accelerating the
development of railway system in border areas.
o FDI limit increased in defence from 26% to composite cap of 49% (FDI and FII) through
the Foreign Investment Promotion Board (FIPB) route with full Indian management and
control.
o Rs 1bn Technology Development Fund to support research and development in
defence systems resources.
o
o
o
17
Impact of the Budget announcements

Development of railway system in border areas will help in strategic movement of
defence forces and heavy defence machinery at a faster pace.
Increase in FDI limit will attract foreign investors and bring defence technologies and
much needed financial support to capital intensive defence sector.
The technology development fund will act like a venture capital fund for SMEs doing
R&D in design and development encouraging innovations.
Defence Opportunity has size, growth and longevity going for it

Indias defence spend has critical mass when compared to sectors of the economy where investors
traditionally have taken exposure. The spend on an average was 2.12% of the nominal GDP in the
past decade. However, a large part of this defence spend is not reflected in revenues of domestic
companies and therefore has not resulted in larger addressable market for domestic companies,
because of the following:
A large part of it (60% currently) is revenue expenditure which is internal in nature. Unlike in
the US where some of the peripheral/support functions are outsourced, Indian armed forces
have always relied on doing them internally. We do not see this situation changing over the
next 2 decades though we believe the spend in this area is unlikely to grow as fast as capex.
Of the capex (43% of the budget) about 70% is imported in fact India has been the largest
importer of weapon systems globally in recent times. This gets reflected in lower revenues of
Indian corporates involved in the sector. This has meant that the industrial base necessary to
support this capex has not been built up adequately.
Besides the domestic defence spend there lies the large opportunity of addressing global
markets. However, exports have been miniscule. Over the past decade from FY00-12,
cumulative exports by India were only $172m (going by SIPRI data).
We believe the opportunity for Indian companies in the next 8 years (FY14-FY22) will cumulatively
be in the region of $251bn (this is only the arms acquisitions that India is likely to make) with
domestic contribution of $105bn. We believe offsets (which will fall under exports to contribute to
as much as $41b cumulatively in the next 8 years.
Expect solid growth: The opportunity addressed by Indian companies will grow at a higher rate
than Nominal GDP as a) Indias defence spend/GDP ratio inches up to 2.25% on a conservative basis
in FY22 from 1.79% of FY14. b) capex (part relevant to Indian corporates) will increase as a
percentage of total spend. c) there is going to be greater focus on indigenization. d) offsets are
going to be a big driver of revenues going forward for the industry. e) outsourcing to Indian
companies by global systems integrators will gather pace as price pressure emerges in developed
markets.
Exhibit 8: Estimation of size of defence opportunity for Indian corporate sector (PSU and Private)
Indian Defence Spending
Global Defence Spend

FY14E:$1.7trFY22E:$1.5tr
Capex
FY14E:$14bn
Revenue Expenditure
FY22E:$57bn
Import
FY14E:$19bnFY22E:$56bn
Domestic
Offset
OutsourcingtoIndiatoincreasedueto:
Pressureonspending
Highcompetitiveintensity
NoaccesstoChinamarket
India s Engineering work force
Outsourcing
FY14E:$0.1bnFY22E:$9.7bn
OpportunitySizeIndian
PSU/Private/SME
FY14E:$2.4bn FY22E:$7.3bn
Source: SIPRI, Indian budget documents
18
Estimation of the Size of the Opportunity

We estimate the market opportunity for Indian companies (PSU + Pvt) will grow 7x from $6bn in
FY14 to $41bn by FY22. We believe our numbers are realistic as we have assumed nominal GDP
growth of 12.3% (~7% real GDP growth and ~5% inflation) during this period, which takes into
account slower developed market growth and the impact it will have on Indias growth. Based on
the estimates worked out in Exhibit 11, $41bn in FY22 will be contributed largely by domestic (60%)
and export revenues (40%). Some of the other key assumptions made in this exercise are that
INR/USD rate would be at Rs62 and the imported part of defence acquisitions will fall to 50% from
current 70%.
Some of the key conclusions that we arrive at based on this exercise are that the cumulative defence
spend over FY14-FY22 will hit close to $620bn. Capex will form half of this. New armament spend
will be $251bn with imported equipment spend at $146bn.
Exhibit 9: Summary of our estimates
Summary of the projections
Defence Spend (Rsbn)
Defence Spend ($bn)
Capex Spend (Rsbn)
Capex Spend ($bn)
New Armament Spend (Rsbn)
New Armament Spend ($ bn)
Of which
Imported Equipment Spend (Rsbn)
Imported Equipment Spend ($ bn)
Domestic Equipment Spend (Rsbn)
Domestic Equipment Spend ($ bn)
Offsets
Addressable Opportunity (Rs bn)
Addressable Opportunity ($ bn)
FY14-FY17
10,851
175
4,805
77
4,084
66
FY17-FY22
27,617
445
13,488
218
11,465
185
FY14-FY22
38,468
620
18,293
295
15,549
251
2,707
44
1,377
22
6,320
102
5,144
83
9,027
146
6,521
105
812
13
1,896
31
2,708
41
Source: Centrum
Exhibit 10: Assumptions made in our projections

Stage I
FY14-FY17
Rs/$
Average Real GDP growth
Average Inflation
Defense Budget/NGDP
Capex/Defense Budget
Import/Capex
Offset
Export Growth (non offset)
Armament Acquisition/Capex
62
7.5%
5%
2.00%
Increasing by 1%
every year
Decreasing by
1% every year
30%
120%
85%
Stage II
FY17-FY22
62
6.5%
4%
2.25%
Increasing by
1% every year
Decreasing by
3% every year
30%
100%
85%
FY14
62
5%
8.0%
1.8%
42%
70%
~35%
Source: Centrum
19
588
411
70%
176
510
357
70%
153
New Arms Acquisition Spend
New Arms Acquisition Spend Imported
% of Capex
New Arms Acquisition Spend Domestic
124
176
3
124
2
300
5
107
153
107
260
Total Export
FY14
388
6
152
236
152
150
1.8
236
68%
501
737
43%
867
2,037
351
141
210
141
140
0.8
210
69%
467
676
41%
796
1,934
Note
* = Average export number over the last 10 years as the number is very volatile Source: SIPRI
* = Also includes MRO number
** = Timing Uncertain of these flows, Assumed as exports deemed exports
Source: SIPRI, Indian Budget Documents, Centrum
Total Addressable Opportunity ($ bn)
Total Addressable Opportunity
Total Addressable Opportunity- Exports ($ bn)
Total Addressable Opportunity- Exports
Total Addressable Opportunity- Domestic ($ bn)
Total Addressable Opportunity- Domestic
123
107
Offset **
Export (related to outsourcing) + third party sales*
Export
0.1
42%
41%
% of defence budget
0.4
691
600
Capex
Defence Budget
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
511
196
315
196
192
315
67%
640
955
44%
1,123
2,577
10
605
228
377
228
219
377
66%
731
1108
45%
1,303
2,923
12
719
269
449
269
250
19
449
65%
835
1284
46%
1,511
3,314
16
985
349
10
636
349
311
38
636
62%
1,038
1674
47%
1,970
4,228
20
1,214
419
13
795
419
343
76
795
59%
1,144
1939
48%
2,282
4,795
24
1,516
528
16
988
528
377
151
988
56%
1,258
2246
49%
2,642
5,437
31
1,937
12
715
20
1,221
715
413
302
1,221
53%
1,377
2599
50%
3,057
6,166
41
2,558
17
1,055
24
1,503
1,055
451
604
1,503
50%
1,503
3007
51%
3,537
6,992
89,749 1,00,206 1,13,634 1,28,861 1,46,128 1,65,709 1,87,914 2,13,095 2,41,650 2,74,031 3,10,751
FY12
1,644
77,953
FY11
1,473
Nominal GDP
(All numbers in Rs bn unless stated otherwise)
Exhibit 11: Projections of India's defence Spend, Capex, Acquisition Size, Domestic Market and Export Market
31.4%
21.0%
22.8%
21.0%
26.6%
27.4%
26.0%
27.4%
14.7%
107.3%
26.0%
14.7%
19.2%
19.2%
16.7%
13.4%
28.9%
31.4%
27.3%
12.5%
18.5%
24.0%
100.0%
27.3%
12.5%
18.5%
18.5%
16.1%
13.4%
120.0%
24.0%
18.5%
20.3%
20.3%
17.6%
13.4%
FY14-FY17 FY17-FY22 FY14-FY22

CAGR
CAGR
CAGR
Domestic revenues to pick up pace

Domestic revenues (using HAL+ BEL revenues as proxy) grew in line with nominal GDP in the
last decade. We expect domestic opportunity for Indian companies (from arms acquisitions)
to grow from $4bn in FY14 to $24bn in FY22 at 23% CAGR. The faster growth predicted is on
the back of the following:
Indian defence budgets to grow faster than nominal GDP growth as they have fallen below
historical levels. 50% of Indian defence equipment is obsolete.
The gap between India and China has widened from a military capability perspective with the
Chinese surging ahead in a number of areas (including stealth weapons, anti-satellite weapons,
etc) driven largely by domestic R&D and reverse engineering as western technology has been
denied to it since 1989. The surge in capabilities has been accompanied by a geopolitically
assertive China. Strong economic growth and high savings rate has helped China deliver on
this. With US likely to be less active in the Asian region as it repairs its financials, we believe India
will have to spend more to bridge the widening gap
Capex to opex ratio will change in favor of Capex. as the latter will be capped. We believe that
India will aim at a smaller, smarter and more effective armed force as many other countries have
done.
Indigenization will gain momentum. We believe that from 30% indigenous components in new
acquisitions the number can go up to 50% in the next 10 years. However, this will still be lower
than governments aspiration of 70%.
A freer technology transfer regime may be prompted by better perception of India among
Western nations. This is likely due to declining sales opportunities in the western world and
better bargaining power of the buyer (India) under current market conditions.
21
Indian Defence Budgets To Witness Higehr Growth Rates

We believe Indias defence budget will grow at a CAGR of 15% over FY14-22 slightly ahead of
expected nominal GDP growth of 12.5%. In the past decade (FY01-FY14) defence budgets
grew at 12% CAGR and capital expenditure budgets by 14.7% (when Nominal GDP grew by
14%). We expect India to expand its defence budget 1) as it seeks to maintain a semblance of
geo-political balance in Asia as US is likely to withdraw to repair its financials and narrow the
large gap that has developed with China militarily 2) Massive modernization undertaken as
50% of current equipment is obsolete due to less than adequate spend on defence in the past
3) reasonably comfortable funding position on the back of healthy tax revenues and
comfortable debt/GDP ratio relative to other nations and Indias own history.
Defence Spend/NGDP ratio to improve after a decade low in FY14

After clocking a 2%-2.5% over FY01-11, the defence budget/NGDP ratio has fallen to 1.79%-1.93%
range with an all-time low of 1.79% in FY14. We believe this is likely revert to the mean of 2.25% by
the second part of the coming decade as much of Indias equipment is obsolete and it has under
spent on its defence budget. After withdrawal from Afghanistan and Iraq, US has also lowered its
role in Asian geopolitics as its defence spending has come under severe scrutiny. Recent budget
pledges by the US government indicate a cut of $450bn over the next 12 years with the number
going up to $1.1trn automatically if no areas of deficit reduction are identified by the Super
committee.
Exhibit 12: The Indian domestic corporate sector (largely PSU) has grown in line with NGDP
(%)
18.0%
16%
16.0%
14%
14.0%
11%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
HAL
BEL
CAGR(FY01-FY13)
Combined
Source: Company
China has significantly increased the gap with India militarily

Relative analysis of key adversaries India and China is given in Exhibit 17. Due to denial of defence
technology by western powers since the Tiananmen incident in 1989, the Chinese Defence and
aerospace fraternity got its act together by spending considerable amount of energy and money in
indigenous R&D and in reverse engineering some American and Russian equipment. In recent times
it closed the gap with the Americans in specific areas of technology (and naturally increased the gap
with India). To reduce the gap with the Chinese, Indian defence spending will have to increase
substantially as it cannot always look up to the western powers to maintain the current power
balance in the Asian region.
A look at defence spending data collected by SIPRI in 2000 shows, Chinese spends were 1.5x Indias.
In 2013 the number went up to ~3.5x. This increased spend was entirely channelized internally as
there was no access to western technology. This will turn out to be the best to happen to China. This
led to the creation of a large industrial base and significant R&D facilities in the defence sector.
SIPRI data shows Chinese defence spending grew 11% against Indias 5% between FY02-13.
22
Exhibit 13: Defence Spending by top 10 spenders

2002-2007 2007-2013
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
($m)
USA
CAGR
CAGR
4,46,142
5,07,781
5,53,441
5,79,831
5,88,837
6,04,292
6,49,003
7,01,048
7,20,282
7,11,338
6,71,097
6,18,681
6.26%
0.39%
China, P.
R.
52,832
57,390
63,560
71,496
83,928
96,782
1,06,640
1,28,734
1,36,239
1,47,268
1,59,620
1,71,381
12.87%
9.99%
France
62,840
64,749
66,526
65,123
65,470
65,691
65,037
69,426
66,251
64,633
63,736
62,272
0.89%
-0.89%
UK
53,179
57,005
57,665
58,150
58,527
60,375
63,070
64,297
62,942
60,284
57,717
56,231
2.57%
-1.18%
Russia
37,300
39,100
40,870
46,446
51,404
55,954
61,484
64,504
65,807
70,238
80,995
84,864
8.45%
7.19%
Japan
60,701
61,460
61,201
61,288
60,892
60,574
59,140
59,735
59,003
60,452
59,571
59,431
-0.04%
-0.32%
Germany
49,920
49,237
47,726
46,983
45,899
45,940
47,259
49,046
49,583
48,164
49,312
49,297
-1.65%
1.18%
Saudi
Arabia
25,762
25,951
28,850
34,763
39,600
45,617
44,771
46,011
47,881
48,531
54,913
62,760
12.11%
5.46%
Italy
43,513
43,867
44,011
42,342
40,976
39,736
41,160
40,002
38,876
38,149
35,436
32,663
-1.80%
-3.21%
India
28,528
29,165
33,879
36,054
36,225
36,664
41,585
48,963
49,159
49,634
49,459
49,091
5.15%
4.98%
8,60,717
9,35,705
9,97,729
10,42,476
10,71,758
11,11,625
11,79,149
12,71,766
12,96,023
12,98,691
12,81,856
12,46,671
5.25%
1.93%
Total
Spending
Source: SIPRI
Exhibit 14: Share of Spending among the top 10 spenders

(%)
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
USA
51.8
54.3
55.5
55.6
54.9
54.4
55.0
55.1
55.6
54.8
52.4
49.6
China, P. R.
6.1
6.1
6.4
6.9
7.8
8.7
9.0
10.1
10.5
11.3
12.5
13.7
France
7.3
6.9
6.7
6.2
6.1
5.9
5.5
5.5
5.1
5.0
5.0
5.0
UK
6.2
6.1
5.8
5.6
5.5
5.4
5.3
5.1
4.9
4.6
4.5
4.5
Russia
4.3
4.2
4.1
4.5
4.8
5.0
5.2
5.1
5.1
5.4
6.3
6.8
Japan
7.1
6.6
6.1
5.9
5.7
5.4
5.0
4.7
4.6
4.7
4.6
4.8
Germany
5.8
5.3
4.8
4.5
4.3
4.1
4.0
3.9
3.8
3.7
3.8
4.0
Saudi Arabia
3.0
2.8
2.9
3.3
3.7
4.1
3.8
3.6
3.7
3.7
4.3
5.0
Italy
5.1
4.7
4.4
4.1
3.8
3.6
3.5
3.1
3.0
2.9
2.8
2.6
India
3.3
3.1
3.4
3.5
3.4
3.3
3.5
3.9
3.8
3.8
3.9
3.9
100
100
100
100
100
100
100
100
100
100
100
100
Total Spending
Source: SIPRI
23
Exhibit 15: Comparison: India, China and Pakistan on defence parameters

Total Population
India
China
Pakistan
1,220,800,359
1,349,585,838
193,238,868
Military Manpower Available
615,201,057
749,610,775
93,351,401
Fit for Military Service
489,571,520
618,588,627
75,326,989
Reaching Military Age Yearly
22,896,956
19,538,534
4,342,629
Active Military Personnel
1,325,000
2,285,000
617,000
Active Military Reserves
2,143,000
2,300,000
515,000
Total Aircraft
1,785
2,788
847
Total Land-Based Weapons
15,681
23,664
10,244
Total Naval Units
184
520
74
6,445
6,246
3,263
Merchant Marine Strength
340
2,030
11
Major Ports and Terminals
15
Towed Artillery
Aircraft Carriers
Destroyers
11
24
0
11
Frigates
15
45
Submarines
17
69
Patrol Coastal Craft
32
353
12
Mine Warfare Craft
119
Corvettes
24
Defense Budget / Expenditure
$46,000,000,000
$126,000,000,000
$7,000,000,000
Foreign Reserves
$297,800,000,000
$3,341,000,000,000
$13,800,000,000
Purchasing Power
$4,716,000,000,000
$12,260,000,000,000
$546,700,000,000
346
507
151
Major Serviceable Airports

Source: Globafirepower.com (As updated on January 2015)
Exhibit 16: Size of Indian Defence spend compared to other nations

200
Military Spending ($bn)
180
160
China
140
120
100
France
80
60
40
India*
UK
Germany
20
0
(2)
(1)
1
France
5
6
7
CAGR (2000-2012)
China
UK
Germany
10
11
12
13
14
15
India*
Source: SIPRI
Note: This does not include data on US whose defence spend is almost 4x of Chinas.
24
Exhibit 17: Military spend Growth comparison (%)

16
14.1
14
12
10
13.4
11.9
12.5
11.5
9.5
8.0
8
5.4
6
3.5
4
2
3.9
3.9
1.2
0.8
1.1
0.1
4.5
0.6
0
(0.4)
(2)
(0.6)
(0.2)
(1.5)
(4)
USA
UK
France
CAGR (2000-2005)
Germany
CAGR (2005-2013)
China
India
India (LC)
CAGR (2000-2013)
Source: SIPRI, LC = Local Currency
Exhibit 18: Widening gap between India and China

China's widening gap with India
China's defence spend/GDP
Military might
Description
Chinas spend has been growing at a much faster clip compared to that of Indias
even if one were to adjust for local currency. Chinas spend used to be 1.5x Indias in
2000. In 2012 it was 3.3x. India's. Defence spending to GDP ratio is still much below 3
per cent level defined as an adequate level of expenditure in Indias first ever
Strategic Defence Review prepared by the National Security Advisory Board in 2000.
According to a Pentagon report
China is pursuing a major military buildup in a "secretive manner" developing
survivable nuclear delivery system, a 1,500 km range anti-ship missile to hit aircraft
carriers and has the most active land based ballistic and cruise missile program in the
world
Beijing is acquiring 'capabilities' to strike from a distance.
Beijing has developed missiles capable of striking targets in space and is also
expanding its fleet of conventional and nuclear submarines
China has the most active land-based ballistic and cruise missile program in the world
China is developing and testing several new classes of offensive missiles, qualitatively
upgrading certain missile systems and developing methods to counter ballistic
missile defenses
In January 2007, China launched a kinetic kill vehicle (KKV) to smash into its own
aging Fengyun (FY-1C) satellite
China has at least 53 conventional and seven nuclear attack submarines (SSNs)
Science and Technology
China targets fifth place from current sixth in global innovativeness ranking by 2020.
By 2040-50, China aims at science and technology (S&T) parity with US
R&D
There has been surging growth in the innovativeness of Chinese defence industry. In
1998, it filed for 313 patents. In 2008, it filed 11,000 patents. and In 2010, 15,000
patents.
Source: Media
25
Exhibit 19: India and China Recent points of friction between the two
Date
Nov-06
May-07
Jun-09
Dec-07
Oct-09
Jan-11
Sept-14
Anecdotes
China and India had a verbal spat over the north-east Indian state of Arunachal
Pradesh. India claimed that China was occupying 38,000 square kilometers of its
territory in Kashmir, while China claimed the whole of Arunachal Pradesh as its own
China denied the application for visa from an Indian Administrative Service officer in
Arunachal Pradesh. According to China, since Arunachal Pradesh is a territory of
China, he would not need a visa to visit his own country
The People's Daily, a Communist Party mouthpiece that serves as a window to the
thinking of Beijing's insular leadership, published an exceptional broadside against
New Delhi on June 11. It described India's "tough posture" as "dangerous," and asked
India to "consider whether or not it can afford the consequences of a potential
confrontation with China."
The Indian Air Force announced it will station two squadrons of advanced Sukhoi-30
MKI aircraft in Tezpur, in Assam.
Asian Development Bank formally acknowledging Arunachal Pradesh as part of India
approved a loan to India for a development project there. Earlier China had exercised
pressure on the bank to cease the loan
India claimed that armed Chinese soldiers had infiltrated Indian territory and
threatened construction workers near a disputed border. New Delhi says China is
illegally occupying 38,000 square kilometers of its northwestern territory, while
Beijing claims a 90,000 square-kilometer chunk in northeastern India.
In one of the many cases of cross-border incursion, Chinese troops infiltrated Indian
territory in Ladakh and broke a camera set up by the Indian Army at the Line of Actual
Control (LAC). These cameras were of high resolution and had been put up by the
Indian soldiers to keep an eye on Chinese soldiers. The Chinese troops also
demolished the temporary structures built by the Indian Army and threatened the
Indians living in area to evacuate the place immediately.
Source: Media
Under spending across the board leading to obsolescence

Although defence expenditure budget and actual defence spending have been increasing in line
with NGDP since FY2001, there has been a trend of under spending by defence forces, particularly in
capital expenditure. From FY2001-2013 approximately INR 515 bn, or 13% of the cumulative capital
expenditure budget, was under-spent
Exhibit 20: Under spending in absolute terms

(Rsbn)
Exhibit 21: Under spending in % terms

40%
200
150
100
50
0
(50)
(100)
(150)
(200)
30%
20%
10%
0%
(10)%
(20)%
(30)%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Revenue
Source: Union Budget and Economic Survey
Capital
(40)%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Revenue
Capital
A close inspection of each service divisions spending habits also reveals consistent under spending.
On average for the past 12 year between 2001-13: the Army underspends by 13%, the Navy
underspends by 5%, and the Air Force underspends by 14%. When you consider 2011 & 2012 as an
outlier for Navy and take it out of the calculation, the Navys average under spending jumps up to
11.3%.
26
Exhibit 22: Under spending has been highest in Air Force Exhibit 23: Under spending has been highest in Air Force
followed by Army and Navy in absolute terms.
followed by Army and Navy in % terms.
(Rsbn)
80
60
40
20
0
-20
-40
-60
Army
Navy
Air Force
Army
Navy
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
(%)
50%
40%
30%
20%
10%
0%
(10)%
(20)%
(30)%
(40)%
Air Force
However capital expenditure will pick up as Capex to Opex mix will improve from the current level.
We expect the country to focus on controlling the operating expenditure and focus on capital
acquisitions going forward. The focus would be on a smaller, leaner and a more effective armed
force. We believe about $77bn would be spent on arms capex till FY17 cumulatively and about
$295bn till FY22.
Exhibit 24: Defence spending to GDP ratio - Behavior of various components
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
1992
1997
Revenue/GDP
2002
Capital/GDP
2007
2012
Total/GDP
27
Exhibit 25: Governments Projection of Defence Spending Till FY22

(RsBn)
4000
3,537
3500
3000
2500
2000
1500
1000
500
796
867
124
FY22
FY21
FY20
FY19
FY18
FY17
FY16
FY15
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
FY03
FY02
FY01
28
Modernization to be a key driver for Indian defence acquisition

Currently 50% of the military equipment is estimated to be obsolete and only 15% state-of-the-art.
The Ministry of Defence (MoD) aims to reduce the former by 20% and to increase the latter by 15%.
Exhibit 26: Indian Defence Equipment Profile Current
Exhibit 27: Indian Defence Equipment Profile Target
State-of-the-art
15.0%
Obselete
30.0%
State-of-the-art
30.0%
Obselete
50.0%
Matured
35.0%
Matured
40.0%
Source: 2nd Indian Regional Offset Conference
Source: 2nd Indian Regional Offset Conference
MOD has allocated approximately 40% of total Defence spending to capital outlays to support its
modernization efforts. Capital outlays constitute expenditure on arms procurements, construction,
infrastructure and other military equipment.
The capital expenditure budgets have seen good growth rates (CAGR of 13%
between 2001-14)
Over the past decade between 2001 to 2013, the capital expenditure budgets have been increasing
at a CAGR of 13% and the total defence expenditure budgets at 10%. The same period has seen
Indias GDP grow at 14% in nominal terms. The capital component has been increasing steadily
increasing as a percentage of the total budget from 31% in FY2001 to 43% in FY2014. These
numbers demonstrate Indias appetite for procurement of state-of-the-art military equipment.
Statements from MoD indicate that India does not intend to slow down its purchase plan despite
already engaging in a decade of intensive acquisitions.
Exhibit 28: Indias Defence Budget (FY2001-FY2014)
(Rsbn)
1,000
800
600
400
200
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Revenue
Capital

Note: The defence budget consists of two main parts, capital and revenue expenditures. Capital expenditures include the costs of
the development of infrastructure as well as procurement of military equipment, other armaments, and land. Revenue expenditures
include everyday operating expenses of the Indian Defence Force such as wages and salaries, which account for about half of the
revenue budget. The other components of the operating expenses are Interest payments, Payment to subsidies, Pension and
Paymenttopolicebycentralgovt.The key component here is the capital expenditures budget, of which the majority is allocated to
procuring new equipment from foreign or domestic sources. Roughly 75-85% of the capital expenditures budget has historically
gone to arms procurement, and this proportion is not likely to change.
29
Exhibit 29: Trend between Opex and Capex in the defence budget
(Rs)
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Reveue
Capital
Exhibit 30: Capex spend in the overall budget spend has been improving Defence
Expenditure Historical Trend
50%
43%
45%
41% 42%
44%
45%
40%
35%
31%
39%
43%
41% 42% 41%
32% 33% 32%
30%
25%
20%
15%
10%
5%
0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Capexastotal%ofDefexp
capital expenditures by service division

On average over the past decade between 2001-2014, the Army accounts for 23% of the capital
expenditure, the Navy 29%, and the Air Force 48%. The trend over the years indicates that the Air
Force has increased its share and cut into the budgets of other forces over the years. All three
divisions expenditures have grown rapidly along with the total defence budget.
30
Exhibit 31: Capital Expenditure Budgets by Service Division, in real terms

(Rsbn)
450
400
350
300
250
200
150
100
50
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Army
Navy
Air Force
Exhibit 32: Capital Expenditure Budgets by Service Division, % terms

100%
80%
60%
40%
20%
0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Army
Navy
Air Force
31
Current acquisition plans indicate significant buying ahead

The acquisitions plans laid out by the Indian forces indicate that the there is considerable buying
ahead over the next 5 years.
Exhibit 33: Acquisition plans of the various branches of the armed forces
Segment
Air
Category
Helicopters
Missile Systems
Transport and other

aircraft
Indicative Items
Indigenous Advanced Light Helicopter (ALH) - Dhruv
Medium lift Helicopters
VVIP helicopters
Light Utility Helicopter (HAL)
Combat / Attack Helicopter
Heavy Lift helicopters
Short Range Surface to Air Missile System (SRSAM)
Medium Range Surface to Air Missile Systems (MRSAM) Akash
Long Range Surface to Air Missile Systems (LRSAM)
C-17 Military transport Aircrafts
Medium-Lift Transport Aircraft
PC 7 MK II Basic Trainer Aircraft
Hawk Mk 132 Advanced Jet Trainer
C 130J Hercules aircraft
AN-32 Upgrade
Embraer Jets
Israeli Harop killer UAVs
Multi-Role Tanker Transport
Indigenous Airborne Warning and Control System (2 + 4)
Interaction ongoing
between IAF and
Industry
Fighter Aircrafts
Land
Others
Artillery
Helicopters
Missiles
Tanks and Vehicles
Air Defence
Others
32
Qnty
159
80
12
65
22
15
5,000
Size($Bn)
7.20
1.20
0.83
1.27
1.40
0.60
6.00
2,000
5.00
1,500
5.00
10
4.10
56
181
143
12
104
3
10
6
6
2.45
1.20
2.90
1.20
0.40
0.21
0.10
2.00
1.09
272
12.38
126
20.00
214
51
63
244
30
814
180
1,50,000
50,000
145
1,580
300
197
1,000
242
2,600
1,000
3,000
800
5,175
468
115
500
65,768
7
59,000
1,000
30.00
2.20
0.70
3.36
Advanced Medium Combat Aircraft

LCA - Mark -2
Unmanned Fighter Aircraft
Su-30 MKI
Medium Multi Role Combat Aircraft (MMRCA) - (126 with
an option for 64-74 more)
Fifth Generation Fighter Aircraft (FGFA) (India and Russia)
Mirage 2000 Upgrade
MiG-29 Upgrade
LCA (Tejas) - Includes 54 Indian Navy
Airfields for infrastructure upgrade
155 mm Mounted Howitzer
155 mm Wheeled Self-Propelled Guns
155mm ammunition rounds all types
155mm precision guided munitions
Air Mobile Ultra light howitzers (ULH)
155 mm Towed Howitzer (410 + 1170)
130mm M-46 Upgrade
Light Utility Helicopters
ICV-mounted anti -tank guided missiles
Arjun Tank
Futuristic Infantry Combat Vehicle (FICV)
Futuristic Main Battle Tank (FMBT)
Light Specialist Vehicles (LSVs)
Light Multi utility Recce Vehicles (LAM)
Very Short Range Air Defence Missiles (VSHOARD)
ZU-23-2 anti-aircraft upgrade
40 mm Anti- aircraft Gun
Battlefield Management System (BMS)
Multirole Assault Rifles
Tactical Communications System (TCS)
Bullet proof jackets
Mini Unmanned aerial vehicles
FINSAS - Futuristic Infantry Soldier As a System
2.00
0.60
0.90
1.78
0.75
0.38
10.00
5.50
0.27
0.20
4.50
0.30
0.30
7.27
0.25
1.80
Segment
Navy
Category
Helicopters
Navalised Aircraft
Submarines
Warships
Others
Mine field breaching systems

Indicative Items
Advanced Light Helicopters
Naval Utility Helicopters
Advanced multi role Naval Helicopters
MiG-29K
Fighter Aircrafts for IAC 2
Long Range Maritime Patrol Aircraft - Boeing P8-I
Medium-range Maritime Reconnaissance Aircraft
Midget Submarines
Stealth Submarines - Project 75 India (P-75I)
Survey Training Vessels
Project 17 A Frigates
Landing Platform/dock (LPD)
Survey vessels
Off-shore Patrol Vessels
Indigenous Aircraft Carriers
ASW Shallow Water Crafts
Mid-Life Upgrades of the Kirch Class Corvettes
Sail Training Ship
30 - 40 mm Gun With EOFCS
Autonomous Underwater Vehicle (AUV)
Portable diver detection sonar (PDDS) systems
Heavy Weight Torpedoes (Surface)
Surface Surveillance Radars
20-30 mm Close In Weapon System
Mobile Missile Coastal Battery
NTDS
Qnty
47
56
123
29
20
6
5
6
4
7
4
6
9
2
16
5
1
116
10
78
98
31
25
15
12
0.25
Size($Bn)
7.20
1.00
6.80
2.25
2.07
1.00
0.50
8.00
0.47
8.18
3.50
0.45
2.00
0.27
0.01
0.07
0.25
0.30
0.20
0.25
Source: FICCI, Media, and compiled by Centrum
33
Precedents show that developing technology is the key

Looming threats from neighbors and the reality of its obsolete military equipment have
forced India to step up its modernization efforts. However, the domestic defence industry is
unable to keep up with the huge demand and does not possess the technology required to
manufacture complex military equipment needed by defence forces. Therefore, India has had
to rely heavily on imports to meet as much as 70% of its procurement needs. Despite this, the
Ministry of Defence has made it clear that it wants to pursue indigenization in the long term
and eventually achieve self-sufficiency in military production. India is not the first nation to
face such a daunting task. Other countries have succeeded in developing and transforming
their defence industries. The common catalyst is technology.
In all of these cases, the key catalyst to the industrys progress was developing technological
capability in defence systems. Without it, these nations would still largely rely on imports for
complex military equipment. Each went about this in a different way: Israel worked its way around
arms embargoes to procure key technologies, Brazil absorbed technology through joint ventures
with foreign contractors, and South Korea invested heavily in R&D and its infrastructure from the
very start. China has also transformed itself into a largely indigenously equipped military because of
its emphasis on R&D. Due to an official roadmap for science & technology, China jumped from a
global innovativeness ranking of 24 in 2004 to 6 in 2009. Its defence industrys innovativeness also
saw vast improvement. In 1998, it had filed for 313 patents whereas in 2013 the same statistic had
gone up to 15000 patents.
Countries in similar positions to India include Turkey, Peru, Chile, and Korea. Turkey, realizing the
importance of technological capability in long-term self-sufficiency, is investing heavily in R&D. In
2012 it invested USD 600 mn, up 32% YoY. This emphasis on R&D is already paying dividends: the
domestic defence industry accounted for more than half of procurement spending in 2012 of
around $4bn. Indias R&D spending is dismal compared to Turkeys. It spends roughly the same as
Turkey on R&D, but has a procurement budget more than three times larger and a GDP more than
two times larger. Clearly if India wishes to develop a more sophisticated defence industry, it will
have to focus on advancing technological capability by 1) investing larger amounts in R&D and 2)
pushing for ToT in defence procurement deals.
Israel
Background on domestic defence industry
In 1960s, escalating conflicts with its Arab neighbors, combined with arms embargoes and broken
agreements by foreign suppliers forced Israel to begin its initial indigenization efforts. Israel soon
realized that financial and technological constraints made immediate self-sufficiency in military
equipment impossible. The government then pursued a two-pronged strategy: it continued to
purchase whatever it could from foreign sources but also invested heavily in developing its defence
industry, primarily in R&D and infrastructure. Acquiring the knowledge and technology to
manufacture complex military equipment and systems was crucial. Because of the ongoing arms
embargoes, Israel had to resort to smuggling, reverse-engineering and global networks to acquire
the expertise needed for the development of these technologies. By the 1980s, Israel had a
sophisticated defence industry that was able to capture significant revenues through exports to
Iran, South Africa, China, Singapore, and Chile. Incidentally, these revenues helped finance new R&D
development during a period of budget cuts that would have otherwise eaten into the R&D
component. India needs an institution like SIBAT, Israel to promote indigenized products in the
defence sector
Private firms success in Israel

By the 1990s, private firms were winning a larger share of the Ministry of Defences contracts. This
resulted in the Mandatory Tender Law, which established a competitive bidding system for all MoD
contracts. This made the tender process more transparent and subsequently led to greater private
involvement in government projects. At the beginning of the 21st century, private firms accounted
for 33% of domestic defence production in a country that was once dominated by the public sector.
The next few years saw the privatization of several public defence companies and the merging of
many private defence firms. It is important to note that in Israel major cuts in the defence budget
34
forced most private firms to diversify and rely more on foreign clients. They engaged in joint
ventures and acquisitions to secure footholds in overseas markets, which now account for an
astonishing 80% of revenues. The Defence Ministry of Israel stated that the sector racked up sales of
USD 7.4 bn in 2012, (See Exhibit No 55). Most of the sales were by Israel's four biggest Defence
companies, IAI, Elbit, Rafael and IMI.
Brazil
Brazil began focusing on military industrialization in the late 1960s. This was not driven by military
threats in the traditional sense. Rather, Brazils leaders believed that the growth of the military
industry would have the added benefit of stimulating development in the civilian industrial sector
as well. This in turn would advance the countrys technological position and help it become one of
the leaders in the global economy. Brazils main pioneer in indigenous defence production,
aeronautics major Embraer Corporation, was established in 1969 and it started absorbing foreign
technologies immediately to promote indigenization. Most of these technology transfers came as a
package within Brazils offset deals. Embraer effectively used the extensive industrial base that
already existed in the country to efficiently and cheaply produce equipment.
Focus on technology acquisition

Historically, the countrys leaders have not put as much emphasis on balancing the import-export
ratio as they have on technological development through transfer agreements, joint ventures, and
collaboration with foreign contractors. Global arms producers found Brazils defence industry very
attractive because of cheap labor, abundant raw material supply, and governmental support
through accommodative policies and heavy investments in the countrys infrastructure. Because of
these dynamics, Brazil transformed from a conventional developing country with heavy defence
imports to one of the top 10 arms exporters in the world by the 1980s. Brazil has a relatively small
procurement budget so its industry now relies on exports for most of its turnover. Its early actions in
acquiring the latest technologies and establishing partnerships with key players have helped Brazil
develop an autonomous technological capability to the extent that it participates in international
collaborative projects for design/development of advanced military equipment.
South Korea
Until the mid 1960s, Korea depended completely on military aid and imports from the United States
to meet its defence procurement needs. The Ministry of Defence soon took action and set up the
Defence Procurement Agency in 1971 as the countrys first integrated acquisition body for the
defence forces. Korea began weapons production for the army in 1971 when the Ministry of
Defence built an assembly plant to put together Colt M-16 rifles designed by long-time partner
United States. By the 1990s, Korea possessed one of the largest defence industries in the world and
domestic procurement was about 70 percent. It spent more than USD14 bn per year on defencerelated activities. The majority of weapons systems production was concentrated in a few of the
countrys large corporations, which had also taken the lead in research and development of their
products. These companies had by this time taken the responsibility to enhance Koreas
technological capabilities in defence production. They outsourced and subcontracted much of their
production to smaller companies, who continued to play a vital role in the industry.
MoD is stressing the importance of R&D and ToT

Currently, Korea is in the process of modernizing its defence forces. A plan developed in 2006 put a
large emphasis on research and development, and allocated 20 percent of arms buildup
expenditures to improving domestic defence technology as well as defence industry development.
R&D currently accounts for more than 3.2% of GDP, significantly higher than the worlds average of
2%. The Ministry of Defence realizes the tradeoff between cost-effective foreign acquisition and
time-consuming indigenous development, but is trying to solve this problem by demanding a high
degree of ToT and offsets in defence contracts. During purchasing decisions, special consideration is
given to contractors who demonstrate a high level of cooperation in technology transfer and
offsets.
35
Indian Space Research Organization

Key stimulus for ISRO was lack of international cooperation
Perhaps a more relevant precedent than examples in other countries is the development of the
space industry in India and its successful attempt at indigenization. It was first established in 1969
with the primary objective of developing technologies and applying them for the use of Indias
military or various domestic industries such as agriculture and engineering. Since inception, ISRO
has not had the luxury of collaboration with the worlds leading space programs because of
sanctions and shaky diplomatic relations. As such, self-sufficiency in space technology was never
just a way to cut long-term costs but was the only way to take part in the space race. These
embargoes proved to be a strong incentive and India immediately began developing a
sophisticated infrastructure to enhance its capabilities.
Space-Industry partnership has been vital

The high level of indigenization would not have been possible without ISROs willingness to transfer
technologies that it developed to the Indian industry. To date, ISRO has participated in 294
technology transfer agreements that have benefitted Indian companies. ISRO has a very favorable
reputation in the industry not only as a cooperative but also as an efficient government
organization. As a direct result of this, ISRO has now developed into one of the six most advanced
space research organizations in the world, in the company of the United States NASA, Russias RKA,
Chinas CNSA, Europes ESA, and Japans JAXA.
ISRO to continue R&D and look beyond domestic needs

The ISRO Sponsored Research Programme (RESPOND) will maintain its support of research and
development projects, educational programmes, and other scientific activities at the academic
institutions and autonomous R&D laboratories in the country. During 2010 itself, ISRO formed 24
new projects and renewed 50 ongoing projects at six different Space Technology Cells. Although
the industry is already fairly sophisticated, ISRO realizes that the only way to maintain its
technological position is to continue to invest in and encourage R&D around the country. India has
become self-sufficient in the space sector and is looking to become a supplier for international
needs. Developing countries are already approaching ISRO to help them build up their space
capabilities through consulting and training. ISRO is also planning a venture into the launch vehicle
market, targeting a share of 10% in five years of the total market worth USD2bn.
36
Exhibit 34: Global Defence Players A brief Background

Revenue ($mn)
Company
Business operation
Boeing
Commercial Airlines
Defence, Space and Security
Geographic Distribution (%)
2013
US
Non-US
86,623
43.4
56.6
78,093
14.8
85.2
45,358
82.9
17.1
24,661
86.3
13.7
31,218
79.7
20.3
27,984
39.6
60.4
5,305
25.7
74.3
12,104
62.1
37.9
18,706
10.5
89.5
23,706
72.8
27.2
Boeing Capital Formation Financing subsidiary of Boeing company

EADS
Airbus - Commercial, Military

Euro copter
Astrium
Cassidian
Lockheed Martin
Aeronautics
Electronics
Info Sys and Global Svs (IS&GS)
Space
Northrop Grumman
Corp
Aerospace Systems
Electronics Systems
Information Systems
Technical Services
General Dynamics
Combat System
Aerospace
Marine Systems
IS&T
Electronic Systems
Cyber Intelligence
BAE Systems
Platform & Services (UK)
Platform & Services (International)
Aerospace
Electronic Systems
Singapore Technologies
Land Systems
Engineering Ltd
Marine
Commercial
Marine Products
Land Products
Advanced Information Solutions
Geospatial Visualization, Analysis &
Management Systems
Unmanned Systems
Textron Inc
Smart Weapons
Protection Systems
Missile & Space Systems
Electronic Systems
Logistics & Technical Support
Aerospace
Transport
Thales
Defence
Security
Raytheon Co
Integrated Defence Systems

Intelligence and Information Systems (IIS)
Missile Systems
Network Centric Systems
Space and Airborne Systems
Technical Services
Source: Company Websites
37
Indias ability to spend on defence is fairly healthy

Irrespective of Indian Economic Outlook, defence spend should hold up
Regardless of Indias intention to increase its defence budget, its capability to spend needs to be
considered. Once again, the signs are largely positive. Centrum estimates that the Indian economy
wil grow at the rate of 12.5% in nominal terms over the next decade FY14-FY22 (~7% real GDP
growth and ~5% inflation). This assumes that Indian growth will be marginally impacted by a
slowdown in the developed economies. We believe Central tax to GDP ratio (~10% in FY12) will
improve in the coming years on the back of implementation of GST, DTC, increase in tax base, etc.
Together with states' collection, tax revenues of the government account for 16%-17% of GDP. That
compares poorly with the tax-GDP ratios of developed nations as shown in the chart below. So there
remains a lot of room for the country to increase taxes.
Exhibit 35: Central Tax to GDP
(%)
30%
26%
25%
21%
20%
15%
10%
12%
9%
11%
10%
China
India
5%
0%
USA
UK
Germany
France
Tax/GDP (2009-2011)
Source: World Bank
Note: This does not include the state level taxes. For India including state level taxes the numbers come to 16-17%.
Indias public debt/GDP is comfortable

Another factor to consider is Indias public debt to GDP ratio, which at 51.8% is on the lower side
when compared to other nations. It ranks 63 out of 155 nations and is lower than the worlds public
debt to GDP of 59.3%. In comparison to its emerging market peers (BRIC), it beats Brazil at 59.2% but
is behind China at 22.4% and Russia at 7.9%. In comparison to developed economies, it is lower than
United States, United Kingdom, Germany, France, and Japan.
100%
0%
Japan
Zimbabwe
Jamaica
Belgium
Sri Lanka
Egypt
Germany
Israel
Malta
Cote d'Ivoire
Brazil
Albania
U.S.A.
Bhutan
Philippines
El Salvador
Malaysia
Pakistan
Norway
Latvia
U.A.E.
Dominican
Slovakia
Malawi
Bolivia
Yemen
Switzerland
Slovenia
Macedonia
South Africa
Guatemala
Trinidad and
Algeria
Moldova
Korea, South
Paraguay
Uganda
Hong Kong
Iran
Kazakhstan
Qatar
Uzbekistan
Chile
Oman
50%
Russia, 30%
150%
China, 32%
200%
India, 63%
250%
Brazil, 77%
World, 74%
U.S.A., 72%
United Kingdom, 86%
Exhibit 36: Public Debt to GDP (2013 estimates)
Source: CIA World Factbook
38
as well as with respect to its historical ratios

In comparison to itself, India is sitting just below its average of past 2 decades. In the last few years
there was a steady decline in Indias public debt to GDP ratio. This comparison shows us that India is
not facing any pressures on the debt front and in the historical context is in a safe position.
Exhibit 37: Indias Public Debt to GDP (1991-2013)
Source: Reserve Bank of India
Implications
We are confident that India will continue to expand its defence budget and be able to spend due to
1) Importance placed on defence modernization led by immediate security concerns
2) Healthy public debt to GDP ratio in comparison to other nations and to Indias own history and
3) Strong GDP growth rates (relatively) expected to continue in coming years. We cannot say with
certainty that the trend in under spending will not sustain, but the Indian government will surely
have the fiscal capability to satisfy such high budgets. All in all, funds spent on military procurement
are expected to continue growing for at least the next decade.
39
Defence Indigenization: An opportunity for domestic players

India has relied heavily on imports to meet its Defence needs
Historically, India has relied heavily on imports to fulfill its military procurement needs. Russia, as an
ally, has supplied by far the largest amount of equipment to India (76% share in the period 20082013) and recently the United States, Israel, and United Kingdom have had success in increasing
their market share. Russias large share has to do with cold-war related alliance and also the control
over export of defence equipment and technology imposed on India post both its nuclear
explosions 1974 and 1998 by the western countries especially the US. Indian domestic firms have
traditionally specialized in manufacturing simpler equipment and arms such as mines and rifles. In
these areas, domestic firms have benefitted through economies of scale and gradually became sole
suppliers.
The defence industry in Russia also went through a significantly painful period post the communist
era and funding of R&D and defence programs was drastically reduced. This possibly had an impact
on the technology that it could provide to India.
Exhibit 38: Indias import breakup by country (2008-2013)
Source: SIPRI Arms transfers database
Exhibit 39: Imports from Russia Trend (2001-2013)

(%)
($mn)
4500
120%
94%
4000
3500
100%
80%
64%
58%
56%
3000
41%
32%
2500
60%
40%
28%
12%
2000
20%
7%
-10%
-2%0%
1500
-20%
1000
-40%
2449
3865
3800
2005
2298
2004
2060
651
2003
1612
1444
2002
1783
2316
2001
921
1756
-55%
1125
500
-38%
2006
2007
2008
2009
2010
2011
2012
2013
-60%
-80%
Import fom Russia
% Growth
Source: SIPRI Arms transfers database
40
Without technology and knowledge, domestic firms stayed away from sophisticated equipment
manufacture, which tends to be a significant part of the budget. Most imports consist of complex
equipment such as tanks, frigates, fighters, and the electronic systems that support them. As such,
the indigenous-import ratio is skewed towards the latter in more recent years, when India has
stepped up its modernization efforts. Currently, India procures 70% of its military equipment
through imports and 30% through domestic firms. The MoD has set a target of 70% indigenous
procurement by the end of this decade.
Exhibit 40: Indigenous Procurement by Service Division
100%
80%
60%
40%
20%
0%
2002
2003
2004
Navy
2005
2006
Army
2007
Air Force
2008
2009
2010
Total
Source: Deloitte, CII (2010) Prospects for Global Defence Export Industry in Indian Defence Market
Self-sufficiency was an early goal but private sector was kept out and
technology transfers denied.
After achieving independence in 1947, The Industrial Policy Resolution of 1948 was drafted,
announcing that defence was among a range of sectors in which the public sector would be the
main source of production and manufacturing. The government revised the policy in 1956 and
stated explicitly that the private sector will not be involved in munitions, aircraft, and shipbuilding
industries. However when the need arose private sector contributed discretely to critical defence
manufacturing prior to 2001 (formal opening up of defence sector for private participation). The
participation of Private sector in Indias defence sector had commendable precedents. The
involvement of TATA Power SED in building Samyukta Indias first major Electronic Warfare system
and L&Ts contribution to the nuclear submarine programme are noteworthy examples. The delivery
capability and maturity of Tata Power SED was recognized by the government issuing a Notification
which referred the company as a Gazetted Work Centre for the Samyukta. Similarly, L&Ts
engagement in realizing weapon systems across a range of projects under Integrated Guided Missile
Development Program and in-house development of hull construction and integration
technologies for submarines, gave it an opportunity to participate in building INS Arihant Indias
first nuclear submarine despite severe sanctions.
o To boost indigenous manufacturing, the government built more than thirty ordnance factories
and eight Defence Public Sector Undertakings, which operate directly under the Ministry of
Defences supervision. A result of the liberalization in the 90s and perhaps also realizing that
domestic defence production had not progressed very far, the government opened up private
participation in the industry in 2001 to 100% with FDI up to 26%. The Finance Bill - 2014-15 has
proposed a composite cap of 49 percent (FDI and FII) through the Foreign Investment
Promotion Board (FIPB) route with full Indian management and control. In the interim period
major investments have been made by Indian private sector to create defence production
facilities. By one estimate the Industry invested > 20,000 Cr in the past decade on creating new
facilities.
41
Reducing imports is in Indias benefit

An often-overlooked benefit of reducing the reliance on defence imports is the positive impact such
an outcome has on the Indian economy and its impact on industrial base. In its 2005 report on
defence acquisition, the Vijay Kelkar Committee conducted this analysis. Just 25% reduction on
foreign dependence will lessen foreign exchange outgo by Rs85 bn, create 120 thousand new jobs,
and boost manufacturing GDP growth by 8%. This report may be old and the exact numbers now
may be different, but the same principles still apply.
70% indigenous production still far fetched

The Ministry of Defences target for indigenous procurement has been 70% for some time now,
having stated in 2001 that this goal was to be reached by 2010. Clearly, the numbers have been
significantly below expectations. The 70:30 ratio continues to be the governments objective but
now this has to be achieved by the end of the current decade. We at Centrum believe that the
indigenous industry will bridge that gap somewhat in the coming years (we expect indigenization
levels of 50% by FY22). This will be driven by 1) Favorable policy-making for domestic production 2)
Evidence of domestic private sector interest in entering the industry 3) Evidence of foreign
contractor interest in joint venture agreements.
~$68bn opportunity for private players in India from FY14-FY22

Assuming the market share of the private sector inches towards 70% figure from current 50% in the
domestic market, we believe the cumulative revenues earned by the private sector will be $68bn.
This opportunity is on the assumption that the indigenous content would be 50% by FY22. The
private sector should see an increase in its participation in the defence market in coming years,
primarily due to two factors. One, the government has created an increasingly favorable policyenvironment for private firms, taking several concrete steps to level the playing field between them
and DPSUs. The JVs that it has entered into with foreign partners will put them on a stronger footing
with respect to DPSUs.
Exhibit 41: Breakup of Domestic Defence Market
SMEs
17.5%
DPSUs
37.5%
Large enterprises
32.5%
Ordnance
Factories
12.5%
Source: Institute for Defence Studies and Analyses
Exhibit 42: Projections for Public vs. Private Market Share (in $bn)
Domestic Defence Opportunity
Public Sec. (DPSU + OFB) (%)
Pvt. Sec. (Large Corporate + SME) (%)
Public Sec. (DPSU + OFB)
Private Sector (Large Corporate + SME)
FY12
FY13
FY14
FY15
2.84
50.0
50.0
1.4
1.4
3.38
48.0
52.0
1.6
1.8
3.81
46.0
54.0
1.8
2.1
5.08
44.0
56.0
2.2
2.8
FY16 FY17
6.07
42.0
58.0
2.6
3.5
FY18
FY19
FY20
FY21 FY22
7.25 10.26 12.83 15.94 19.70 24.25

40.0 38.0 36.0 34.0 32.0 30.0
60.0 62.0 64.0 66.0 68.0 70.0
2.9
3.9
4.6
5.4
6.3
7.3
4.3
6.4
8.2 10.5 13.4 17.0
Source: Centrum
42
Government will be a large client for private sector

DPSUs and ordnance factories will continue to outsource part of their production (25% and 35%
respectively) to the private sector but the change will be that major contribution to revenues will be
direct government orders. Until now the opposite has been true but with government support and
introduction of an open competitive bidding process for tenders, the private sector will reverse that
ratio.
Self-reliance A Reality Check
India severely lacks credible major military inventory item/platform that can be called truly Indian
designed and manufactured. The track-record in the aviation industry is even bleaker, India still does
not design and manufacture its own fighter aircraft, a trainer or even a transport plane. Yes,
currently the Tejas light combat aircraft and the Dhruv helicopters produced by the DRDO are the
lone silver linings though the last lap for these too is yet to be completed. In contrast to the other
two services, the Indian Navy, being the first off the block, has had greater success in indigenisation
and to an extent even in exports - but this is only relative.
Self-reliance and greater indigenisation can happen only with
Greater Indian technology and products

Simpler licensing process to enable wider participation from Indian industries
Create national resources and centres of excellence to academia and industry to test
ideas and products
Encourage armed forced to be a partner and stake holder in indigenisation process
Ministerial, Secretarial Delegation and Defence Attachs promote Indian products at
international trade forums
43
Exports would be a big growth driver in the future

We believe exports (hitherto negligible) will be a key long-term growth driver (offset
opportunity to begin with but outsourcing later on). We believe fiscal constraints in
developed markets over the next 10-15 years will put defence spending under pressure. US is
likely to see defence spending cuts of $450bn-$1.1trn over the decade. With intensifying
competition between US and European systems integrators, price pressures are a certainty. In
the past 2-3 years we have seen an explosion in partnerships (JVs and MOUs) between Indian
and global players (likely due to relaxation of controls on export of defence technology by the
US and other countries). These partnerships will exploit offset and indigenization related
demand, near term. But these would also set the stage for India becoming a critical part of the
supply chain of global players for components and sub-assemblies, driving export growth,
long term. There is evidence to show that such a move is already on. We believe India has
some of the basic ingredients (large and relatively low cost engineering talent pool, comfort
of western nations with India from a geo-political perspective) to deliver on this opportunity
but will have to significantly improve on some others (technology, lack of a defence
manufacturing ecosystem, etc). Post 15-20 year long learning curve we expect Indian
companies to move up the value chain to become independent systems integrators in their
own right or be part of significant consortia. India needs an institution like SIBAT, Israel to
promote indigenized products in the Defence Sector
Export Data analysis

Post analyzing the data available in the public domain, we see that
x Export performance has been dismal with contribution of just 0.02% of the global arms transfer
in 2012. It had reached a high of 0.12% in the year 2006
x Export has been generally of second hand equipment and is mainly seen as inventory clearance
Destination of most exports are neighboring countries like SriLanka, Nepal, Maldives, Myanmar, etc.
Honble Prime Ministers while inaugurating INS Vikramaditya, stressed that India should not only
become self-reliant but also provide them (defence equipment). Small countries should feel secure
that they have India-produced defence equipment
Aggressively Marketing Make In India Concept To The World
The current focus as envisaged in recent statements and policy initiatives of government has
focused on the desire of not just greater indigenisation or India as a favorable manufacturing hub,
but also India as exporting defence equipment and solutions to global market. This is evident with
the announcement of vison Make in India by Honble PM on September 25, 2014 followed by
workshop on Dec 29, 2014. We already see an aggression across various especially on the
manufacturing space to promote Make In India to the world players.
Exhibit 43: Make In India Marketing In Davos 2015
Source: Newspapers
Also in the aerospace sector, with the successful launch of Mars Orbiter Mission (MOM) at a cost of
Rs 4.5bn, India showcased its low cost technological might. The Polar Satellite Launch Vehicle (PSLV)
and Geosynchronous Satellite Launch Vehicle (GSLV) which were used to launch these satellites
have now come into focus and there is a huge potential to export these Indian made equipment
due its effectiveness and low cost.
44
Defence budgets are about to be crunched 3 years into the financial crisis
As can be seen in Exhibit 46, since 2010, global defence spending has witnessed de-growth in the
developed world and especially the US. This was to impart fiscal stimulus to the economies when
crisis hit first in 2008. It held up till 2010 due to Afghanistan and Iraq involvement. Between 2008
and 2012, fiscal deficits and the public debt/ GDP ratios of the western nations rose to unsustainable
levels. These countries have cut down on spending to bring their fiscal deficits and Debt/GDP
numbers under control. Pressure on defence spending accelerated and this is unlikely be a shortterm phenomenon. We believe it will continue for the next decade. The developed countries will
take a significant amount of time to reach the same Debt/GDP levels that they had in 2007 before
the crisis.
Exhibit 44: Fiscal deficit trend negative values indicate surplus
(%)
14%
12%
10%
8%
6%
4%
2%
0%
-2%
2009
2010
2011
USA
2012
UK
2013
France
2014(E)
2015(E)
Germany
Source: OECD
Need to emphasise Look Within Policy

Lack of defence exports is because most equipment used by the Indian armed forces have not been
designed and developed in India. The armed forces of a country are the best marketing agency of its
own defence equipment. India can take a cue from China which has focussed on indigenous
defence production rather than imports. Consequently, today it has become the fastest growing
arms exporter worldwide. The lack of a national strategy/policy for promoting defence exports is
hampering domestic defence sales. A proactive defence export policy drafted in close collaboration
with various stakeholders and led by the armed forces could be an effective long term strategy to
promote defence exports for India. India should have an institution like SIBAT, Israel to promote
indigenised products.
Exhibit 45: Military Spend as %age of GDP
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2004
2005
2006
USA
UK
2007
2008
France
2009
Germany
2010
China
2011
2012
2013
India
Source: SIPRI
Note 1: SIPRI numbers on defence spending as they reclassify some of the spending in other areas
Note 2: Believe Chinese spending is understated in the SIPRI numbers as the PLA runs a number of businesses that help finance part
of the defence spending.
45
Exhibit 46: Defence Spending by top 10 spenders ($ Mn)

2002-2007 2007-2013
CAGR
CAGR
($m)
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
USA
4,46,142
5,07,781
5,53,441
5,79,831
5,88,837
6,04,292
6,49,003
7,01,048
7,20,282
7,11,338
6,71,097
6,18,681
6.26%
0.39%
China, P. R.
52,832
57,390
63,560
71,496
83,928
96,782
1,06,640
1,28,734
1,36,239
1,47,268
1,59,620
1,71,381
12.87%
9.99%
France
62,840
64,749
66,526
65,123
65,470
65,691
65,037
69,426
66,251
64,633
63,736
62,272
0.89%
-0.89%
UK
53,179
57,005
57,665
58,150
58,527
60,375
63,070
64,297
62,942
60,284
57,717
56,231
2.57%
-1.18%
Russia
37,300
39,100
40,870
46,446
51,404
55,954
61,484
64,504
65,807
70,238
80,995
84,864
8.45%
7.19%
Japan
60,701
61,460
61,201
61,288
60,892
60,574
59,140
59,735
59,003
60,452
59,571
59,431
-0.04%
-0.32%
Germany
49,920
49,237
47,726
46,983
45,899
45,940
47,259
49,046
49,583
48,164
49,312
49,297
-1.65%
1.18%
Saudi
Arabia
25,762
25,951
28,850
34,763
39,600
45,617
44,771
46,011
47,881
48,531
54,913
62,760
12.11%
5.46%
Italy
43,513
43,867
44,011
42,342
40,976
39,736
41,160
40,002
38,876
38,149
35,436
32,663
-1.80%
-3.21%
India
28,528
29,165
33,879
36,054
36,225
36,664
41,585
48,963
49,159
49,634
49,459
49,091
5.15%
4.98%
8,60,717
9,35,705
9,97,729 10,42,476 10,71,758 11,11,625 11,79,149 12,71,766 12,96,023 12,98,691 12,81,856 12,46,671
5.25%
1.93%
Total
Top10
Source: SIPRI
Exhibit 47: Share of Spending among the top 10 spenders (%)

(%)
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
USA
54.3
55.5
55.6
54.9
54.4
55.0
55.1
55.6
54.8
52.4
49.6
China, P. R.
6.1
6.4
6.9
7.8
8.7
9.0
10.1
10.5
11.3
12.5
13.7
France
6.9
6.7
6.2
6.1
5.9
5.5
5.5
5.1
5.0
5.0
5.0
UK
6.1
5.8
5.6
5.5
5.4
5.3
5.1
4.9
4.6
4.5
4.5
Russia
4.2
4.1
4.5
4.8
5.0
5.2
5.1
5.1
5.4
6.3
6.8
Japan
6.6
6.1
5.9
5.7
5.4
5.0
4.7
4.6
4.7
4.6
4.8
Germany
5.3
4.8
4.5
4.3
4.1
4.0
3.9
3.8
3.7
3.8
4.0
Saudi Arabia
2.8
2.9
3.3
3.7
4.1
3.8
3.6
3.7
3.7
4.3
5.0
Italy
4.7
4.4
4.1
3.8
3.6
3.5
3.1
3.0
2.9
2.8
2.6
India
Total Top10
Spending
3.1
3.4
3.5
3.4
3.3
3.5
3.9
3.8
3.8
3.9
3.9
100
100
100
100
100
100
100
100
100
100
100
Source: SIPRI
US to see defence cuts of $450bn-$1.1trn over the next decade: The US spends by far the most
on defence (~50% of the top ten country spends and ~39% of the overall global spend). Thus, any
reduction in US defence budget will have a disproportionally high impact on global spends. On
March1, 2013, the Budget Control Act sequestration took effect including a US$37 billion reduction
in defence spend, and US$52 billion of expected reduction annually for the next nine years. At the
time of writing the US House and Senate Budget negotiators reached agreement on a budget deal
that would mitigate sequestration impacts on military and domestic spending over the next two
years, eliminating US$63 billion in across the board domestic and military cuts through
September30, 2015.
Notwithstanding this, defence contractors have already begun to feel the impact of sequestration.
In 2012 the top 20 US defence contractors experienced 3.3% decline in revenue. This trend is
expected to continue in the future. With National Defence Authorization act of 2014 signed, it is
defence budget could be cut by estimated US$22 billion in 2014 which will cut US defence
contractor revenues further.
Deep cuts in US defence spending will mean that it will have to cut back on its weapon acquisition
plans significantly. It could also have significant geopolitical implications as the US may likely launch
military campaigns only after much deliberation. Besides it is likely to squeeze as much out of the
defence dollar spent leading to both volume and price pressures for global defence systems
integrators.
The emerging scenario to work to Indias advantage: While we believe most defence contractors
globally will be hit by US spending cuts, we believe it is likely to be a boon for India. We believe
heavy competitive pressures will likely lead to lower pricing by systems integrators forcing them to
46
outsource to low cost destinations to maintain margins and keep market shares. Besides, they are
likely to be far more flexible in their approach with regard to JVs and Transfer of Technology
requests from India. The other large spender on weaponry, China is not a market global defence
systems integrators can tap into as US and European firms have been banned from selling weapons
to China since the 1989 Tiananmen Square crackdown. Therefore, both the Indian government and
private sector players will have considerable bargaining power with respect to US contractors.
Restructuring could lead to acquisition opportunities of Indian companies: As defence
spending comes under pressure we believe global companies will likely diversify their core area of
operation and look at other adjacent spaces where spending is intact or is growing. We therefore
see them sell-off their so called non-core parts of the organization.
Exhibit 48: Stress on defence spending in developed markets visible already

Country
Budget cuts Anecdotal evidences
France
The defense ministry said in April13 that 34,000 jobs would be cut over six years, but its overall budget would
remain largely static, steering clear of drastic spending cuts after military officials and lawmakers said that
would reduce France's ability to counter global security threats
Germany
In its 2014 budget, the German government is planning to cut spending by 6bn to avoid taking on any new
debt.
Italy
Italy aims to reduce the number of military personnel by about 16 percent to 150,000 and civil staff by about
a third to 20,000 by 2024. In 2013, Italy saved as much as 5 billion euros ($6.6 billion) by cutting defense
spending as the recession-hit country needs to tame its public finances and cannot raise taxes further
Spain
Spain's defence budget is to be trimmed again in 2014, despite the government's hopes that the country will
return to economic growth next year. Spending on the military will drop by 3.2% to EUR5.74 billion (USD7.77
billion), according to figures announced on 30 September13
Source: Media
Drivers of Exports: Public Private Partnership to jointly work on products for

export market
We suggest the government to enable policy framework for the Indian defence manufacturers to
create PPP style structure for export markets.
For Example: We suggest government create a policy framework for weapon launchers: Currently,
weapon launchers are being manufactured by the Indian industry players. However, ammunitions
are being manufactured by Ordnance Factory Boards (OFBs). Test beds are also required which can
be provided on PPP basis. There is a need to create an cohesive environment wherein various
suppliers (as mentioned above) work together to drive defence export growth.
47
Exhibit 49: Presentation at National Workshop on Make In India Space Sector (1/3)
Source: Media
Source: Media
Source: Media
48
Global Integrator related outsourcing to pick up in the long term

With intensifying competition between US and European systems integrators and defence
spending in developed markets under pressure, price pressures are a certainty for global
systems integrators. This sets the stage for India to become a critical part of the supply chain
of global players for components and sub-assemblies, driving export growth, long term.
There is evidence to show that such a move is already on. We believe India has some of the
basic ingredients (large and relatively low cost engineering talent pool, comfort of western
nations with India from a geo-political sense) to deliver on this opportunity but will have to
significantly improve on some others (technology, lack of a defence manufacturing
ecosystem, etc).
Defence exports from India have not been too encouraging over the last decade due to lack of
technologically superior products (see Exhibit 56). While substantial standalone export revenues
from Indian companies be they PSUs or Private companies is still years away (except for those in
the IT services space who are serving defence companies) we believe offset related exports and
global systems integrators related outsourcing will be significant drivers.
We believe that India has advantages similar to the ones that helped India become a force in IT
services, BPO, Pharma and Auto. There is reasonable quality talent in large numbers at significantly
lower than developed market costs. Also we believe that learning from the other three sectors will
help Indian industry as India is higher up the learning curve, as a nation. The experience of IT service
BPOs indicate that global systems integrators and captives are exploiting the offshore option far
more than they did in FY01 (see Exhibits 52-53). In areas like engineering services which is critical
to Aerospace and Defence outsourcing, the non-Indian component is far larger as seen in Exhibit 54
The experience in the Auto sector where India is gradually becoming the small car hub for global
manufacturers, indicates that it has the frugal manufacturing and engineering prowess that can be
of use in the defence field too. This is highlighted in the section on the Auto industry experience on
page 45
Based on anecdotal and media articles it is clear that global systems integrators have started feeling
the pain and are outsourcing to low cost destinations.
Our total exports number for FY22 is based on an estimate of 3.75% of the non-India defence capex
of the world. We expect the world spend to contract 1% /pa over this time-frame due to reduced
spending by developed nations. Currently the world spend is $1.7trn and we believe this number
will come down to $1.55trn by FY22. We have assumed 3.75% as this represents half the market
share that the Indian IT services industry currently commands in the global market.
One of the key examples as far as exports are concerned is to look at Israel, its defence exports
amounted to $7.4 billion in 2012. The export volume has increased at CAGR of 10% during the
period 1964 to 2012.
Exhibit 52: Contribution to IT services BPO exports in Exhibit 53: Contribution to IT services BPO exports in
FY01
FY12
Source: Nasscom
49
Exhibit 54: BPO Exports Industry Structure, FY2012

MNC
6%
Captiveunits
5%
IndianPlayers
89%
BPOExportsIndustryStructure,FY2012
ITServices
EnggDesign&Products
BPO
Captiveunits
11%
Captiveunits
27%
IndianPlayers
37%
MNC
15%
Captiveunits
53%
IndianPlayers
50%
IndianPlayers
74%
MNC
23%
MNC
10%
Source: Nasscom
We believe India will likely be far more cost competitive than Israel though it may not have the same
kind of relationship that Israel has with the US or have the same level of technological competence
currently in the defence space. Exhibit 55 indicates pickup in defence exports for Israel
Exhibit 55: Israel Defence Exports witnessed CAGR of 11% during 1964-2013 (CAGR of 11%)
900
800
700
600
500
400
300
200
100
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
Exports From Israel ($ Mn)

Source: SIPRI
50
Exhibit 56: Defence exports from India have been insignificant if one uses SIPRI data INR Mn
(Mn)
35
30
25
20
15
10
5
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: SIPRI
Exhibit 57: Global Defence companies are cutting back and restructuring likely a beginning
Company
Headcount reduction - Anecdotal evidence
Lockheed Martin
Defense contractor Lockheed Martin is cutting 4,000 jobs and closing four plants, blaming a decline in
U.S. government spending for the cuts.
Since 2008, the company has cut 30,000 positions, or about 20% of its global staff, reducing total
employment to 116,000.
Northrop
Grumman
Northrop Grumman Corp. has asked employees at its Aerospace Systems sector to participate in a
voluntary reduction-in-force program to cut costs in light of defence budget uncertainties and to
meet the challenges of what will be a demanding 2014.
BAE Systems
BAE Systems is cutting 1,775 jobs and ending 500-years of shipbuilding history in Portsmouth as part
of a restructuring of its naval business to cope with a declining workload.
Saab
Saab AB (SAABB), the Swedish maker of Gripen fighter jets, said it will try to shift as many as 175
employees from its defense-electronics unit to other positions in the face of lower military spending.
Saab will reduce defense-electronics staffing at its Gothenburg facility by 15% of the total workforce.
EADS Cassidian
Unit
European Aeronautic, Defence & Space Co. (EAD) plans to trim 5,800 jobs, marking the steepest cuts in
about five years as the parent of Airbus SAS combines space and defense units left reeling from
slack government spending. The job eliminations, which represent 4 percent of the total and exceed
analyst estimates, are the first major cuts since 2007, when the Airbus civil-aircraft unit began
eliminating 10,000 jobs to improve efficiency.
Finmeccanica
SpAs Alenia
Aeronautica unit
Finmeccanica said it would sell 1 billion, or $1.4 billion, in assets and cut jobs, overhaul production
and streamline supply lines to reduce costs.
Source: Media
51
Exhibit 58: Export Trend of major DPSUs (INR Lakhs)

Sales
Exports
Export
DPSU & OFB
FY10
FY11
FY12
FY13
FY13
Hindustan Aeronautics Ltd
2,047
2,374
3,483
3,828
1,42,018
2.70%
Bharat Electronics Ltd.
1,065
1,869
1,730
1,575
60,122
2.62%
BEML Ltd.
1,563
2,175
1,441
1,981
28,031
7.07%
55
14
10,747
Garden Reach Shipbuilders & Engineers Ltd
37
85
4,643
Goa Shipyard Ltd
5,642
MIDHANI
5,586
Hindustan Shipyard Ltd.
NA
NA
NA
NA
5,625
Mazagon Docks Ltd.
NA
NA
NA
NA
24,047
Total Exports of Ordnance Factories
123
357
461
4,500
NA
4,857
6,788
7,152
11,970
NA
Bharat Dynamics Ltd.
Total Exports of DPSUs & OFB
1.83%
Source: http://www.defproac.com/?p=759
Exhibit 59: Country attractiveness in manufacturing outsourcing

Score WRT Average
2.5
2.3
2.0
1.6
1.2
1.5
Average 1.0
0.5
0.4
0.3
0.1
0.0
(0.1) (0.2) (0.2) (0.2)
(0.2) (0.3)
(0.5)
(0.6) (0.7)
(1.0)
Romania
Poland
Czech Republic
Vietnam
Hungary
Brazil
Egypt
Turkey
Russia
South Africa
Mexico
Malaysia
Thailand
Phillippines
China
(1.1) (1.2)
India
(1.5)
Source: Nasscom Strategy Report
52
Exhibit 60: Volume of Arms Exports from India, 2001-2013

($Mn)
42
45
37
40
35
30
27
24
25
18
20
15
10
3
Mauritius
Namibia
0
Suriname Myanmar Seychelles Maldives
Ecuador
Nepal
SriLanka
Source: SIPRI, FICCI
Exhibit 61: Category of Arms Exports from India, 2001-2013
Exhibit 62: Main Driver for Parent Organization to set up GIC in India
(%)
120%
98%
100%
96%
80%
60%
39%
40%
37%
22%
20%
9%
0%
Cost
Availabilityof Availabilityof Roundtheclock Researchand

Talent
uniqueand
availability
development
specialisedskill
sets
Others
Source: Nasscom-Deloitte 2013
53
Exhibit 63: Category of services offered by GICs2 over the last 5 years and the next 5 years
(%)
80%
72% 72%
67%
70%
61%
60%
61%
56%
48%
50%
46% 48%
41%
40%
30%
28%
30%
33%
24%
28%
15%
15%
20%
6%
10%
0%
ITservices
Product
Development
BPM
Knowledge
Services
Research&
Development
Bankingand
financial
services
Engineering
Services
Salesand
Marketing
Healthcare
Source: Nasscom-Deloitte 2013
We believe the basic strength of India stems from the large availability of technical talent. While
questions have been raised often about the employability of this talent, sheer numbers ensure that
even post a weeding out process, there are large numbers.
Exhibit 64: Likely savings in different areas of defence value chain due to outsourcing
Source: PWC
54
Global Inhouse Centre
Exhibit 65: Defence Items Exported from India

Recipient Country
No.
ordered
Tata Diesel
Description
Diesel
engine
New
1987 - 2006
SA-315B Lama
Light
helicopter
New
2001 - 2001
10.00
SA-315B Lama
Light
helicopter
New
Bhutan
1.00
MPV
APV
New
2004 - 2004
Mauritius
1.00
Do-228MP
MP aircraft
New
2004 - 2004
Druhv
Helicopter
New
2004 - 2004
MPV
APV
New
2004 - 2004
Druhv
Helicopter
New
2005 - 2005
Sri Lanka
150.00
Item
Nepal
2.00
Nepal
Nepal
2.00
Nepal
100.00
Nepal
1.00
Status
Year(s) of deliveries
2003 - 2004
Seychelles
1.00
SDB Mk-5
Patrol craft
New
2005 - 2005
Maldives
1.00
SDB Mk-5
Patrol craft
New
2006 - 2006
Myanmar
10.00
MPV
APV
New
2006 - 2006
Indra
Air search
radar
New
2006 - 2006
Indra
Air search
radar
New
2007 - 2007
Sri Lanka
2.00
Sri Lanka
2.00
Ecuador
6.00
Druhv
Helicopter
New
2009 - 2009
Maldives
1.00
Druhv
Helicopter
New
2010 - 2010
1.00
SA-315B Lama
Light
helicopter
New
24.00
MPV
APV
New
3.00
SA-316B
Alouette-3
Light
helicopter
New
2.00
SA-316B
Alouette-3
Light
helicopter
New
Namibia
Nepal
Suriname
Namibia
2011 - 2011
2011 - 2011
2011 - 2011
2012 - 2012
Exhibit 66A indicates that India offers cost advantages that vary in magnitude across the value
chain. Respondents to the survey indicated that the savings are highest for IT and systems
implementation activities in the value chain. Cost savings could range between 15 to 25 percent in
manufacturing, depending on the type of component. These savings are expected in labour
intensive processes with import of raw materials. In fact, in some cases local sourcing of raw
materials / parts can increase the cost savings by an additional 10 to 20 percent.
However, anecdotal evidence indicates that many of these companies have already been working
with Indian IT services players for years now. Incrementally we believe any pain that the global
customers would feel will likely translate into pricing pressure for the Indian IT services providers.
However, we believe manufacturing related outsourcing would likely be large in the days ahead.
The opportunity is likely much larger as it constitutes a much larger component of cost structure
than do IT systems. Besides, while China may be the hub of low cost manufacturing globally,
considering sensitive nature of the work in defence sector, more of this is likely to flow to India.
55
Growth In Auto & Auto Ancillaries Export Gives Us Confidence On A

Long Term Environment Being Created For Defence Components
Like what has India achieved in the Auto sector where India is fast emerging as the major export
centre for Cars and Motorcycles globally, we believe that there are several factors that would make
India a competitive destination for defence exports irrespective of fulfilling its domestic
requirement. Important factors that we believe would drive this are product development
capabilities, availability of skilled manpower, high quality standards coupled with potential
domestic and exports demand (as highlighted earlier like spending cuts in developed countries)
across the defence sector.
Exhibit 66A: Hourly

compensation costs in
manufacturing, USD(2010)
Norway
Switzerland
Germany
Sweden
Austria
Australia
France
Ireland
United States
Canada
Italy
Japan
United Kingdom
Spain
Slovakia
Mexico
China
Philippines
India
Exhibit 66: Advantage India
57.66
51.10
43.84
43.51
39.98
39.68
39.12
38.57
34.81
34.36
33.57
31.75
29.11
26.66
20
40
60
Proximity to emerging markets
There are more than 125 Fortune 500

companies in India.
Proximity to emerging markets such as

Asia and Africa
India is an emerging global manufacturing

hub for low-cost compact cars
Shipments to Europe from India are more

cost effective than those from Brazil and
Thailand
Availability of skilled manpower

In India, 0.4 million engineers graduate every
year.
High quality standards
Seven million people enter the workfore

every year.
Eleven Indian component manufacturers

have won the Deming award for quality
India as an
automotive hub
Cost of an entry-level engineer is about

US$8,000
Most leading component manufacturers

are QS-ISO certified
Cost of engineering talent in India is 45%

lower than that is the US
10.72
6.14
1.98
1.89
1.46
0
Product development capabilities
Growing domestic demand
Export potential
Changing demographics, rising disposable

income and entry of several new players has
expanded the domestic market for passenger
vehicles.
Increased sourcing from low-cost

countries
Total value of vehicle exports is estimated
to reach US$8 billion to US$10 billion by
2015
Low manufacturing costs due to economies

of scale, low R&D and sourcing costs, are
increasing affordability and driving domestic
demand.
80
Values (in $)
Source: IBF
Source: Bureau of Labour Statistics (USA)
We believe Automobile manufacturing requires some of the same skill-sets as required in Defence
manufacturing (but at a significantly lower complexity). The Indian auto export story is a story that
the defence sector can emulate. As can be seen in Exhibit 66, India has emerged as the small car
hub for the world over the last one decade. And many global auto majors are now using India as the
base for their manufacturing.
Exhibit 67: Export trend for Passenger Cars
Exhibit 68: Export trend for Two Wheelers
(000s)
(000s)
600
2,500
500
2,000
400
1,500
300
1,000
200
500
100
Source: SIAM
FY2014
FY2013
FY2012
FY2011
FY2010
FY2009
FY2008
FY2007
FY2006
FY2005
FY2004
FY2003
FY2002
FY2001
FY2000
FY1999
FY1998
FY1997
FY1996
FY1995
FY1994
FY1993
FY2014
FY2013
FY2012
FY2011
FY2010
FY2009
FY2008
FY2007
FY2006
FY2005
FY2004
FY2003
FY2002
FY2001
FY2000
FY1999
FY1998
FY1997
FY1996
FY1995
FY1994
FY1993
Source: SIAM
56
Joint venture/co-production activity has stepped up recently

Foreign contractors are cognizant of Indias massive modernization plan and the opportunities it
presents. Although many have been vocal on the negatives of 49% FDI limit, that has not stopped
them from securing their places in the Indian Armed Forces acquisition plans. News regarding
newly formed JVs and co-production agreements continues to come out weekly, a positive sign for
Indian companies still looking to enter the lucrative defence market. Exhibit 69 shows some
examples of recent partnerships between domestic companies and foreign contractors.
Exhibit 69: Joint Ventures in Defence Industry
Indian Company
Tata
Foreign Partner
Sikorsky Aircraft Corporation
Israel Aerospace Industries
Boeing
EADS
Thales
Lockheed Martin
AgustaWestland
Date Formed
Nov. 2009
Aug. 2009
Feb. 2008
Feb.2008
Feb. 2008
Feb. 2011
Feb. 2010
Products
Aerospace components, S-92 helicopter cabins
Missiles, radars, electronic warfare and homeland security systems
Components for F/A-18 Hornet, CH-47 Chinook, and P-8 Aircraft
Advanced Tactical communication systems
Optronic solutions for multi role combat aircraft
Aero structures for C-130 aircraft
Assembly line for AW119 helicopter
Boeing
EADS
Pratt & Whitney
Feb. 2007
Feb. 2011
Feb. 2011
Defence and aerospace components

Manufacture high end defence electronics
Aircraft Engineer Components
Cassidian (EADS D&S)

Raytheon
Samsung Techwin
Nextar Systems
Feb. 2011
Feb. 2010
Feb 2010
Feb 2012
Electronic warfare systems, radars, avionics

Up gradation of T-72 tanks, infrared imaging, electronics
Tracked & Wheeled Self Propelled Artillery Gun System
Towed Artillery Guns, Mounted Guns
BAE Systems
Ras Al-Khaimah, Arabia Holdings
Euro copter
Lockheed & Martin
Oct 2008
Jul. 2010
Jul. 2011
Mar. 2012
Telephonics
Aug. 2012
Rafael Advanced Defense Systems Ltd
Mar. 2012
Land Systems
Vehicle armoring, ballistic kits
Civil helicopters and fixed wing aircrafts
Simulators
Radar and surveillance systems, identification Friend or Foe devices and
communication systems
Develop and manufacture products such as Anti Torpedo Defence
Systems, Electronic Warfare Systems, Advanced Armoring Solutions and
remotely operated weapon stations for Futuristic Infantry Combat
Vehicles (FICV)
Dynamatic Technologies
Boeing
Mar. 2010
Cabinets for mission equipment on P-8I aircraft
Pipavav Shipyard
Babcock
SAAB
Apr. 2011
Nov. 2012
Aircraft carriers
Naval Combat system design and architecture
Amtek Defence Tech.
Enertec Management
Feb. 2011
Electronic systems, simulators
Axis Aerospace
Thales
Rosoboronexport
Feb. 2011
Feb. 2011
Aerospace and defence flight simulators

Equipment for fighter jets and helicopters
Bharat Electronics Ltd
Thales
Aug. 2012
Design, development, marketing, supply and support of civilian and

select defence radars for Indian and Global markets.
Wipro
BAES
Aug. 2011
Commercial Aerospace Projects
Precision Electronics
Raytheon
Feb. 2008
Developing and Providing Communication Technology
Bharat Forge
Elbit
Feb. 2013
Artillery and Mortars Systems Solutions
Reliance Industries
Dassault Aviation
Feb. 2013
Defence and Homeland Security
Larsen & Toubro
Mahindra & Mahindra
Source: Company
57
Offsets A key driver of exports growth in near term

Offset agreements are a popular tool used by governments around the world when they engage in
large military procurement deals with foreign Defence manufacturers. An offset is essentially an
additional compensation given to a buyer by a seller. In relation to Defence procurement, this
means that foreign contractors are required to fulfill certain offset obligations (in the form of FDI or
purchase of domestically manufactured products) when they supply arms to a country.
Offset policies differ by country in terms of required levels, thresholds, eligible products/services,
and available methods. The Indian Ministry of Defence (MoD) approved offsets guidelines in 2005
and the implementation process began after their inclusion in DPP-2006. Offset obligations in India
vary depending upon the acquisition category.
In India, Defence Offsets was initiated on account of Kelkar Committee Recommendation to
leverage buy-in power of the Defence Industrial Base. The primary objective of Defence Offsets is to
become self-reliant by developing Fledging Defence Industry in to Military Industrial Complex
through leveraging capital acquisitions
Fostering development of internationally competitive enterprises
Augmenting capacity in Design and R&D related to defence products & services
Encouraging development of synergistic sectors like civil aerospace and internal security
Total offset mandated over 12th Plan period is expected to reach Rs1.2tn3 to executed over sunset
period of Contract Period + 2 years, can safely assume period of 5 to 8 years.
Unfortunately, offset obligations are estimated to indirectly increase the acquisition costs of defence
equipment by 10%-15% on average. The policy provides incentives to the suppliers through offset
banking credits. If a supplier facilitates offset more than the requirements, the accruing credits may
be carried forward for seven years from the approved date.
Exhibit 70 sums up the current acquisition structure and the offset obligations associated with each
scenario.
3
As per the government estimates. However, Centrum expects this number to be USD44bn over FY14-22
period
58
Exhibit 70: Offset Requirements by Acquisition Category

Defence Acquisition Category
Buy
Buy Indian
(Indian Vendors only)
Buy Global
(Indian + Foreign Vendors)
No offset requirements
Foreign Vendor
Buy + Make
Make
Acquisition from foreign vendors followed by licensed

production/ indigenous manufacture in India
Technology and complex weapons systems

designed, developed, and produced
indigenously
Buy + Make (Indian)
Minimum 30% indigenous

content in case of
integration being done by
Indian vendor
Purchase from Indian

vendor including JVs
formed with foreign OEMs
Offset requirements to be
30% of the estimated cost
of acquisition
Minimum 50% indigenous
content
Buy + Make (Global)

Purchase from foreign
vendor
Offset requirements of
30% of the foreign
exchange component
Indian Vendor
Indigenous content >= 50%
Indigenous content < 50%
Offset requirements of
30% of the foreign
exchange component
Source: Defence Procurrent Procdure, Deloitte
59
Exhibit 71: Ways to comply with Offset commitments

Buy i.e. Outright purchase from Indian or
foreign vendor
Buy and make with ToT

Purchase from foreign vendor followed by licensed production
Offset
Offset obligation of 30% to be discharged by
Direct Purchase from

Indian Enterprise
FDI in Indian
Enterprise
ToT to
Indian
Enterprises
Minimum 70% of total

obligation
Multipliers permitted for SMEs
Banking allowed
Equipment
to Indian
Enterprises
Equipment/ToT to
Government
Institutions
Advanced Technology
acquisition by DRDO
Multipliers
Permitted
Source: PWC
60
Offsets generated so far

The MoD reported that between 2007 and 2012, India handed out 19 defence contracts worth
about $15 billion to foreign contractors such as Boeing, Dassault, Lockheed Martin, etc. These deals
have created offset opportunities of $4.5 billion for domestic companies in both public and private
sectors. As per Q Tech Synergy, as on 2012, there are offset contracts worth $8 billion at various
stages of implementation
Exhibit 72: Offset Contracts awarded between 2007 and 2012
Project Name
Vendor
Year
Value
(USD
Mn)
Offset
(USD
Mn)
Medium Power Radar
IAI, Elta, Israel
2007
180.0
54.0
RAC Mig, Russia
2008
1,027.33
308.20
Fincantieri, Italy
Rosoboronexport, Russia
2008
184.23
55.27
2008
1,350.23
405.07
Rafael, Israel
2009
70.27
21.08
HAL
IAI, Israel
2009
147.70
44.31
L&T
Lockheed Martin
2009
730.00
219.00
Thales, France
2009
115.83
34.75
Boeing, US
2009
2,137.53
641.26
Fincantieri, Italy
2009
184.23
55.27
BEL
----
Mig-29 Upgrade 54 Fighters + 8

Trainers
Fleet Tanker
80 MI- 17 V-5 Helicopters (MLH)
Medium Altitude EO/IR Recce
System for Jaguar Aircraft
P-IV (HAROP) UAV Systems
Indian Tie-Up
Astra Microwave Products Ltd,
L&T
Base Repair Depots
BEL
Tata, L&T
6 C-130J (FMS Case)

Low Level Transportable Radar
(LLTR)
8 Long Range Maritime
Reconnaissance Anti
Submarine Warfare Aircraft/P-8I
Aircrafts
Fleet Tanker under Option
Clause
Air Route Surveillance Radar
(ARSR)
12 AW 101 VVIP Helicopter
M&M, QuEST, BEL
Elta, Israel
2009
37.20
11.16
AgustaWestland
2010
747.13
224.14
Unmanned Aerial Vehicles
IAI, Israel
2010
269.23
80.77
510 Sensor Fuzed Weapon

10 C-17 Aircrafts (VHETAC-FMS
Case)
Texton Systems
2010
341.80
102.54
Boeing, US
2011
3,639.00
1,091.70
Mirage-2000 Upgrade
Dassault, France
2011
1,976.03
592.81
MICA IR and RF Missile

New Generation Precision
Guided Munitions
75 Trainer Aircraft Pilatus
MBDA, France
2011
1,288.00
386.40
Rafael, Israel
2012
100.00
30.00
----
Pilatus, Swiss
2012
500.00
150.00
HAL
BEL
Wipro Ltd, HCL Tech Ltd, HAL,
Dynamatic Tech, Macmet Tech
Ltd, L&T, BEL, Maini Aerospace
Tata Sons
---Bharat Forge
DRDO, TCS, HAL and Defence
Land Systems
Hal, Samtel Display System, Tata
Group
L&T
Source: QTech Synergy
61
Indias offset policy is conservative in comparison to others

A cursory examination of other countries offset policies shows that Indias threshold (USD 50 mn /
INR 3bn) and minimum offset percentage (30%) is conservative. India does not even employ the use
of multipliers in their offset obligations except in special cases like (transfer of advanced technology
by DRDO OR involvement of MSME)
The United States does not endorse the use of offset within its own borders but its companies have
fulfilled offset obligations when dealing with other countries, so there should be no danger for India
of offset arguments in dealings with the US. Most of the developing countries allow indirect offsets
and more critically, emphasize ToT in the offset requirements. Brazil and Israel are two examples of
countries that have benefitted from the effective implementation of ToT in their offset policies.
Exhibit 73: Country Comparison of Offset
Multiplier
Penalty %
Focus
200.00
Term of
offset
contract
Main Contract
03-10
03-07
Flexible
Flexible
Flexible
SME
Flexible
18
Flexible
100.00
Main Contract
None
Black List
Brazil
10.00
100.00
Main Contract
02-10
Black List
Canada
Israel
17
0.5
100.00
35.00
200.00
100.00
Main Contract
Main Contract
None
None
LD
None
S. Africa
50.00
150.00
Main Contract
SME
S. Arabia
UAE
Australia
All
10
10
35.00
60.00
100.00
35.00
100.00
100.00
Main Contract
7 Years
7 Years
None
01-04
None
LD + 5
7
10
India
50
30.00
Main Contract
1-3
Hitech R&D
Purchases &
Investments
Investment
Defence
Industry
Hitech R&D
Hitech R&D
Tech
Transfer
Investment
Investment
Hitech R&D
Defence
Industry
Country
Min Value
$Mn
Min Offset
%
Max Offset
%
Austria
100.00
France
UK
Direct /
Indirect
Both
Both
Both
60-40
Both
Direct
Both
Both
Indirect
Both
Both
Source: Media
62
Offsets Facts Presented Thorough Charts

With the strong lobbying of various international players in the Aerospace & Defence segment, the
Ministry of Defence has conceded to their demands of including Civil Aviation in to offset
obligation. We believe, these steps have diluted the overall purpose of offsets which had the basic
intention of developing the Indian Defence Sector.
Some of the areas which are of concern, which have diluted the overall purpose of developing India
as a credible competitor for global markets, are:
Including parts and components manufacturer for pure Civil Aviation platforms does not fit
with the objective of offset and hence not defence offsets.
Taxes and duties at the hands of Indian Manufacturers as Indian Offset Partner eat in to the
offset volume
30% Offsets in effect become 21%
As per latest policy guidelines a minimum of 70% offsets are to be manufacturing +

maintenance domains
Restricting the offset multipliers of up to 1.5x for MSMEs and SMEs only would help the
OEMs to keep the Indian Defence Industry restricted to component, sub-assembly level
work, low end manufacturing and technology area, fulfilling foreign OEMs agenda
By not addressing the matter of Taxes and Duties on offsets in the form of system
integration in India, the country is restricting to Component & sub-system production
instead of moving up the value chain through system integration
Overall cap on penalty for non fulfillment of offset obligation of 20% of the total offset
obligations during the period of the main procurement contract and No cap post that
should be reasonably modified to include benefits to MoD in terms of increased offset
obligation, enhanced Performance Bank Guarantees, etc
The effects of the above has made the self-reliance index in defence sector to drop from 40%
to 36% since offsets were mandated on the Buy (Global) and Buy & Make (Global) category
segments. Indian industry has been opposing the dilution of offsets all levels.
63
Offsets Facts Presented Thorough Charts

Exhibit 74: Indian Defence Offsets (2007 2012)
(RsMn)
1600
1,452
1400
1200
927
1000
804
800
612
609
600
400
180
200
0
2007
2008
2009
2010
2011
2012 (May)
Exhibit 75: Public & Private Companies share in the total offset
Public
35%
Perhaps surprisingly, the

private sector in total
accounts for 62% of all
offsets. Because the private
sector has had few orders
directly from the government,
these offsets present a
tremendous
growth
opportunity.
Private
65%
Exhibit 76: Offset Spread by Beneficiary (As On Aug 2012)
SMEs, 27 %
DPSUs or Ofs, 40 %
Large Private , 33 %
Source: MoD
64
Exhibit 77: Offset Spread by Type (As On Aug 2012)

Software
9
Engineering
Service
14
Not surprisingly, the bulk of

the work given to domestic
companies consists of simple
manufacturing which
includes
assembly
and
integration services.
Manufacturing
55
Other Services
3
Design
19
Source: MoD, Ernst & Young
Exhibit 78: Offset Contracts Country Wise (March 2008 - August 2012)
39
USA
Russia
Europe
3
IAI
Rafael
Elta
Dassault
MBDA
RosoboronExport
RACMIG
AgustaWestland
13
Filcantieri
Pilatus
Thales
Tentron
Boeing
5
LockheedMartin
45
40
35
30
25
20
15
10
5
0
Israel
Aerospace has been the prime beneficiary of offset as can be seen below
Exhibit 79: Aerospace Offset Segment (As on August 2012)
Ground Handling /
Support Equipment
7%
Simulators and
Training Facilities
17%
Overhaul and
Repair Facilites
15%
Fuselage, Cabins,
Radome, Tail Cone,
Data Link
56%
Engineering
Projects & Project
Management
5%
65
Offsets could be a $44bn opportunity over FY14-FY22

As per a Working Group Report on Defence published in April 2012 contracts worth about Rs. 14
billion have been concluded so far. Apart from this number, there are offsets contracts worth $12
billion under various stage of implementation which would be awarded in the near future.
We believe there is $44bn opportunity in defence offsets that is likely to be offered during the FY14FY22 time frame. This is a conservative estimate (based on an 30% offset obligation), as some large
contracts such as the $11bn MMRCA have offset requirements of 50%. This obviously presents an
immense opportunity for domestic firms through added investment and demand. Indian firms will
also have the added benefit of interacting with experienced foreign defence companies and may
even acquire new technologies through these partnerships.
Exhibit 80: Offset Opportunities in some Aerospace & Defence contracts
Expected Cost
($Bn)
8.00
Expected Offset
7.00
6.00
5.00
4.00
3.00
2.00
1.00
VSHORAD
MRH (16)
P75 I
Submarines
Refueling
Tankers - IAF
155mm Towed
Howitzer
LUH - IN
C130 J
MRMR
Attack Heli
(Wpns & Fits)
155mm Tracked
Howitzer
LUH - IAF, IA (197)
0.00
Bharat Electronics is a major offset beneficiary

Bharat Electronics Ltd (BEL): Revenue trend of BEL is highly correlated to the defence offsets
opportunity created in the country in the past decade.
Exhibit 81: BELs export has likely taken off due to offset obligation of foreign players
45
0.8
0.75
40
0.7
35
0.6
0.5
30
0.4
25
0.33
0.33
0.3
20
0.2
0.15
15
0.1
10
0
-0.07
-0.15
0
2008
2009
2010
2011
BEL Export Revenue ($ Mn)
2012
-0.1
-0.2
2013
Growth
Source: Company
66
FICCI views on the Defence Offset Guidelines published in the year 2012
In the year 2012, The Defence Acquisition Council chaired by the erstwhile Defence Minister, Mr A K
Antony had cleared the new Defence Offset Guidelines on April 2, 2012. FICCI views on the salient
features of the revised offset policy are as given below:
The objective of Defence Offsets has been spelt out clearly in the revised policy: The key
objective of the Defence Offset Policy is to leverage capital acquisitions to develop Indian
defence industry by (i) fostering development of internationally competitive enterprises, (ii)
augmenting capacity for Research, Design and Development related to defence products and
services and (iii) encouraging development of synergistic sectors like civil aerospace and
internal security.
FICCI: Welcomes the intent and stated key objectives towards creating manufacturing base and
augmenting R&D related to defence products and services. Towards this, R&D/technology
acquisition by industry should also be made offset-able. Regarding the third stated objective of civilaviation and internal security as offsets, both of these are wide-ambit areas and if included in their
entirety, then offsets will deviate from the policys first two objectives. It is recommended that only
the capital acquisitions in selected areas of these sectors which have applicability for Defence &
Aerospace alone should qualify for Offsets.
Distinction has been made between equity and non-equity route i.e. investment in kind by
OEMs for discharge of offset obligations.
FICCI: Investment-in-kind as Direct Foreign Investment (DFI) with private sector companies should
qualify for Offsets. This will enable creation of Defence Industrial Base leading to the realisation of
self-reliance in Defence.
If non equity is treated as Debt and paid back under FEMA what happens to offset credit given?
The revised policy recognizes TOT as eligible for discharge of offset obligations. Investment in
Kind in terms of TOT must cover all documentation, training and consultancy required for full
TOT (civil infrastructure and equipment and excluded). The TOT should be provided without
license fee and there should be no restriction on domestic production, sale or export. The offset
credit for TOT shall be 10% of the value of buyback by the OEM during the period of the offset
contract, to the extent of value addition in India.
FICCI: The decision of recognizing ToT as Offsets should have an in-built mechanism for ensuring
that valuation of ToT is done judiciously to prevent overpricing of ToT by the OEMs. Sub/systems,
components must be traced to determine true value of ToT. ToT without any License Fee and
unrestricted export potential is truly a welcome step. True value addition in India alone should be
given Offset credits.
Technology Acquisition by DRDO for a list of specified technologies will be treated as an eligible
Offset with a multiplier up to 3.
FICCI: DPP has by far the most liberal Offset regime of a benign 30% minimum offsets. Multipliers, if
being considered at all, should be linked with a corresponding increase in the applicable minimum
applicable percentage for Offsets, which should be made 70%, which is incidentally the Global
average also. Further, MoD should encourage acquisition of technologies by Indian Defence
Industrial base by extending the benefit of offsets applicability to the entire defence industry,
academia and other R&D institutes as well, rather than restricting it to only the DRDOs . FICCI
recommends that there should be an independent body for technology acquisition with academics,
Department of S&T and industry chambers as well.
It has already been decided to allow Tier-I sub-vendors under the main procurement contract to
discharge part of the offset obligations on behalf of the main vendor. However, the overall
responsibility for discharge of offset obligations shall rest solely on the main vendor.
FICCI: This is a good provision and would benefit the MSME and SMEs to get integrally integrated
with the entire offsets value chain. This should be expended to Tier III also but with clear operational
guidelines as to how the Tier II & Tier III vendors will be nominated by OEM at the time of main bid
submission. There is a need to put in place an institutional mechanism for monitoring the tierised
vendors and their IOPs as well.
67
x
x
x
x
Under the revised guidelines, the agreement between the OEM/vendor/Tier-I sub-vendor and
the Indian Offset Partner (IOP) shall be subject to the laws of India.
FICCI: Welcomes this
In the earlier policy, offset obligations have to be discharged during the period co-terminus
with the main procurement contract. The revised guidelines allow offset obligations to be
discharged within a timeframe that can extend beyond the period of the main procurement
contract by a maximum period of two years.
FICCI: After extensive lobbying by the OEMs, DPP 2008 introduced the Sun-rise and Sun-set clauses
for implementing the Offset obligations by the OEMs. However, this did not result in any enhanced
offsets activity by the OEMs on ground. Therefore, the decision for relaxing the co-terminus clause
further was not really necessary as the period of Sunrise and Sunset offset clauses have also been
increased from 2 yrs to 7 yrs.
Under the existing guidelines, banked offset credits were valid for a period of two years. The
period of validity has been increased to seven years under the revised guidelines.
FICCI: Welcome step
In the discharged of offset obligations relating to direct export, FDI, TOT or investment in kind
in Indian enterprises through non-equity route, a multiplier of 1.50 will be permitted where
Micro, Small and Medium Enterprises are IOPs. The Monetary limits specified by the Department
of Micro, Small and Medium Enterprises, Government of India shall be applicable for
identification of MSMEs.
FICCI: Strongly objects to only SMEs and MSMEs being included in this clause. For the stated objective
of the Offset policy in the first clause to be met (that is to create internationally competitive
enterprises, augmenting capacity for Research, Design and Development related to defence
products and services and encouraging development of synergistic sectors like civil aerospace and
internal security) then it is required that the domestic defence industry should be capable of
undertaking investments in design, development and R&D on its own to attract global OEMs to set
up partnerships.
For any form of partnership JV/Consortium/ LTBA, the local partner would have to make
reasonable investments on its own being 74% equity holder. According to the figures of investment
set by the Indian MSME act, no SME with a capital of Rs 25 lakhs can ever do it or even an MSME with
a capital of up to Rs 5 Crs.
Restricting the offset multipliers of up to 1.5 times only for MSMEs and SMEs would only help the
OEMs to keep the Indian Defence Industry restricted to component, sub-assembly level work, low end
manufacturing and technology area, fulfilling the agenda of foreign OEMs.
Therefore, it is strongly recommended that this clause should be amended to qualify the entire
Indian defence industry to be eligible for offset multiplier for activities such as direct export, FDI, TOT
or investment in kind in Indian enterprises through non-equity route.
As a recommendation all such offset proposals must be specifically approved by a competent body
having academics, industrial bankers, industry chambers, HQIDS, MoD (DP & Acquisition wing),
DRDO etc. All approved proposals must be put on the website with OEM and recipient details.
The overall cap on penalty will be 20% of the total offset obligations during the period of the
main procurement contract. There will be no cap on penalty for failure to implement offset
obligations during the period beyond the main procurement contract, which can extend to a
maximum period of two years.
This placing a cap on penalty should be linked with substantial benefits in return to MoD such as
enhanced PBG, enhanced offset obligation, etc. As a suggestion, each year of delay in offset
obligation should grow by 8% compounded. The main Performance bond ~5 % of the value of the
contract (100%) will not be released and OEM has to give additional performance BG to cover the
defaulted obligation.
68
Case Study Of A Successful Offset Transaction Executed

Vendor: Pilatus Aircraft (Switzerland) supply of 75 PC-7 Mk II turboprop basic trainer aircraft for IAF
Indian Party: Bharat Electronics Ltd
Year of Contract Award: 2012
Year of offset discharge: Oct 2013
Contract Amount: Rs 38 billion
Offset Obligation: 30%
Launched the offset project to establish an electrical harness manufacturing capability at BEL's
Bangalore Complex
Includes ToT in the form of tooling, jigs and training of BELs personnel by Pilatus in Switzerland
and India
Project will enable BEL to manufacture electrical harnesses for the Pilatus global supply chain.
Integrated ground based training system
Comprehensive logistics support package
Pilatus has taken the offset obligation as a major opportunity to expand its footprint in India.
Exhibit 82: Pilatus training Bharat Electronics Engineers on Offset Discharge
Source: Business Line
Recent Updates on Defence Offsets
69
The new offset guidelines promote investment in micro, small and medium enterprises (MSMEs)
by applying a multiplier factor of 3.0 to the offset calculations.
It also facilitates technology acquisition from a select list, by DRDO.
The offset discharge banking period is extended to seven years.
Period of execution of offset contracts is now allowed up to two years beyond the period of
main procurement contract.
However, exclusion of services for purposes of value addition in India is a dampener
In a bilateral interaction between US president Barack Obama & then Prime Minister Manmohan
Singh, US reaffirmed that it would grant India the same privileges reserved for its closest allies in
respect of transfer of defence technology, co-production and co-development.
Defence SEZs likely to boost export revenue

Based on the advice of the Kelkar Committee, Indian government opened up the aerospace industry
to the private sector for offset discharge. Following which, private players are partnering with State
governments and foreign partners to set up aerospace special economic zones (SEZs) with a view to
establish Aerospace ecosystems within India. As more Defence SEZs get operational, we expect the
Defence export to pick up as has been the case from other SEZs (see Exhibit 84). The aerospace SEZ
will enable various defence players to set-up shop in India and tap the defence aerospace business
here as well as cater to the export market. The SEZ will also capitalize from the growing defence
offsets market in India besides creating a dedicated MRO in the aerospace SEZ.
Exhibit 83: SEZs boosted export over the years with a CAGR of 46% b/w FY07 & FY14
6000
140%
121%
5000
120%
100%
4000
93%
80%
3000
60%
52%
2000
50%
43%
40%
31%
1000
20%
15%
346
666
997
2,207
3,159
3,645
4,762
0
2007
2008
2009
2010
2011
2012
2013
Value (Rs. Bn)
4,941
4% 0%
2014
Growth (YoY)
Source: Sezindia
Exhibit 84: Prime Aerospace SEZ participants within India (operational and planned)
Key Promoters
Location
QuEST Global
Tata Advanced Systems and
Sikorsky Aircraft Corp (US)-JV
NOVA, a JV between Tata
Advanced Systems and Israel
Air Force Technology
Samuha, a consortia of
companies like MTAR
Technologies and others
GMR Group aerospace park
Taneja Aerospace and TidcoJoint Venture
GVK Industries' multi product
SEZ
GVK Industries aerospace SEZ
Mahindra World City
Belgaum Karnataka
Adibhatla - Andhra
Pradesh
Space allocated
(estimate)
300 acres
50 acres
Investment
(estimate)
US$30-35
million
US$200-225
million
Details
Develop and manufacture precision engineering
products
Manufacture fuselage for Sikorsky's S92 helicopter
Work closely with organizations such as DRDO,
Defence PSUs and OFs to design, manufacture and
integrate advance Defence and aerospace systems
Work closely with organizations such as DRDO,
Defence PSUs and OFs to design, manufacture and
integrate advance Defence and aerospace systems
Set-up CFM engine maintenance training centre,
Airframe MRO (in JV with Malaysian Airlines )
Adibhatla - Andhra
Pradesh
50 acres
NA
Adibhatla - Andhra
Pradesh
120 acres
NA
Hyderabad Andhra Pradesh
250 acres
NA
>300 acres
US$60-65
million
Set-up MRO facility, manufacture aero parts
3,000 acres
NA
Multi-product manufacturing
2,000 acres
NA
Planned for an aerospace project
1,000 acres
NA
N.A.
Hosur - Tamil Nadu

Perumbalur - Tamil
Nadu
Planned to set-up
in Perumbalur or
Hosur - Tamil Nadu
Coimbatore - Tamil
Nadu
Source: ValueNotes Research
While companies are making significant investments, we will see the benefits over the next decade.
Local companies have already executed and will further have joint-ventures with foreign companies
and derive benefits of technology transfer, shift from licensed production to joint design,
development and manufacture. These industry movements indicate that Indian A&D industry is
geared up to capitalize on the offset policy benefits and so are the Engineering Service Providers
(ESPs) who have graduated from mere service providers to partners in manufacturing.
70
Maintenance, Repair and Overhaul (MRO) a large opportunity

Global MRO market is a $56bn market (2013) and is expected to grow to $76bn by 2023 (see Exhibit
85-87). With ageing fleet and contracting Defence budgets in developed economies, MRO becomes
increasingly important in the global value chain of A&D Industry. Global experiences suggest that
MROs are not just critical for expanding capacity for new fleet inductions; however, they are more
critical in facilitating life cycle extensions for existing fleet and keeping operational costs in check.
Not surprisingly, OEMs are channelizing more funds towards MRO investments (see Exhibit 85). MRO
constituted 34% of OEMs total investments next only to manufacturing (39%).
GLOBAL MRO Sector Overview
Exhibit 85: Manufacturing and MRO were the most popular investments by OEMs (US Mn)
Training
4%
Others
4%
Engineering/R&D
19%
Organic
53%
Total 948
MRO
34%
Total 948
Joint Venture
47%
Manufacturing
39%
Source :ICF SH&E (2012)
Source: ICF SH&E (2012)
Exhibit 86: 2013 Global Military MRO Market US$56.3Bn
Exhibit 87: Projection of MRO related demand.($ Bn)
HMV&MOD
17%
Line
18%
($Bn)
80
60
56.3
50
9.7
40
30
20
10
Component
22%
Engine
43%
Source: TeamSAI
76
13.8
68
70
11.1
33
30.1
23.9
12.6
14.8
16
10.1
12
13.2
2013
HMV&MOD
2018
Engine
Component
2023
Line
Source: ICF SH&E (2012)
Indian Civil Aviation Market An overview

Indian Civil Aviation sector has observed robust growth. Passenger throughput grew from 97mn
(FY07) to 159mn (FY13) and Air Traffic movement grew from 1.08mn (FY07) to 1.47mn (FY13)
registering CAGR growth of 9% and 5% respectively. Leading OEMs like Boeing & Airbus expect
India to be the third largest market after US and China by 2020. Positive steps taken by the
government for the growth of the sector includes:
x
x
x
x
x
x
71
Tendering airport development / upgradation to Private management through PPP.

Approval for 51 new low-cost airports in Tier 3-4 cities
Allowing foreign airlines to invest up to 49% in Indian carriers
Opening of international sectors to all Indian carriers
Formation of the inter-ministerial Air Cargo Logistics Promotion Board
Extension of time period for consumption / installation of parts and testing equipments
imported by MRO units from 3 month to one year
Indian Aviation & MRO Sector Overview

Exhibit 88: Passenger Numbers in India (Mn)
Exhibit 89: Air Traffic Movement in India (Mn)
200.0
2.00
180.0
1.80
CAGR of 8.3%
160.0
1.60
140.0
1.40
120.0
1.20
100.0
1.00
80.0
0.80
60.0
0.60
40.0
0.40
20.0
96
117
109
124
143
162
159
169
0.20
CAGR of 5.3%
1.08
1.31
1.31
1.33
1.39
1.55
1.47
1.50
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
0.00
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Source: AAI
Source: AAI
Exhibit 90: MRO Forecast India ($ Mn)
Exhibit 91: MRO Spend in India, by value ($ Mn)

Modifications,21,
3%
($Mn)
Airframe,77,11%
CAGR 9.4%
1400
1200
1200
1000
800
700
Engines,364,
52%
Line,119,17%
600
400
200
0
FY13
Components,
119,17%
FY20e
Source: KPMG
Source: KPMG
India Could Be A Key MRO Player & Needs Immediate Attention

India is conspicuously missing from the value chain due to lack of key MRO suppliers. We believe
India could prove to be an important node in the entire value chain given its growing status as a
Defence customer, superior human resource pool and better IPR protection practices.
We believe Indian players are likely to tie-up with global OEMs to set up MROs most likely in SEZs.
Already a number of players are looking to locate MROs near airports that are either in SEZs or
located near them. With a very large fleet expansion on the anvil, we believe having a large number
of MRO facilities would be critical from an indigenization perspective. It would also lower the cost of
upgrades, life extensions, overhaul and repair that are being hitherto carried out at foreign
locations.
A look at the number of players in this space across Asia indicates that India has really not bothered
to focus much on this issue thus far. Singapore for instance has about 30 players and likely
addresses some of the needs of India as well. While the focus in this report is on military MROs, we
believe the same could be used for Civilian purposes too.
72
MRO Potential of USD1.2bn by 2020

Though Indian Civil Aviation Sector is expected to grow at a rapid pace considering the latest
numbers of the aircraft being ordered with Airbus & Boeing4, there is a dearth of service oriented
MRO segment which has struggled to benefit much from this growth.
Indian MRO industry is fragmented and lacks large players with an end-to-end services portfolio.
India has a significantly large advantage due to its labor costs which are roughly 40-60% lower than
global MRO hubs. India has the potential to emerge as an MRO hub due to the growing aircraft fleet,
location advantage and availability of technical talent. However, this could not be achieved due to
challenges on taxation, policy and procedural issues, etc . Relatively younger fleet, with an average
age of 5 years, resulted in limited MRO requirements. However, going forward, this is expected to
change once the fleet ages increasing the requirement for MRO services. The MRO Market in India is
currently around USD 700mn and is expected to grow by 9% CAGR to reach USD1.2bn by 2020.
Addressing Concerns On Taxation, Component Movement, etc Would Help

Bring Lost MRO Business of USD450mn Back to India
The Indian MRO industry has not seen the growth it was expected as it faces significant challenges
like un-friendly taxation structure, tedious procedures for import of components, movement of
foreign experts, lack of scale and adequate infrastructure. Not more than 10% of the MRO work for
domestic scheduled carriers is executed in India whereas rest is outsourced to third-party service
providers overseas. Sans Air India, all other Indian carriers depend on MRO facilities located in
locations like Singapore (largest MRO hub in Asia), Dubai, etc. It is estimated that MRO business
worth nearly USD 450mn has been lost to overseas locations in FY13.
We suggest that the government should prioritize resolving issues like taxation, policy and
infrastructure issues in MRO segment to bring back the lost business as India has the potential to be
an MRO hub on account of 1) growing number of aircrafts under service 2) strategic location
advantage 3) rich pool of engineering expertise and 4) lower labor costs. If this issue is not resolved
on an urgent basis, we believe, the loss of employment, revenue, foreign exchange and government
taxes will magnify each year as the aviation sector grows and the existing fleet ages.
Exhibit 92: Cost Comparison between and Indian MRO and Foreign MRO
Particulars
Indian MRO
Foreign MRO
Labour
30.00
30.00
Spares
70.00
70.00
100.00
100.00
11.60
NIL
3.60
NIL
115.20
100.00
15.00
NIL
130.20
100.00
Sub Total
VAT @12.5% (On landed cost of the Aircraft) Import cost of spares @20% which includes
freight and handling plus a holding cost of 10% to the MRO
Service tax @ 12%(On Labour)
Sub-Total with impact of Statutory Taxes

Airport Royalties @13% on GTO
Grand Total
Source: FICCI
Airlines in India are currently operating around 390 aircrafts while around 400 are being orders with various OEMs. These OEMs expect that the
airlines would order around 1,000 aircrafts in the next by 2020 years
73
Inadequate Steps Taken To Address MRO Sector Concerns

Government has taken few & minor steps to address the issues in the MRO segment. However, still
not sufficient to enthuse MRO players and believe, lot more work needs to be done.
Customs Duty Exemption: The existing Customs exemption covers only the parts and testing
equipment for MRO operations and excludes many consumables and tools etc. which are equally
important.
Income Taxation: Aircraft services in India are 20% to 50% expensive than in international hubs,
due to high tax structure. Around 10 to 15 MRO projects, also FDI sponsored, has faced problems on
account of high taxation
Multiples VAT Levies On Same Transaction: Instances are common wherein same transaction is
witnessing multiple VAT levies and at very high tax rates (MRO services are subjected both to VAT of
15% and Service tax at 12.36%). Also, non-availability of credit on these taxes paid at the central or
state level adds additional cost to the final product.
Level Playing Field in VAT Application: Though, airlines are exempted from VAT levy on their
imports meant for self-consumption, it is not the case with MRO service providers for their imports.
This impairs Indias competitiveness in providing fast turnaround to aircrafts.
Rationalisation of Service Tax: Service tax on MROs is levied at the rate of 12.36% in India whereas
no service tax is charged overseas. Service Tax exemption should be provided for MRO activities in
order to provide level playing field to Indian MROs vis-a-vis foreign MROs.
Abolish / Rationalise of Royalty To be paid to AAI & Airports: AAI levies around 13% royalty to
MRO operators making it less competitive in terms of cost structures vis--vis its international
counterparts. This is over and above the rent which is being to the airport owner for using the
facility.
74
Indian Industry Would Witness 2-3 Prime Integrators In 10 Years

We estimate Indian defence industry size (of Indian corporate revenues PSU and Pvt together) of
$41bn by FY22 would result in development of a fairly sophisticated ecosystem of players. We
expect 2-3 players to develop into a global prime integrator by then. Though, this sort of an
outcome usually takes more than 10 years, we believe, considering the overall developments
around the globe (high priority for India, global de-growth in defence spending, etc) will drive
capability of the Indian players (buying companies overseas, developing it domestically, etc).
Currently we believe some of them can integrate equipment but for simpler pieces of military
hardware and possibly not as mission critical. Obviously there is likely to be a long tail of smaller
ancillary players that would supply to these larger entities.
Good initiatives have been taken by private players like Mahindra & Mahindra, Bharat Forge, Tata
Group, Rolta, etc.
Based on historical trends seen in IT, Auto and Pharma: Just as we have seen in the IT services,
Auto and Pharma sectors, we believe Defence too would surprise us by the pace of change as the
global industry likely goes through a significant process of consolidation and turmoil over the next
10 years. Those that are global leaders currently may not be in business 10 years from now as the
demand side undergoes significant change.
Concentrated industry likely: 10 years down the road we believe the Indian defence industry
structure would likely remain fairly concentrated in the hands of a dozen players PSU and private
companies. Conglomerates that are able to marshal multiple skillsets across their group,
organisations early to address the opportunity would have a head start. The increasing importance
of network-centered warfare and of communications and control technologies in the field of
operations, means these conglomerates that have highly developed skillsets in software
development in the telecom space, embedded systems, engineering design and services, etc have a
head start over their peers. We have reputed players who serve this segment and would not be
difficult for them to cater to defence sector.
Alliances are critical: Key alliance partners and suppliers in order to shorten product life cycles and
reduce time to market for solutions will be critical going forward. With the growth of technology
and costs, contractors are likely to turn increasingly to licensing, collaboration and joint ventures,
thereby stimulating further internationalisation of the industry. In this respect the Tatas, L&T,
Mahindras, Bharat Forge, etc. bring together skillsets in software described above, skillsets in
manufacturing and long experience in sub-contracting and managing large ecosystem of suppliers.
Exhibit 93: The defence Industry supply chain
Global Integrator
Sub Primes
Tier suppliers
Source: CII-KPMG Report- Unlocking the potential
75
Exhibit 94: Five Forces analysis for the Indian Defence Sector
Barriers to entry to being a player in the defence sector
Technology
The single largest entry barrier. Doing in house R&D will

be time consuming and might not deliver near
term/medium term returns. Other players would win
contracts and become entrenched. The technology has
to be accessed through a foreign JV. Licensing,
collaboration and joint ventures will continue to grow in
importance for the production of major weapons
systems. Investing in R&D is critical for long term viability
of Indian companies. This has to be done judiciously by
re-investing profits.
Regulatory
Significant amount of regulation by the government like

handing out industrial licenses for defence production,
etc
Capital
New players should be able to commit significant

amount of capital to acquire land and set up
manufacturing facilities. Ability to commit capital and
set-up capabilities ahead of demand is critical as that
would attract demand and/or JV partners
Competition
Amongst Indian players
Competition is likely to be relatively less in the coming

decade as size of opportunity is large and market is in a
nascent state. However it is bound to increase as many
Indian players adopt a strategy of diversification across
various arms of defence forces by tying up with multiple
Foreign players through JVs - a strategy which seems
me too. Conglomerates that are able to marshal
multiple skillsets across their group organisations, early
to address the opportunity would have a head start.
Amongst Foreign Players
Competitive intensity is likely to be significant, especially

as these companies are likely to face price and volume
pressures in their traditional/home markets
Bargaining power of the buyer
Indian government
Considerable. If the technology sold is latest and

appropriate - more critical in latest deals the seller has
some leeway. However once the initial equipment
purchase is done there is bound to be downstream work
with regards to spares, overhaul, life extensions, etc
where the buyer will likely have lower bargaining power
than it had when the equipment was chosen.
Bargaining power of the supplier
Indian component supplier
Medium. This would be entirely dependent on the part or

the technology that is being provided.
With respect to technology from a foreign partner Currently high but decreasing as budgets are being
slashed in developed markets and there is focus on
indigenization and ToT by the Indian government
Substitutes
Chemical, Biological and Nuclear weapons are the

substitutes for conventional weaponry. However these
are typically used in extreme circumstances. While there
is likely reasonable amount of spending on the nuclear
option, we believe this does not currently put pressure
on budgets for acquisition of conventional weaponry
Source: Centrum
76
Exhibit 95: Defence industry value chain levels of integration of partners

0%
100%
Degree of integration with value chain
Transactional
Supplier
Fully integrated
strategic partner
Tier 3,4 supplier (component suppliers)
Transactional supplier
Pursues buy-sell relationship with little
collaboration
Focuses on cost optimisation and
quality
Maintains hierarchical relationship
along the value chain
Tier 1,2 supplier (system integrator)
Prime Integrator
(LMCO, Boeing, EADS)
Fully integrated strategic partner

Works on long-term strategic
relationships with partners and
supplier
Leverages capabilities across value
chai
Access new channels/markets and
increase scale
Values flexibility and collaboration
with suppliers and offers incentives to
promote it
Source: CII-KPMG Report- Unlocking the potential
Exhibit 96: Tiering of suppliers/players in the Defence manufacturing eco-system
Source: PWC
Exhibit 97: Defence Manufacturing Value Chains Options
Source: CII, Tata Power
77
Europe
Europe
Europe
Airbus Group NV
Airbus Group NV
Thales SA
USA
USA
USA
USA
USA
Lockheed Martin Corp
Northrop Grumman Corp
Raytheon Co
Textron Inc
General Dynamics Corp
78
Source: Bloomberg (Updated as on January 2015)
USA
India
Mahindra & Mahindra Ltd
Boeing Co/The
India
India
India
Bharat Forge Ltd
Larsen & Toubro Ltd
India
India
Bharat Electronics Ltd
Dynamatic Technologies Ltd
381
India
BEML Ltd
Tata Motors Ltd
1,094
India
Astra Microwave Products Ltd
32,429
Rolls-Royce Holdings PLC
32,466
10,525
25,183
28,143
45,671
64,306
90
7,514
3,808
7,742
599
21
17,134
Europe
Europe
BAE Systems PLC
17,412
60,695
60,695
3,400
32,677
11,275
24,791
26,412
46,499
68,735
99
10,338
5,150
9,639
624
1,201
577
35
17,842
28,501
18,141
68,406
68,406
3,623
4,769
4,396
Asia
2011Y
2010Y
Europe
Country
Companies
Singapore Technologies
Engineering Ltd
Saab AB
31,513
12,237
24,414
25,218
47,182
81,698
312
11,373
6,574
11,135
772
1,183
564
43
19,276
26,457
18,206
72,626
72,626
3,547
5,108
2012Y
Sales
31,218
12,104
23,706
24,661
45,358
86,623
261
8,232
7,338
9,491
567
1,102
517
42
24,274
26,389
18,854
78,711
78,711
3,647
5,302
2013Y
30,242
14,518
22,756
23,709
44,798
89,633
261
6,026
6,693
10,459
570
1,082
542
86
25,216
28,004
17,140
79,672
79,672
3,538
5,471
2014Y
30,631
15,239
22,292
23,121
44,466
93,583
287
6,128
7,137
10,752
663
1,110
542
107
25,426
28,156
17,613
83,241
83,241
3,793
5,709
2015E
4,514
1,082
3,027
3,382
5,101
6,698
13
860
631
986
93
176
67
2,170
3,700
533
3,317
3,317
314
537
2010Y
4,418
1,187
3,274
3,820
4,988
7,504
18
1,023
762
1,278
160
210
26
2,374
3,660
1,746
4,417
4,417
647
597
2011Y
3,447
1,433
3,444
3,640
5,422
8,101
30
875
793
1,408
193
113
32
12
2,682
3,517
1,819
4,996
4,996
472
648
2012Y
4,241
1,236
3,383
3,618
5,495
8,406
27
316
871
1,088
136
118
(7)
11
3,403
4,743
1,968
5,611
5,611
361
618
2013Y
EBITDA
Exhibit 98: Financial and valuation metrics for companies in the defence sector (Amount in USD Millions)
4,320
1,500
3,654
3,672
6,597
9,284
26
(6)
889
1,112
148
119
21
13
3,970
3,430
1,969
7,633
7,633
388
681
2014Y
4,442
1,676
4,050
3,642
6,826
10,381
21
77
919
1,240
177
161
23
18
4,164
3,515
2,062
8,221
8,221
436
726
2015E
2,624
86
1,840
2,053
2,878
3,307
473
441
924
27
152
47
833
1,626
(143)
734
734
60
361
2010Y
2,526
242
1,866
2,118
2,655
4,018
398
584
869
68
189
33
1,363
1,989
713
1,438
1,438
343
420
2011Y
2,357
498
1,996
1,952
2,981
4,585
(2)
55
617
903
56
164
(15)
2,139
263
762
1,946
1,946
114
464
2013Y
2,561
597
2,161
2,012
3,618
5,531
(285)
629
760
64
147
2,015
1,988
951
3,141
3,141
175
478
2014Y
2,656
742
2,380
1,994
3,803
5,690
(277)
641
855
96
163
10
2,164
2,036
1,017
3,508
3,508
218
507
2015E
(332)
589
1,888
1,978
2,745
3,900
260
603
933
76
174
12
3,679
1,503
753
1,539
1,539
234
461
2012Y
Net profit
Firm
Navy
Air Force
Elect.
RMX Bridport Defence Systems Pvt

Rolta
Army
Samtel Display Systems

Sankhya InfoTech
SEC Industries Private Ltd.
SIGMA Microsystems
Southern Group Industries
Speck Systems
Shri Bajrang Alloys Ltd.
Steel Authority of India Ltd.
Svipja Technologies
Tata Group
TIL Tractors India Ltd.
TSL Defence Technologies Pvt. Ltd.
Vectra Technologies
VEM Technologies
Walchandnagar Industries Ltd.
Wartsila India
Zen Technologies
VXL Technologies
Wipro Technologies
Companies
81
This page is intentionally left blank
82
,1',$
Defence
6th February 2015
Defence continues to be the focus area for BEL

Bharat Electronics Limited (BEL) was set up at Bangalore, India, by the Government of India under
the Ministry of Defence in 1954 to meet the specialised electronic need of the Indian Defence
services. Over the years, it has grown into a multi-product, multi-technology, multi-unit company
serving the needs of customers in diverse fields in India and abroad. BEL is among an elite group
of public sector undertakings which have been conferred the Navratna status by the
Government of India. The growth and diversification of BEL over the years mirrors the advances
in electronics technology, with which BEL has kept pace
Defence contributes close to 80-85% of its revenue while civilian businesses continue to provide
the remaining 15-20%. Segments like radar, communications, network centric warfare and
weapon systems are key growth areas of the company. It is also making a foray into new
businesses like nuclear instrumentation, solar/clean energy solutions and homeland security.
Radars are one of the major business segments of the company while defence communication
equipment is another major segment.
In the near future the company will work on many strategically important projects like Akash
Weapon system, Battlefield Surveillance System, Upgraded Weapon Locating Radar, next
generation electronics warfare systems and coastal surveillance systems.
The current order-book of the company stands at Rs240bn.
Products & Services Mix
Financial Summary
Y/E Mar (Rsmn)
FY09
FY10
FY11
Rev
YoY (%)
EBITDA
EBITDA (%)
Adj PAT
YoY (%)
Fully DEPS
RoE (%)
RoCE (%)
46,237
52,198
55,297
13%
13%
6%
11,810
10,873
12,668
26%
21%
23%
7,458
7,209
8,615
16%
14%
16%
93.22
90.11
107.68
19.58
16.58
17.22
31.25
21.45
22.32
FY12
57,036
3%
12,001
21%
8,299
15%
103.74
14.72
19.14
FY13
60,122
5%
12,525
21%
9,108
15%
111.23
14.88
18.75
FY14
67,040
11%
13,202
20%
9,316
14%
11.45
13.28
15.94
Source: Company
Shareholding pattern (%)

Y/E March
Segmental Sales Trend (Rs Mn)
Dec-13
Mar-14
Promoters
75.9
75.02
75.02
75.02
75.02
Institutions
19.8
20.6
19.92
19.61
20.13
FII
4.5
3.7
2.20
1.85
2.31
DII
15.3
16.9
17.72
17.76
17.82
4.3
4.3
5.06
5.37
4.85
100.0
100.0
100.0
100.0
100.0
Non Institutions
Total
Jun-14
Sep-14
Dec-14
Y/E March
FY11
FY12
FY13
19,832
8,798
20,530
16,999
11,730
9,332
5,865
18,664
Other (Civilian Incl)
19,832
32,258
13,687
Total
56,662
58,650
62,213
Radars
Communication
equipment
Electronic warfare
Source: BSE India. Segmental sales trend for the year FY14 not available
Current Order-book mix
Key events/timeline
Year Particulars
Electro
Optics,4%
Others,8%
Electronics
,7%
1954 BEL set up under MoD at Bangalore, India
Systems,
43%
Communic
ation,5%
Radars,
33%
1966 BEL set up a Radar manufacturing facility for the Army and in-house R&D
Manufacture of Black & White TV Picture Tube, X-ray Tube and Microwave Tubes
1970
started.
1972 BEL manufacturing TV Transmitters for Doordarshan.
Second Unit of BEL was set up at Ghaziabad to manufacture Radars and Tropo
1974
communication equipment for the Indian Air Force
BEL's first overseas office was set up at New York for procurement of components and
1980
materials
1982 BEL achieved turnover of Rs1bn
Fifth Unit was set up in Chennai for supply of Tank Electronics, with proximity to HVF,
1985
Avadi.
The agreement for setting up BEL's first Joint Venture Company, BE DELFT, with M/s
1990
Delft of Holland was signed
1996 Achieved turnover of Rs10bn
1997 GE BEL, the Joint Venture Company with M/s GE, USA, was formed
BEL set up its second overseas office at Singapore to source components from South
1998
East Asia.
BEL became the first defence PSU to get operational Mini Ratna
2002
Category I status
2007 BEL was conferred the prestigious Navratna status based on its consistent performance
2013 BEL recorded a turnover of over Rs. 6000 crore.
2014 Achieved an all time high export sales of USD 42 Mn.
Source: Company
Source: Company
Key management personnel

Name of the Person
Designation
Particulars
Mr S K Sharma
Chairman & Managing Joined BEL in 1978 after graduating from the University College of Engineering, Bangalore. He has wide experience
Director
in multiple disciplines covering Electronic Warfare, Avionics, Network Centric Systems, Radars and Components,
having served in various capacities at Bangalore, Ghaziabad and Hyderabad Units.
Mr Amol Newaskar
Director (Other Units) He graduated in Electronics Engineering from SGSITS, Indore and joined the Research and Development Division of
BEL, Bangalore, in February 1978. He was appointed General Manager in August, 2007. During his career in BEL, he
has gained experience in various functions like Production, R&D, Marketing, Management Services.
Dr Ajit T Kalghatgi
Director (R&D)
Dr Kalghatgi completed his BE in Electronics & Communications from Mysore University; M.Tech in Microwave &
Radar Engineering from IIT, Kharagpur; and Ph.D from Leeds University, UK. Dr Kalghatgi has more than 30 years of
experience in the field of RF & Communication Engineering.
Mr P C Jain
Director (Marketing)
Mr Jain joined BEL-Ghaziabad in February 1978 as Deputy Engineer after graduating in Mechanical Engineering
from IIT, Delhi. Later on, while in service, he did MTech in Microwaves from IIT, Delhi. He contributed to the
development of Stripline and Microstripline antennas for IFF Radars and worked on production testing of
communication, C4I and Radar Systems.
Source: Company
84
,1',$
BEML
Defence
6th February 2015
Defence Exposure Will Pick Up Long Term Growth

Background
Bharat Earth Movers Ltd (BEML) was established in May 1964 as a PSU for manufacture of Rail
Coaches & Spare Parts and Mining Equipment at its Bangalore Complex. Today, the company
operates under 3 major Business verticals Mining & Construction, Defence and Rail & Metro.
In addition, Trading Division deals in other products. BEML manufactures and supplies Defence
Ground Support Equipment such as Tatra High Mobility Trucks, Recovery Vehicles, Bridge
Systems, Vehicles for Missile Projects, Tank Transportation Trailers, Milrail Wagons, Mine Ploughs,
Crash Fire Tenders, Snow Cutters, Aircraft Towing tractors, Aircraft Weapon Loading Trolley. The
company also plans to take up overhaul and upgradation of Battle Tanks with a view to assemble
and roll out the products.
BEML is one of the eight Defence PSUs in India and gets 12% of its turnover from the Defence
sector (Rs3.3bn out of total revenue of Rs28bn). Indias growing defence spending (especially
capital expenditure), modernization of military equipment, focus on indigenous production and
offset policy are likely to give a fillip to DPSUs like BEML.
Growing defence capital acquisition budget to benefit BEML: BEML, with decades of
experience in defence sector, is likely to benefit from this increase in defence spending. Defence
product sales have been growing for BEML till FY11, however FY13 was a dampener (23% decline
in sales) due to supply side issues.
Bullish on Aerospace space: BEML launched its aerospace vertical in 2007 to exploit the
potential of the e-engineering services in the aerospace domain with support from the new
Aerospace Manufacturing Division launched during Aero India 2009. The facility is located in
Mysore Complex of BEML.
Plans to expand defence product range to address opportunity: BEML is planning to expand
its defence product range to meet long term procurement plan of MoD through technology tieups and R&D development. The Palakkad plant was set up exclusively to manufacture Defence
products. BEML has entered into manufacturing of Ground Handling/Ground support equipment
and Tooling for Aerospace industry through its Aerospace Manufacturing Division.
Offset to result in higher export: With an obligation for foreign players to source at least 30% of
any defence order exceeding Rs3bn, a lot of business is likely to ensue to domestic players like
BEML. Export revenue for BEML has grown at a CAGR of 18% from FY06-FY13 indicating
increased traction due to offset.
Order book set to grow; Management expects Rs100bn revenue by Fy17: BEML had
~Rs61bn order backlog at the end of FY14 and it expects a decent order intake in FY15 from
defence, mining and construction. This gives strong revenue visibility to the company in the near
term. The company has a strategy to reach Rs100bn revenue scale by FY17.
Financial Summary (standalone)

Y/E Mar (RsCr)
FY09
FY10
FY11
FY12
FY13
FY14
Source: Company
Rev
YoY (%)
EBITDA
EBITDA (%)
Adj PAT
YoY (%)
Fully DEPS
RoE (%)
RoCE (%)
3,013
3,589
3,647
3,648
3,290
3,120
NA
19.1
1.6
0.0
-9.8
4.0
454
401
282
199
69
177
15.1
11.2
7.7
5.4
2.1
5.7
269
223
150
57
-80
44
NA
-17.1
-32.8
-61.8
-239.5
NM
64.56
53.51
35.96
13.75
-19.18
1.12
14.1
10.9
7.0
2.6
-3.8
0.2
17.5
12.8
12.3
6.0
0.7
5.9
Segmental Sales Trend (Rs Cr)

Y/E March
FY12
FY13
FY14
54.03
Earth Moving Equipment
1,272
907
874
28.01
Rail & Metro Products
557
1,040
1,282
Defence Products
393
325
113
Spare Parts
Others
541
157
452
276
602
249
2,921
2,999
3,120
Y/E March
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Promoters
54.0
54.0
54.03
54.03
Institutions
26.8
27.7
26.53
27.11
FII
1.2
DII
3.75
3.50
4.04
25.7
26.2
22.78
23.61
23.97
19.1
18.3
19.44
18.86
17.96
100.0
100.0
100.0
100.0
100.0
Non Institutions
Total
1.46
Total
Source: BSE India
FY14 Revenue Mix (RsCr)
Manufacturing Units of BEML

Facility
Others
249
Earth
Moving
Equipment
874
Spare Parts
602
Catering To
Earth Moving Division

KGF Complex
Hydraulics & Powerline

Rail Coach Unit II
Heavy Fabrication unit
Bangalore Complex
Truck Division
Mysore Complex
Defence
Products
113
Engine Division
Aerospace Mfg. Division
Palakkad Complex
Rail &
Metro
Products
1,282
Vignyan Industries
Source: Company
Source: Company

Name of the Person
Designation
Mr P. Dwarakanath
Chairman & Managing Mr. P. Dwarakanath assumed charge as Chairman & Managing Director with in 2012. He joined the Board of BEML
Director
Limited in 2008 as Director (Metro & Rail Business). He Dwarakanath is a Graduate in Mechanical Engineering from
National Institute of Technology, Warangal and joined BEML during 1978 as Management Trainee and served in all
business verticals of the Company namely, Rail & Metro, Defence and Mining & Construction.
Director Finance
Mr. Pradeep Swaminathan took over as Director (Finance) of BEML Limited, in 2013. He is a Bachelor of Science in
Physics and a Chartered Accountant. He is also a Management Accountant from Chartered Institute of Management
Accountant (CIMA), London. He is having 30 years of rich experience in management accounting field. He started
his career in M/s Tata Steel Limited during 1984. He successfully handled treasury management, MIS, Project
evaluation and audit functions. He played a key role in establishment of M/s Tata Steel KNZ Pty. Ltd., a Greenfield
project for manufacture of ferrochrome in Richards Bay, South Africa. As CFO, he was responsible for project
evaluation and interaction with the banks to raise funds. He joined BEML Limited as Chief General Manager
(Finance) during 2010. In 2011, he was elevated as Executive Director (Finance). Before being taken over as Director
(Finance), he was looking after treasury, financing new initiatives, MIS, Audit, Marketing Finance, Indirect Taxation,
etc. He is also a Nominee Director on the Board of VIL with effect from 28.03.2013.
Director- Defence
Mr. P.R. Naik was appointed Director (Defence Business) and Member of the Board of Directors of BEML. He
Business
assumed charge in 2011. Mr. Naik is a Mechanical Engineer from Birla Institute of Technology & Science (BITS), Pilani
and an Alumnus of the IIM, Kolkata. Prior to this Mr. Naik was with L&T and worked in various capacities in
production and marketing areas. Hitherto he was Executive Director (Marketing) in the company.
Director - Mining &
Mr. C. N. Durgesh has taken over as Director (Mining & Construction) of BEML. He is a B.Tech Mechanical
Construction Business Engineering graduate from JNT University and has done M.Tech in Industrial Engineering from Sri Venkateswara
University, Tirupati. He joined BEML in 1987 as Manager and was elevated to the present position after serving in
various capacities in production and marketing areas of the company. Till recently he was Executive Director at
BEML KGF Complex.
Mr. Pradeep
Swaminathan
Mr. P. Naik
C. Durgesh
Particulars
Source: Company
86
BEML
,1',$
Larsen & Toubro Limited
Defence
6th February 2015
Engineering A Major Role In Defence

Largest Engineering Conglomerate: L&Ts businesses are diversified across infrastructure,
manufacturing, IT services and financial services. The company is the largest vertically integrated
EPC player in the domestic infrastructure space. Established in 1938, it has over seven decades of
experience in heavy engineering, construction and manufacturing, which has helped it to
develop capabilities to service the defence sector. L&T has been involved in Indias strategic
sectors like nuclear power generation, space and various defence related programmes. L&T is
one of nine companies globally that is cleared to export nuclear power generation equipment to
the US and to Europe.
Experienced player in the defence space: L&T has been involved in an Indio-Russian project to
build the supersonic cruise missile BrahMos and has also contributed to the construction of a
nuclear-powered submarine in association with the Defence Research and Development
Organisation (DRDO).
Industrial licence for defence production: L&T has been issued industrial licenses for design,
development, construction, manufacturing and assembly of various defence products, including:
o
Warships, submarines, weapon platforms (off-shore, floating & submerged), highspeed boats and crafts etc.
Radars, sonar systems, associated subsystems, electronic warfare equipment and

system sensors.
Arms and armaments including weapon launchers.
Armored and combat vehicles, including associated systems, sub-systems such as

turrets, turret mounts, bridge laying systems on tanks, etc.
Airborne assembly systems & equipment for Aircrafts, Helicopters and Unmanned
Aerial Vehicles (UAV) and equipment for aviation sector.
Defence Initiatives
Naval shipbuilding capabilities: L&T's shipbuilding facilities are located at Hazira (Gujarat) and
Katupalli (Tamil Nadu). The Hazira shipyard is capable of constructing vessels of up to 150m and
20,000 tons. The yard includes prefabrication facilities, unit assembly bay, block assembly and a
slipway to launch vessels along with a jetty for out-fitment jobs.
New facility at Kattupalli dedicated to naval vessels: L&T Shipbuilding Ltd, a JV between L&T
and the Tamil Nadu Industrial Development Corporation, is developing a shipyard-cum-port
complex at Kattupalli (Tamil Nadu). The shipyard will cater to new buildings, repairs and refits of
defence and specialised commercial vessels. The yard has a capacity to make upto 200m long
vessels. With a draft of up to 14m and waterfront exceeding 2.2kms, the facility is well suited to
build and repair large defence ships.
Owns 74% in the JV with Cassidian (An EADS Company): It caters to defence electronics and
provides manufacturing, design, engineering, distribution and marketing in the fields of
electronic warfare, radars, avionics and mobile systems (such as bridges) for military applications.
The facility is located in Talegaon (Near Pune)
Tie-Up with DRDO: It is to set up a research facility for weapons conceptualization for all
commercial production undertaken by DRDO in the south-Indian city of Coimbatore.
Rev
YoY (%)
EBITDA
EBITDA (%)
Adj PAT
YoY (%)
Fully DEPS
RoE (%)
RoCE (%)
FY10
37,356
8.8
4,816
12.9
4,457
-9.2
49.1
20.7
15.9
FY11
44,296
18.6
5,640
12.7
3,958
-11.2
43.6
18.3
15.0
FY12
53,738
21.3
6,283
11.7
4,376
10.6
48.6
18.8
15.1
FY13
52,196
-2.9
5,473
10.5
3,482
-20.4
53.3
16.1
14.6
FY14
57,164
9.5
6,667
11.7
4,905
40.9
59.6
17.5
14.5
Y/E Mar (RsCr)
Source: Company
Segmental Order-Book Mix (%)
Y/E March
Dec-13
Y/E March
Promoters
54.5
55.1
56.17
54.51
FII
17.9
18.5
19.61
18.82
DII
36.6
36.6
36.56
45.5
44.9
41.50
Institutions
Non Institutions
Total
100.0
FY12
FY13
FY14
Infrastructure
43
49
78
54.18
Power
28
28
10
18.07
Hydrocarbons
10
35.69
36.11
Process
15
10
43.24
43.57
Others
7RWDO
100
100
100
Mar-14 Jun-14 Sep-14 Dec-14
100.0
100.0
100.0
100.0
Source: BSE India
Order-book Trend (FY09-14) RsBn
Revenue Growth
50.0%
700
1,800
1,630
1,536
1,600
1,400
600
41.4%
35.7%
36.7%
1,457
500
30.0%
1,309
400
1,200
1,004
800
19.4%
300
12.0%
1,000
200
708
600
FY09
FY10
FY11
FY12
Source: Company
FY13
FY14
40.0%
22.0%
20.0%
18.4%
14.6%
10.0%
8.9%
100
0.0%
-6.3%
-10.0%
FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
Source: Company

Name
Designation
Particulars
Executive Chairman Joined L&T in 1965. He is been credited for making L&T in to what it is today. He became CMD of the
company in 2003. He is an Engineer by qualification.
Mr. K. Venkataramanan, a Chemical Engineering Graduate from lIT (Delhi), joined L&T as a Graduate
K. Venkataramanan CEO & MD
Engineer Trainee and was elevated to the Board of the Company as a Whole-time Director in the year
1995. He have vast experience in Product Engineering & Project Management.
Post Deosthalees move to L&T Finance Holding as CMD, Shankar Raman took over the CFO role.
Mr.Raman was earlier Senior VP (Finance and Legal) at L&T. He has a bachelors degree in commerce
R Shankar Raman
CFO
from Madras University. He is a Chartered and Cost Accountant by profession and have approx 27years
of experience in the field of finance. He joined L&T group in 1994 for setting up L&T Finance. After six
successful years with L&T Finance, he moved to L&T to oversee the Finance & Accounting functions.
B.E. Mechanical Engineer from the 1968 batch of S. P. College of Engineering, University of Mumbai. On
graduation, he joined L&T's Powai Works, Mumbai, as a junior engineer. Handles operations of different
President
Strategic Business Units dealing with domestic as well as international businesses covering equipment
M. V. Kotwal
(Heavy Engineering and systems for refineries, fertiliser and chemical process plants, power plants (including nuclear
including Defence) power), and defence and aerospace. He is the co-Chairman of the Confederation of Indian Industry's
National committee on Defence and is a member of the Vijay Kelkar Committee responsible for advising
the Government of India on restructuring defence production in the country.
Mr.M. Naik
Source: Company
88
Larsen & Toubro Limited
,1',$
Defence
Tata Group
6th February 2015
Integrated Defence Solutions Provider

The Tata Group has been present in defence, homeland security and disaster
management space for many years now. We believe that the presence of group can
be best explained by role each Tata Group company today plays in providing
defence solutions. For example, when Tata Motors agrees to supply trucks for the
Indian Army, Tata Advanced Materials can supply armour for the trucks. When Tata
Infotech supplies computer hardware to defence establishments, TCS can arm the
equipment with hi-tech software. When Tata Power's strategic electronics division
provides software for the Pinaka multiple-barrel rocket launcher, Tata Motors offers
its 4-tonne truck chassis to mount and transport the system.
Tata Advanced Systems:
Tata Advanced Systems Limited (TASL), a fully-owned subsidiary of TATA Sons, is
addressing the business areas of Defence, Aerospace, Aero-Structures and Homeland
Security. Tata Advanced Systems is both a holding and an operational company. The
company is establishing critical manufacturing capabilities through strategic alliances
and collaborations with Global Technology Majors
Tata Industrial Services:
Role is to facilitate industrial collaborations between foreign OEMs and Indian
industry.
The Strategic Electronics Division of Tata Power :
This division has been in operation for over 30 years and has been pursuing
development and production activities for the Indian defence sector. SED successfully
developed the multi-barrel rocket launcher, Pinaka, proven in the field through
extended user trials which led to its induction into the Indian Army. The division has
developed specialised equipment for air defence and naval combat systems.
Tata Advanced Materials:
This division designs and manufactures advanced composites for high technology
functions in the aerospace, defence, medical electronics, telecom and the
transportation sectors. It is Indias largest manufacturer of personnel armour products
and armoured panels for battle tanks and special applications. It is the countrys only
manufacturer of composite parts for spacecraft.
Tata Consultancy Services (TCS):
TCS, Indias largest IT services company has developed capability in the Aerospace and
Defence industry to help global supply chain rationalization, MRO solution consulting
and cost reduction to name a few. TCS has integrated a solution that offers
information superiority in future combat scenarios. TCS is the first Indian company to
be AS 9100: Rev B certified for design of airframe structures. Also TCS has been
accredited with certification form Indian Airworthiness Authorities (CEMILAC)
Overall 14 companies are engaged in defence related business and have order-book of
Rs80bn with an execution cycle of one year to four years. Tata Motors, Tata Power (Strategic
Electronics Division) and Tata Advanced Systems (TASL) are three major entities within the
group in the sector, accounting for the bulk of the revenue. TASL, fully owned by Tata Sons,
holds all the major defence licences and is a participant in all the major development and buy
& make programmes of the ministry of defence. Group officials said TASL had invested a little
over Rs 400 crore in the past five years and had set up production facilities spread over
450,000 sq ft across India.
The Tata Group: Integrated Defence Solutions

The Tata Group has been present in defence, homeland security and disaster management space for many years. We believe that
the presence of group can be best explained by the role each Tata Group company today plays in providing defence solutions. For
example, when Tata Motors agrees to supply trucks for the Indian Army, Tata Advanced Materials can supply armour for the trucks.
When Tata Infotech supplies computer hardware to defence establishments, TCS can arm the equipment with hi-tech software.
When Tata Power's strategic electronics division provides software for the Pinaka multiple-barrel rocket launcher, Tata Motors
offers its 4-tonne truck chassis to mount and transport the system.
Exhibit 1: In nutshell: Role of each Tata Group companies in defence
Group Company
Defence related capabilities
Tata Industrial Services

Limited (TISL)
TISL identifies competent manufacturing sources, oversees and monitors contracts,

and undertakes project management and contractual responsibility relating to
domestic and global supply needs, including offset requirements for major
aerospace, civil and defence suppliers.
Tata Advanced Services (TASL) TASL is focused on providing integrated solutions for defense and aerospace. The
company's objective is to unify competencies and create capabilities across Tata
group companies in order to provide integrated solutions and critical technologies
in the areas of defence, homeland security, offset business and disaster
management.
Tata Technologies
For over two decades Tata Technologies has been providing design, analysis and
PLM services to the worlds foremost aerospace and defense organization.
Tata Motors Limited
Ground vehicles, design and manufacturing
Tata Power SED
The Tata Power Company Limited, through its Strategic Electronics Division (Tata
Power SED), has been a leading private sector player in the indigenous design,
development, production and supply of defence systems. The division has been
closely working with Ministry of Defence (MoD) and Defence Research and
Development Organisation (DRDO) to provide state-of-the-art solutions to Indian
Armed Forces for the past four decades
Tata Advanced Materials

(TAM)
TAM manufactures armour products such as bulletproof jackets, helmets and

armoured panels for battle tanks, vehicles and special applications. The company
also manufactures composite parts for the aerospace, telecom and medical
electronics industries.
Nelco
Security, Surveillance and communications
Tata consultancy services
IT services and business process outsourcing
TAL manufacturing
Manufacturing and engineering
Source: Company
9090
TataGroup
Group
Tata
92
Tata Motors Defence Solutions

Tata Motors (TAMO) is Indias largest automobile company and has a global footprint. Its portfolio comprises light, medium and
heavy trucks, buses and coaches, passenger cars, crossovers and UV Logistic vehicles from TAMO are standards commercial
vehicles that are militarised. They are predominantly used for non-combat missions in non-combat areas.
Tactical Vehicles from TAMO are designed to support the Tactical manoeuvre of combat operations. They include the armoured
personnel carrier, 6x6 and 8x8 platforms and much more.
Tata Advanced Systems (TASL)

Tata Advanced Systems was set up in 2007 as a vehicle to extend the Tata group's business operations to the national security and
defence sector. TASL is a wholly-owned subsidiary of Tata Sons and is focused on providing integrated solutions for defense and
aerospace. The company's objective is to unify competencies and create capabilities across Tata group companies in order to
provide integrated solutions and critical technologies in the areas of defence, homeland security, offset business and disaster
management.
Exhibit 2: Integrated Solutions for defence and aerospace
Investments in
productionising critical
defence technology,
obsolescence
management
Project execution &

lifecycle support
Tata Advanced System
Technology sourcing,
absorption and
management
Research & Development
Source: Company
Areas of business
TASL is a key provider of support in technology sourcing and management, production of defence technology, obsolescence
management, project execution and life-cycle support. TASL offers solutions in both geographical and virtual battle spaces.
The companys focus areas are:
Homeland security
Network-centric warfare
Aerospace and avionics
Electronic and information warfare
Precision technologies (missiles, seekers and sensors)
Surveillance technologies (unmanned aerial vehicles, radar)
Marine applications
Communications
Disaster recovery and emergency response networks
Survivability solutions
Component and assembly procurements
91
91
TataGroup
Group
Tata
Tata Advanced Materials Limited (TAML)

Tata Advanced Materials (TAML) is engaged in designing, manufacturing and supply of composite products for Aerospace,
Defence, Transportation and Infrastructure sectors. It is the largest manufacturer of personnel armour products in India and
the only Indian manufacturer and exporter of composite parts for spacecraft and aircraft.
Exhibit 3: Product Offerings
TAML
Defence and
Industrial Composite
Aerospace
Design and Analysis
Defence
Industrial composites
Tool design and

manufacturing
Personal Armour
Manufacturing of
composites
components
Vehicle Armour
Material testing and

characterization
Special defence
applications
Source: Company
Areas of business
TAML has two Business Groups Defense & Industrial Composite Division (DICD) and Aerospace Division. While the Aerospace
Division of TAML is engaged in Design, Manufacture & supply of composite components, parts, sub-assemblies for applications in
Aircraft, Space & Helicopter, the Defence and industrial segments is engaged in the manufacture of armour products such as
bulletproof jackets, helmets and armoured panels for battle tanks, vehicles and special applications. The company also
manufactures composite parts for the aerospace, telecom and medical electronics industries.
TAM is the largest manufacturer of bulletproof vests for the Indian Army. As this is a critical life-saving item, the tests conducted
are extremely stringent. In fact, these tests were jointly developed by TAML and the Ministry of defence (MoD), as they did not
have previous experience in procuring lightweight vests.
92
92
TataGroup
Group
Tata
Exhibit 4: Various products offered by TAML and the features are as follows
Source: Company
Tata Consultancy Services (TCS)

Tata Consultancy Services is an IT services, consulting and business solutions organization that delivers real results to global
business, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT, BPO,
infrastructure, engineering and assurance services. This is delivered through its unique Global Network Delivery Model (GNDM),
recognized as the benchmark of excellence in software development. A part of the Tata group, Indias largest industrial
conglomerate, TCS has over 202,000 of the worlds best-trained consultants in 42 countries. The company generated consolidated
revenues of US $11.5 billion for year ended March 31, 2013. For defence, TCS has integrated a solution that offers information
superiority in future combat scenarios. TCS is the first Indian company to be AS 9100: Rev B certified for design of airframe
structures. Also, TCS has been accredited with certification from Indian Airworthiness Authorities (CEMILAC).
TCS capabilities in the aerospace space can help in the following:
Manage and increase visibility into global supply chain

Supply chain rationalization
Maintenance repair and overhaul (MRO) solution consulting
Cost reduction
Facilitate lean process re-engineering and transformation
Service parts inventory management
Outsourcing engineering design and other business processes
TCS Aerospace Center of Excellence (CoE) with rich industry business and process knowledge develops aerospace focused vertical
solutions. It has over 2000 aerospace technology consultants with rich industry experience to help perform in challenging
business environments.
Tata Power SED

Tata Power is India's largest private sector power utility with an installed generation capacity of 8500 MW and a presence in all the
segments of the power sector viz Generation (thermal, hydro, solar and wind), Transmission, Distribution and Trading. The Tata
Power Company Limited, through its Strategic Electronics Division (Tata Power SED), has been a leading private sector player in
the indigenous design, development, production and supply of defence systems. The division has been closely working with MoD
and DRDO to provide state-of-the-art solutions to Indian Armed Forces for the past four decades.
93
93
TataGroup
Group
Tata
Exhibit 5:
ARMY NAVY AIR FORCE
PRODUCTS & SOLUTIONS
Pinaka Multi Barrel Rocket Launchers &

Command Posts
Weapon Systems
Missile Launchers
105mm Mounted Gun Systems
Systems for Air Defence & Naval Combat
C4 I2
SR
Data Co-Relation & fusion for Network

Enabled operations
Tactical Computing Systems (Air Ground)
Multi Sensor Trackers for Air Force
Command Centers Including Integration

Software FOR Com & NON COM
Electronic Warfare
Auto Track Received Digital Processor

Antenna Hoist and Retraction Systems for
ESM & ECM Payloads
Pinaka MBRL Trajectory connection

systems (TCS)
Agni Launchers
Air Defence Gun Upgrade
155mm Gun Upgrade
Air Defense Control & Reporting (Ground

Grid) Integrated with Air grid for ODL
Battlefield Management Systems
Modernisation of Airfields
Integrated Electronic Warfare System for

Mountainous Terrain
Low Intensity Conflict Electronic Warfare
System
Sonobuoys
Sensors
GPS for Military Helicopters
Radar Maintenance
UAV Sub-systems
Optical Payloads
Mobile Telementry System for LCA
Project Executed
Project Under Trials/Tendering/Offsets
Source: Company
Exhibit 6: Product range and capabilities

Weapon Systems and their Upgradation for Ground Forces
Upgradation of Tanks, Armoured Vehicles and related Equipment
Weapon Control Systems for Ground forces including Sub-systems for Guided Missiles and
Equipment
Ballistics and Data Fusion
Aerial Reconnaissance Equipment, Airborne Radio Transmitters / Receivers, Radars and Navigation
Equipment
Air Defence Data Handling Systems including Ground Radar and Equipment including
Computer-based Trainers, Simulators and other Training Equipment Ruggedised Computers and
Peripheral Equipment
Network Centric Warfare Enablers, Communication Systems including Network & Spectrum
Management Systems, Electronic Warfare and Power Supplies Vehicle Equipment and Trailers
Electronic Warfare Systems and Related Equipment Air Defence Systems & associated products
Unmanned Aerial Vehicles, Aerial Reconnaissance Equipment, PTA & Air-Ground Data Link
Radar based Command, Control and Guidance Systems, and Radar Interface Devices
Command Posts, Displays and Multi Function Consoles
Setting up / Upgradation / Modernisation of Air field Infrastructure, Strategic facilities & Bases
Upgradation of Guns & Weapon Systems
Missiles and Missile Launchers
Expendable Sensors / Underwater Sensors
Manufacturing, Documentation, Maintenance, Support and Repair Services
Source: Company
9494
TataGroup
Group
Tata
Tata Industrial Services

Tata Industrial Services (TIS) is a Tata Group company leading initiatives in global supply chain needs including Offset support in
Aerospace & Defence sectors. It acts as a contractual supplier to deliver cost effective solutions to the global and domestic
Aerospace and Defence players. TISLs expertise lies in reaching out to capable domestic vendors across India. with diverse
capabilities and bringing them together to offer value-added, on-time solutions while assuring to meet the quality standards of
Aerospace & Defence Sectors
Exhibit 7: Product Offerings
Source: Company
TISL was set up in 2007 following the Tata groups identification of the Defence and Aerospace sector as a new thrust area.
The company was set up to support the Indian Defence manufacturing sector to address the global supply needs of Indian and
global players including their offset requirements.
TISL is mandated to identify competent manufacturing sources, oversee and monitor contracts, undertake project management
and undertake contractual responsibilities relating to domestic and global supply needs including offset requirements of major
Aerospace, Civil and Defence suppliers.
The company is connected at one end with Indian domestic players, and at the other end with foreign OEMs. By virtue of its
business model, and without owning manufacturing capabilities, TISL utilises the capability and capacity of its vendor partners to
provide supply solutions to the global market, thereby meeting their offset requirements.
The company also provides customised solutions to global and domestic OEMs including defence public sector undertakings, by
using and consolidating capacities of Indian vendors, using their manufacturing units to provide comprehensive solutions.
As part of its offerings, TISL aims to be a one-stop solution shop undertaking contractual supplies, vendor management, project
management and ensuring compliance to quality standards and other related Aerospace and Defence norms.
95
95
TataGroup
Group
Tata
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,1',$
Defence
Mahindra Defence Systems

6th February 2015
Company Overview
Mahindra & Mahindra, one of the most diversified business groups and the largest
manufacturer if utility vehicles and tractors in India is present in defence industry
through its own division, Mahindra Defence Systems (MDS) and its subsidiary Defence
Land Systems India Pvt Ltd (DLSI). While MDS is engaged in two businesses Mahindra
Defence Naval Systems (MDNS) and Mahindra Special Services Group (MSSG), its
subsidiary DLSI is into land systems and provides total solutions for the entire range
of light combat and armoured vehicles and their derivatives
Mahindra Defence Naval Systems (MDNS): In the naval systems business, MDS
currently manufactures Sea Mines, Torpedo Launchers, Decoy Launchers and
Composites for various Naval and other applications from its plant based in
Chinchwadgaon, Pune. MDNS has been servicing diverse customers by providing
systems and sophisticated components.
Mahindra Special Services Group (MSSG): In the Special Services Group business,
MDS provides corporate risk management consultancy services, assisting organisations
in maintaining their competitive edge by protecting information, physical and
personnel assets through implementing the security strategy encompassing people,
processes and technology.
Corporate Security Risk Solutions: MSSG has been successful in registering and
maintaining business growth across various industry verticals through a wide range of
service offerings in the Corporate Security Risk landscape in India thereby enabling over
150 major corporate customers secure their people, assets, information and reputation.
MSSG has witnessed tremendous growth opportunities in the areas of Governance and
Fraud Risk Management. MSSGs marketing and brand promotion activities have been
strengthened with increased manpower and as a result, MSSG ahs been able to make its
brand visible in many cities across India.
Defence Land Systems India Private Limited (DLSI): Formerly a joint
venture with BAE Systems, draws on Mahindras expertise in designing automobiles for
Indian roads, to bring India the best in defense solutions adapted for its unique
challenges and conditions. DLSI has more than 100 dedicated employees providing
national security with the development of new technologies and the manufacture of
trusted armored vehicles like the Axe, Rakshak, Marksman, up-armored and bulletproof
Scorpios and Boleros, and Rapid Intervention Vehicles. The Special Military Vehicles
(SMV) facility near Faridabad, just outside of New Delhi, is the first of its kind in the
private defense manufacturing sector to receive ISO -9000-2008 certification. DLSI
manufactures world-class military vehicles, select artillery systems, and other land
system weapons at competitively low costs, offering both India and foreign
governments affordable and dependable defence solutions. As the Indian Army pursues
its Field Artillery Rationalization Plan and upgrade program, DLSI will also function as a
center of excellence for the design, development, manufacture, final assembly,
integration and test of artillery systems.
M&M presence in the defence space

Mahindra & Mahindra, one of the most diversified business groups and the largest manufacturer of utility vehicles and tractors in
India is present in the defence industry through it its own division, Mahindra Defence Systems and its subsidiary Defence Land
Systems India Pvt Ltd (DLSI). While, MDS is engaged in two businesses Mahindra Defence Naval Systems (MDNS) and Mahindra
Special Services Group (MSSG), its subsidiary DLSI is into Land Systems and provides total solutions for the entire range of light
combat and armoured vehicles and their derivatives for defence and security forces.
Group Structure
Source: Company
Exhibit 1: Product profile:MDNS

Sea Mines
Sea mines are critical to modern naval strategy both for

offensive and defensive maneuvers. Deposited strategically,
they detonate on approach or contact with an enemy
submarine or ship. Sea mines grant the Navy maximum
flexibility for strategic deployment against a variety of threats.
To ensure the safety of the launch pad, our sea mines are built
with arming delays and safeties. They work in three primary
modes (pressure, acoustic, and magnetic) to accurately detect,
classify, and discriminate between targets and enable a logicbased attack. Equipped with countermeasures against antimine technology and anti-sweeping devices, our mines offer an
extended operational lifespan. Designed for performance in
both deep and shallow water, our sea mines protect our coasts
by forcing enemy ships into defendable channels, barring entry
into secure areas, and disrupting shipping routes.
Torpedo Decoy
Launchers
MDS has set up a naval systems facility in Pune to build cuttingedge Torpedo Decoy Launchers based on the requirement of
Indian Navy for a new s sophisticated Anti-Torpedo Defense
System (ATDS), . A critical part of ATDS Anti-Torpedo Defense
System strategy, MDSs torpedo decoy launchers protects
frontline ships in the Indian Navy by drawing torpedoes away
and detonating them harmlessly in the ocean.
In the event of a torpedo attack, MDS torpedo decoy launchers
can be remotely controlled to fire a decoy to a predetermined
location. Each decoy launcher weighs 1,000 kg for easy
maneuverability in the field. With electro-pneumatic controls
and remote, local, and emergency firing modes, they adapt to
unpredictable defense situations
Source: Company
9
Product profile: DLSI

Marksman
The Marksman is Indias first armoured capsule based

light bullet proof vehicle and is designed to provide
protection to Para Military and Police forces against
small arms fire and under belly grenade attacks. It can
be used in counter terrorist and anti Naxal operations as
well as in more conventional roles such as armed
reconnaissance and convoy protection.
Up Armoured Scorpio
This discreetly protected Scorpio is ideal for VIP

protection as it offers both security and comfort. The
Up-Armoured Scorpio is already being used by the
Indian Armed Forces and other Security Forces of India
as well as by foreign countries for VIP protection.
Mahindra Axe
The Mahindra Axe Fast Attack Vehicle (FAV) is a

lightweight, high mobility, high payload combat
vehicle, designed for use by Special Forces and for
varied operational requirements. It is an advanced
technology vehicle with all wheels independent
suspension giving high battlefield mobility to the
Special Forces for surgical strikes.
Mine Protected Vehicle
The Mine Protected Vehicle India (MPVI) is the first

product designed and manufactured by Defence Land
Systems India, a joint venture between Mahindra
& Mahindra and BAE Systems. Designed specifically to
meet Indian security challenges and terrain, the MPVI
supports the Indian armed and paramilitary
forces in their remote security procedures. With a
rugged 230 HP engine and a 6x6 transmission system,
the MPVI is ready for off-roading
The Rakshak
The Rakshak is a heavy-duty bulletproof vehicle with a

powerful four cylinder, 61 HP engine. The Rakshaks
composite armor stops front, side, and rear attacks
with 7.62mm bullets from a distance of 10m, and its roof
protects the passenger compartment from a 45 degree
attack from 10m. An optional light machine gun comes
with a protection shield in the front, providing a firing
range of 120 degrees. A ballistic carpet to provide 98
percent underbelly protection from shrapnel grenades
can be installed on request.
Almost 1,000 Rakshaks have been sold to date,
including 200 Rakshaks serving the Indian Army and
another 180 with the police and paramilitary forces
Source: Company
99
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,1',$
Bharat Forge Limited
Defence
6th February 2015
Forging Giant Emerging As A Formidable Defence Player

Bharat Forge Limited (BFL) incorporated in 1961 is a part of Kalyani Group operating
under Mr. B. N. Kalyani Chairman & MD. BFL is a Pune based Indian multinational
technology driven global leader in metal forming. The company manufactures a wide
range of high performance, critical and safety components serving several sectors
including automobiles, power, oil and gas, rail & marine, aerospace, construction &
mining,etc.
BFL has transcontinental presence across 10 manufacturing units, 4 in India (Mundhwa,
Chakan, Baramati & Satara), 3 in Germany, 1 in Sweden and 2 in China. Bharat Forge has
7 direct subsidiaries, 2 of them are outside India (one in Germany CDP Bharat Forge &
another in China FAW Bharat Forge) and 5 in India. The company has 20 subsidiaries
including step down subsidiaries of which 13 are overseas and 7 in India. The company
follows a Dual Shore model for design & engineering and forging manufacturing,
thereby enabling it to service all important customers from at least two locations
simultaneouslywithlowersupplychainrisks.
BFLs client list includes Daimler Chrysler, Toyota, BMW, General Motors, Volkswagen,
Audi, Renault, Ford, Volvo, Iveco, Arvin Meritor, Detroit Diesel, Cummins, Dana
Corporation, Honda, Scania, MAN, Mahindra, TATA, Maruti Suzuki, Eicher, Ashok
Leyland, Force Motors, Suzlon, BHEL and several others source their complex forging
requirements including machined crankshafts, front axle beams and steering knuckles
from Bharat Forge.
Defence Sector
BFL has acquired gun manufacturing facility from Switzerlands Ruag and has been
given permission by the government to set up a joint venture with Elbit Systems of
Israel. The joint venture will be called BF Elbit Advanced. It will develop, assemble and
manufacture defense systems, particularly artillery guns, mortar gun systems and
ammunition.
BFL will concentrate mainly on the gun projects as it has a very focussed approach and
intends to participate in chosen segments which are aligned to its core competence.
The company has developed a 155mm/52-caliber gun and has teamed with Elbit
Systems to co-develop and co-produce the mountain version of the gun.
BFL also deployed Multi-Layer Security for a Multi-tenanted Data Centre. It will help
provide information assurance to all stakeholders. Key objectives of this project are:
Achieve defence in depth using best-of-breed security solutions
Implement security controls without impacting performance
Manage and monitor multi-Tier defence systems centrally
Financial Summary
Y/E Mar (Rsmn)
Rev
YoY (%)
EBITDA (%)
Adj PAT
Adj PAT (%)
Fully DEPS
RoE (%)
RoCE (%)
FY09
20,578
-6.32%
4,459
21.67%
1,033
5.02%
4.6
6.94%
10.17%
FY10
18,564
-9.79%
4,373
23.55%
1,270
6.84%
5.7
8.31%
8.76%
FY11
29,473
58.76%
7,203
24.44%
3,106
10.54%
13.3
15.56%
16.31%
FY12
36,860
25.06%
9,172
24.88%
3,621
9.82%
15.6
16.89%
19.74%
FY13
31,513
-14.51%
7,156
22.71%
3,056
9.70%
13.1
13.22%
15.35%
FY14
33,992
7.87%
8,636
25.41%
3,999
11.76%
17.2
15.98%
14.32%
Source: Company
EBITDA
Segmental Sales Mix (2014)
Y/E March
Dec-13
Mar-14
Jun-14
Sept-14
Dec-14
Promoters
46.74
46.74
46.74
46.74
46.74
Institutions
31.07
30.47
30.61
31.93
31.74
FII
13.57
16.00
13.71
16.72
16.62
DII
17.50
14.47
16.90
15.21
15.12
Non Institutions
22.19
22.79
22.65
21.33
21.52
Total
100.0
100.0
100.0
100.0
100.0
India
34%
Industrial
37%
Automotive
63%
Outside
India
66%
Source: BSE India
Sectoral Distribution of Sales
Key events
Year Particulars
1961 Incorporation of Bharat Forge Limited
NonAuto
28%
Diesel
Engines
40%
FY2009
Passenger
Vehicles
13%
CVChassis
19%
Diesel
Engines
22%
NonAuto
37%
FY2014
Passenger
Vehicles
16%
CVChassis
25%
1966 Commencement of commercial production with Forge Shop-Hammer Technology

1985 Initial exports to Europe
Investment in state-of-the-art forging technology commissioning of 16,000 MT press
1990
line
Major breakthrough into Japan, USA and UK for critical supply of powertrain and chassis
1991
components
Commissioning of second 16000 MT press line. First M&A Acquired order book of
2000
Dana Kirstall
Investment in Research & Development, Testing & Validation and state-of-the-art Heavy
2003
Duty Truck Crankshaft Machining facilities
Joined hands with Indias premier institute, BITS Pilani to enhance capabilities to
2004
counter internal challenges
2007 Centre for Advanced Manufacturing takes shape in Baramati
Bharat Forge commissioned Indias largest Commercial Open Forging Press place in
2008 Mundhwa. Joint venture with Alstom to manufacture turbine generators for super
critical power plants
2009 Inauguration of Forging and Heavy Duty Crankshaft Machining Facility at Baramati
Inauguration of Ring Rolling facility at Baramati; establishment of the Kalyani Centre for
2010
Technology and Innovation.
Won an order worth ` 1,570 Crores for supply of 2x660 MW supercritical Turbine
2012 Generators. David Brown-Bharat Forge opens its 1st industrial gear box service &
assembly centre in Hosur, India
Received an NTPC order worth ` 2,251 Crores for Engineering, Manufacturing, Supply,
2013 Erection and Commissioning of 3X660 MW Coal-fired, supercritical Turbine Generator
Islands (TGI)
2014 Achieved a turnover of 6841 Crores in FY 2014
Source: Company
Source: Company

Name of the Person
Designation
Particulars
Mr B N Kalyani
Chairman & Managing Mr. Kalyani joined Bharat Forge in 1972 when the company's annual turnover was about US $ 1.3 million He has
Director
represented the Confederation of Indian Industry (CII) on its various regional committees and is currently a member
of the CII National Council. He serves on the Boards of many companies and represents industry on several Industry,
Trade and Educational institutions in India and abroad. He is the Founder Chairman of Pratham Pune Education
Foundation, an NGO that is engaged in providing primary education to children belonging to under-privileged
sections of the local community. He attended BITS Pilani, from where he earned a BE(Hons.) in Mechanical
Engineering, and later in Massachusetts Institute of Technology where he earned an MS degree.
Mr. G K Agarwal
Deputy MD
Mr. G. K. Agarwal B.E. (Mech.), M.B.A. has been the Deputy Managing Director of Bharat Forge Limited since May 23,
2006, and has been its Executive Director since May 1, 1998. Mr. Agarwal serves as a Non-Executive Director of BF
Utilities Ltd. He serves as a Director of Bharat Forge Hong Kong Ltd.
Col Rajinder Bhatia

(Retd)
CEO - Defence,
Aerospace and
Homeland Security
Col Bhatia has been with Bharat Forge for close to 4 years now. He is heading the areas of Defence, Aerospace and
Homeland Security for Bharat Forge Ltd. Previously he has worked with Larsen & Toubro Limited where he Headed
Land Systems Group, established one of the most modern green Field plant for Defence Manufacturing and was
also head of International Business for Defence and Aerospace of the company for a period of three years. He has
completed his PGDMBA, Engineering, Management from Symbiosis institute of Management Studies
Source: Company
102
Bharat Forge Limited
,1',$
Defence
Rolta India Ltd

6th February 2015
Among The Firsts To Serve Defence Sector in IT Segment

Established Player in IT Solutions: Rolta is a leading provider of innovative IT solutions for
many vertical segments, including Federal and State Governments, Defence and Homeland
Security, Utilities, Process, Power, Financial Services, Manufacturing, Retail, and Healthcare. These
enterprise level solutions are built around Roltas intellectual property and domain expertise to
offer unique business intelligence for impactful insights for effective decision making.
Early Adapter of Defence Sector: Rolta has been a prominent member of Indian Defence and
Security Industry and it has invested years in pioneering newer technologies for providing
leading solutions in strengthening national and homeland security. The capability of integrating
individual components into network based solutions makes Rolta a front runner for the armed
forces and security agencies.
With India looking to rapidly modernize its Defence and Security Agencies, Rolta is very well
positioned to address large opportunities resulting from significantly increased budgets for
Defence, Maritime and Homeland Security market.
Rolta has transformed its business to address the complete sensor to shooter chain, with a large
repository of Roltas own IPR forming the core of solutions. Roltas IPs comprise numerous
software products and military specific solution templates and its products are field proven and
has received many accolades.
Roltas offerings includes end-to-end solutions for geospatial applications for mapping and
image processing, spatial data analysis and integration through Rolta Geospatial FusionTM. For
the engineering sector, Roltas services and solutions cover the entire life-cycle of the process
industry, from engineering design, to operational excellence with its Rolta OneViewTM suite.
As a dominant leader for Defence Geospatial solutions in India for over 2 decades, Rolta has deep
understanding of the operational environment of Defence forces and continues to design
innovative solutions. It has worked closely with Army in warlike situations and provided support
under trying circumstances.
With a network of 85 support sites, Roltas skilled engineers stay in close proximity in operational
areas with the Armed Forces to provide critical support for all its solutions resulting in significant
repeat businesses. In addition, wherever necessary, Rolta has established strategic partnerships,
forms consortiums and creates joint ventures with overseas companies, who can provide the
company with the right technologies to meet customers requirements. For example Rolta has
partnerships with Thales of France, Selex Elsag of Italy, Aselsan of Turkey, Elta, Controp, Ness
Technolgies and Rafael of Israel, Sepura and Qioptiq of UK, Danphone of Denmark.
Roltas expertise encompasses EBS, ERP, CRM, and EPM, all high-impact areas of interest to CXOs.
With deep domain expertise in our selected verticals, Rolta provides a comprehensive set of
services for a companys IT needs from initial assessments, to development of an IT roadmap,
including evaluation of Cloud and virtual data-center strategies, through sizing and
implementation of complete solutions for optimal infrastructure configurations and enterpriselevel business applications and analytics, with ongoing technical support.
Financial Summary
Y/E Mar (Rsmn)
FY09
FY10
FY11
FY12
FY13
FY14
Source: Company
Rev
YoY (%)
EBITDA
EBITDA (%)
Adj PAT
YoY (%)
Fully DEPS
RoE (%)
RoCE (%)
13,728
15,327
18,056
18,288
21,788
33,830
28.0%
11.6%
17.8%
1.3%
19.1%
55.3%
4,635
5,770
7,203
8,068
8,740
11,018
33.8%
37.6%
39.9%
44.1%
40.1%
32.6%
2,938
2,551
2,979
2,423
3,145
3,455
27.5%
(13.2)%
16.8%
-18.7%
29.8%
9.9%
18.2
15.8
18.5
15.0
19.5
21.4
20.4%
15.9%
15.7%
12.0%
16.2%
17.8%
10.0%
9.8%
10.7%
7.7%
8.1%
20.4%

Y/E June
Segmental Sales Trend (Rs Mn)
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Promoters
50.32
50.54
50.67
51.02
51.09
Institutions
19.69
19.26
18.49
16.90
15.51
FII
17.18
16.77
15.95
14.36
12.99
DII
2.51
2.49
2.54
2.54
2.52
Non Institutions
Total
29.99
30.20
29.83
31.33
32.75
100.00
100.00
100.00
100.00
100.00
Y/E Jun
FY11
FY12
FY13
FY14
Revenues from EGES
6,533
6,743
6,684
7,063
Revenues from EITS
11,524
11,544
15,104
17,955
Total
18,056
18,288
21,788
25,017
Source: BSE India
Order-book Geographic mix
Key events
Particulars
x
(%)
120%
100%
80%
x
37%
41%
42%
56%
63%
44%
37%
FY13
FY14
60%
40%
63%
59%
58%
20%
0%
x
FY10
FY11
FY12
Domestic revenues
Overseas revenues
Source: Company
Between 1982 1992, Rolta was primarily involved in data processing, but, soon
realized that the strength of it was in undertaking geospatial and engineering design
work for defence, utilities, municipalities and homeland security.
Between 1993 2002, Rolta stepped up its global operations by executing number of
geospatial and engineering design services projects, by setting up subsidiaries in US,
EU and ME, thus overseas revenues accounted for 56% of FY13 revenues.
Between 2003-2007, After penetrating the Indian Defence market with success, Rolta
entered into strategic joint ventures with the global leaders like Thales of France (to
expand the addressable Indian defence market) and also with Stone & Webster of US,
for executing end-to-end engineering design projects globally, and more so in the
nuclear vertical. Subsequently in FY2011, Rolta exited the joint venture with Stone and
Webster by monetizing it, with a gain of Rs1.04bn.
In 2008, the company realized that continuing with its services focused strategy could
lead to margin erosion, as the lower end of the services like (1) based mapping and
image processing and (2) GIS data and system integration work could get increasingly
commoditized. In order to ensure that, the company did not slip on the profit margins,
the management took the decision to embark on an IP led model to serve segments
like (1) business data overlay, (2) business intelligence functionality, (3) advanced
analytics and decision support and (4) technical support and maintenance.
Because of the overseas acquisitions the company could move the average order
size from US$ 5 12mn range to upwards of US$15 30m. By combining domain
knowledge in geospatial (2D and 3D mapping), engineering (for plant design and
layout) and through IT services, Rolta in the recent past won reasonably large contracts
from customers like Northern Power Grid of UK, (contract size of US$15mn), Memphis
Light Gas & Water of USA, (contract size of US$31mn) and very recently won a US$25mn
order from Abu Dhabi Municipality with stiff competition from some of the global
vendors. In addition to the above, Rolta won a reasonably large size order from
SADARA, (joint venture company between Saudi Arabian Oil Company and Dow
Chemical Company).
Source: Company

Name of the Person
Designation
Particulars
Mr Kamal K Singh
Founder, Chairman &

Managing Director
He is a first generation entrepreneur and promoted the Rolta group in 1970. He is recognized as a pioneer in the
CAD/CAM/GIS field in India and has over 42 years of experience in all aspects of corporate management including
finance, technology and international business. Mr. Singh is a Mechanical Engineer with Masters in Business
Administration
Mr. A D Tayal
Joint MD and COO of

Domestic operations
Mr. Tayal has been with Rolta for 26 years and served in several managerial capacities in the IT industry. Mr. Tayals
corporate management experience includes marketing, technology and international business. Prior to his
appointment on the Board, he was the Executive Director Sales of the company. His academic qualifications
include a Bachelors degree in Commerce and Masters in Business Administration. He is Managing Director of Rolta
Thales.
Mr. Hiranya Ashar
Director (Finance) &

CFO
Mr. Ashar has over 13 years of experience in managing corporate finance, project management, financial planning
and analysis, fund raising, audit, taxation and investor relations. He is a Director in Rolta Thales Limited, Rolta
International Inc., and Rolta Canada Limited, Rolta Asia Pacific (Pty) Limited. By qualification Mr. Ashar is a
commerce graduate and an Associate Member of The Institute of Chartered Accountants of India (ICAI).
Source: Company
104
Rolta India Ltd
,1',$
Defence
6th February 2015
Electronics The Driver Of The Defence Business

Rangsons Defence was recently acquired by Cyient Limited (BSE & NSE listed) in an all-cash deal
Rangsons Electronics is a part of NR Group based in Mysore. The group was established in 1948
with a group revenue of $ 150mn in FY12. Rangsons is the first EMS of Indian origin focused on
High-Mix, High-Tech and Medium Volume EMS requirements. It has the support of over 200
qualified suppliers for various business segments which involved 93 Manufacturers, 85
Distributors / Authorized stockist and Other partners.
Rangsons is also present in the defence sector. It is engaged in multiple defense offset programs
and is an approved & qualified supplier to global defence primes. Its capability is mainly in
Electronics System Design & Manufacturing and positioning as Systems & Modules Developer
and Integrator.
It has handled various projects in the defence sector, such as:
o
Complete Manufacturing of On-Board Radio systems
Communication Equipment (IF, AF, HF Units and Synthesizer boards)
On Board communication devices used in Aerospace applications
Portable Military Communication Device for Defense (A4 and A5 Boards)
PCB used in Commercial Aircraft (Lighting boards, Landing Gear electronics)
Communication Equipment supplied to Defense
Engagement with Airborne Tactical Reconnaissance programs
o Cable Harness to connect LRUs, Test & Measurement Systems

o Test & Measurement system builds
Aggressive in asserting its defence presence
o JV with Y Schuster to establish RST which over 30 years experience in Aircraft Tubes
& Hoses. This JV under offfset approved and operational model provides Tubes &
Hoses for, Landing Gear, Hydraulics, Engines & other high-pressure equipment.
o It acquired Technotools with machine shop based in Bangalore with state-of-theArt facility for precision machined parts for Aerospace markets. The facility is
approved by major Aerospace clients in India
o It has licensed manufacturing agreement with US based VTI Instruments
Exhibit 1: PE Deals in the Defence Sector
Source: Company
Exhibit 02: Rangsons Offering for Defence Sector (1/2)
Source: Company
Exhibit 03: Rangsons Offering for Defence Sector (2/2)
Source: Company
106
,1',$
Zen Technologies Limited
Defence
6th February 2015
Estalished Player In Training Equipment and Simulation

Zen is a leader in Training Equipment and Simulation services provided to Defence, Homeland
and Civil segments
Zen Technologies Limited (Zen), incorporated in 1993, is a pioneer in the design, development
and manufacture of world class, state-of-the art training equipment and simulators for weapons
and allied defence equipment. The company went public in 2000. Zen is also ISO 9001:2008
(QMS), ISO 27001:2005 (ISMS) certified and is also a CMMI Level 3 company.
The R&D unit at Hyderabad is recognised since 1998 by the Department of Scientific and
Industrial Research, Ministry of Science and Technology, Government of India and has received
Indias most prestigious National Award for successful commercialisation of "Overseas Driving
Training Simulator" based on indigenous technology from the Government of India. Zen has
global foot print with systems installed in South East Asia, Africa and the Middle East
Zen, over the years, has successfully developed/supplied several products such as Advanced
Weapons Simulator, Small Arms Training Simulator, Tactical Engagement Simulator, Hand
Grenade Simulator, Tank T-72 and T-90 Gunnery and Crew Gunnery Simulator, T-72 and T-90
Driving Simulator, 81mm Mortar Simulator, Anti-Tank Missile Simulator, Driving Simulator,
Armour Combat Training System, Artillery Forward Observer Simulator, Medium Machine Gun
Simulator, Tank Zeroing System, UAV Mission Simulator, Automatic Grenade Launcher Simulator,
BMPII Driving and Integrated Missile Simulator, Location of Miss and Hit Target System (LOMAH)
to India's Defence, Central and State Police Forces.
Zen is an SME company that is a prime contractor to Indian MoD that has intimate knowledge of
complete DPP procurement cycle. Zen has won orders by bidding against established players
like CAE, Tata, BEL etc.
Company actively develops indigenous technology where Armys are looking for highly cost
effective solutions, which is beneficial to Indian Defence and Security forces. Zen has developed
highly efficient cutting edge capabilities in the field of Software, Electronics, Optics and
Mechanical disciplines. Currently, Zen is the leader, offering training equipment and simulators
for firearms, Tanks, driving, mining and Unmanned Aerial Vehicle (UAV).
The in-house developed products not only meet all qualitative standards required by the
customer but are also cost effective.
Orders in hand as on date May 24, 2014 is around Rs 38.4 mn excluding AMCs.
Zen is listed on BSE with a Market Capitalisation of Rs 963.1mn as on 28th August 2014 and is
among the very few companies focused on the defence sector.
Simulator is defined as a system-specific device that helps personnel train in system use and
maintenance. Simulators are used in various fields and their use is not restricted to training
security forces alone. A few areas where simulators are being used extensively include weapons
training, aviation, medicine, power plants, bridges, ships, entertainment and maintenance. This
list is not exhaustive and as technology becomes more affordable, more and better applications
will be available.
Financial Summary
Y/E Mar (RsMn)
FY09
FY10
FY11
FY12
FY13
FY14
Rev
YoY (%)
EBITDA
640
550
250
1,070
420
500
NA
(14.3)
(54.5)
327.1
(61.0)
19.4
240
210
(4)
420
90
40
Source: Zen Technologies Limited
EBITDA
(%)
36.7
37.6
(1.7)
39.6
22.1
8.3
Adj PAT
YoY (%)
190
170
(20)
320
50
-
NA
(9.3)
NM
NM
NM
NM
Fully
DEPS
20.85
18.95
(2.34)
35.57
5.29
0.12
RoE (%)
RoCE (%)
28.64
20.57
(2.64)
30.49
4.38
0.1
18
14
NM
21
4
2

Y/E March
Promoters
Institutions
FII
DII
Non Institutions
Total
Dec-13
Mar-14 Jun-14 Sep-14 Dec-14
59.52
0.16
0.03
0.13
40.32
100.00
59.52
0.16
0.03
0.13
40.32
59.52
0.16
0.03
0.13
40.32
59.52
0.16
0.03
0.13
40.32
59.44
0.17
0.17
40.39
100.00 100.00 100.00 100.00
Source: BSE India
Key Events
Year Particulars
Zen Technologies participates in EUROSATORY 2014 exhibition in Paris, the largest exhibition of Land and Airland Defence and
Security in the world
2014 Zen participates in Defexpo India 2014 in New Delhi
2014
2014 Zen Participated in the Intersec Expo 2014 in Dubai.

2013 Company was awarded the Best exhibitor Gold award for the 16th India International Security Expo 2013
2013 Company participated in Milipol Paris 2013 worldwide exhibition of internation state security
Zen Technologies participated in Naval and Maritime Expo 2013. The Exhibition was in partnership with Government of Kerala with
2013
support from Indian Navy, Coast Guard as well as Minsitry of MSMEs
Company participated in ICAUV 2012 International Conference on Autonomous Unmanned Vehicles, organized by Aeronautical
2012
Development Establishment (ADE), Ministry of Defence, Govt. Of India
Zen Technologies participated in Defexpo 2012 a Land, Naval & Internal Security system exhibition organized by Ministry of
2012
Defence, Govt. Of India
2010 Awarded Certificate of Excellence by Inc. India in recognition of exemplary growth and sustainable success
2010 Zen Technologies at SAFE 2010 the 4th International Exhibition & Conference on Internal and Homeland Security
All India Manufacturers Organization (Andhra Pradesh State Board) has selected Zen Technologies for Bharat Ratna Dr. M.
Visvesvaraya Idustrial Award for the Best technology Effort for the year 2009
Zen Technologies awarded 1st prize in the category of Most Innovative/ Indigenous Product for Portable Simulators at India
2009
International Security Expo 2009 (IISE)
2009
Source:Zen Technologies Limited

Name of the
Person
Designation
Particulars
Ashok Atluri is a PG Diploma holder in Applied Computer Science. He was instrumental in helping to
design the simulators so that they would be simple to use, and ensured that the products would be
Chairman &
Mr. Ashok Atluri
based on industry standards, by developing the software on the Windows-Intel platforms. He is also a
Managing Director
recipient of the "Small Scale Entrepreneur of the Year" award from Hyderabad Management
Association in 1998.
M.Ravi Kumar has 20 years of experience in the software industry. He worked in Bureau of Data
Processing Services (BDPS) (1979-85), Nova Computers Private Limited (1986-90) and as Director at the
Institute of Engineers. He is a technocrat and an expert in Systems Programming and Robotics. He is
Mr. M. Ravi Kumar Whole Time Director
actively involved in the design and development of the present range of Simulators for the company in
his role as Head, R&D Division. He is the person behind the successful development of Zen-SATS and
currently administers the development of Zen AweSim and Zen TacSim.
Cmde S Rao has served in various capacities in Indian Navy, Ordinance Factories, Naval Armament,
Missile & Torpedo Depot and Bharat Dynamics Limited (BDL). Cmde S Rao specialized in Quality
Commodore (Retd.) Independent
Assurance of Armament, Torpedoes and Missiles. He is a Post Graduate in Armament Technology and
Sarvotham Rao
Director
trained on Torpedoes in UK. He was also a Faculty member in the Institute of Armament Technology
for 3 years and served last 4 years in the Navy in Research and Development Establishment
Mr G Prasad, a Bachelor of Commerce and Fellow Member of the Institute of Chartered Accountants of
Independent
India is a partner of Nataraja Iyer & Co., Chartered Accountants, Hyderabad. He has more than 35 years
Mr G Prasad
Director
of experience in audit and taxation matters of medium and large corporate, Banks and Financial
Institutions.
Source: Zen Technologies Limited
108
Zen Technologies Limited
,1',$
Alpha Design Technologies
Defence
6th February 2015
Defence electronic equipment & systems focus area for ADT

Incorporated in 2003 , Alpha Design Technologies Pvt. Ltd. (ADT) provides technical support,
indigenous assembly/manufacture facilities and technology integration services for a wide
range of products to Indian and international organisations.
The company is engaged in providing defence & technology integration products like night
vision devices, soldier tracking system, disorientation simulators, microwave components,
mobile surveillance vehicle and airport lighting.
ADT is based in Bangalore, Karnataka with an office in New Delhi
ADT was set up to utilize Government of Indias policies on liberalization of Indian economy and
opening of Defence Production to private sector industries.
ADT has a high-end ultra-modern manufacturing cum research & development facility at
Indiranagar which is run by ~ 400+ skilled professionals
Company's management, operations and production executives combine a wealth of experience
in all facets of defence technology including R&D, manufacture, quality assurance, evaluation
and system integration.
The company has R&D technology advisory board comprising eminent experts who have served
with distinction in DRDO, BHEL, HAL, Ordinance Factory Board, IISc and IITs.
ADTs product offerings are broadly classified into - manufacture / assembly & QA, Joint Venture /
technical collaborations, high end software development, strategic and technical advisory
services, system integration and development and technical support.
Companys focus areas include developing - System concept for Modern Soldier Optronics & LRF
based products, laser aiming systems, thermal imagers & fire control systems, navigation, tactical
communication, image conversion, data & image fusion, radar and C3I systems, EW, simulators,
microwave components & RF units
ADT products are widely used in defence electronics equipments & systems like Microwave &
RF systems, EW systems (Land & airborne), contract manufacturing, aerospace structural
assemblies, aviation MRO, military communication / C3 systems, opto-electronics, simulators
used for land, sea & air, etc
With an established R&D, production, assembly and test facilities in India, ADT aims to establish a
series of JVs with Indian and international companies in niche technologies to co-develop &
produce defence electronic systems.

Y/E Mar (RsMn)
FY10-11
FY11-12
FY12-13
FY13-14
Source: Company
Rev
YoY (%)
EBITDA
EBITDA (%)
Adj PAT
PAT (%)
169
484
1,126
4,173
186%
132%
270%
20
25
65
626
11.8%
5.1%
5.8%
15%
0.7
4
21
NA
0.4%
0.8%
1.9%
NA
Fully
DEPS
0.05
0.25
0.71
NA
RoE (%)
RoCE (%)
0.4%
0.7%
3.1%
NA
0.3%
0.6%
3.6%
NA
Facilities
Production and R&D Facilities at Indiranagar: 32000sq ft. Production center : 200,000 sq ft
Experienced personnel in Production Control Department with the knowledge of latest Enterprise
Resource Planning (ERP) techniques.
Class 100 dust free environment for precision optical assembly, using laminar workstations.
Qualified and experienced personnel in the Engineering Department with CAD/CAE/CAM knowledge.
More than 400 Shelters with 60 different types delivered.
Mass manufacturing facility being established with Alphas investment of US $ 1 Mn

Name of the Person
Designation
Col. (Retd) H.S. SHANKAR
Chairman & Managing Director
A. Mohana Rao
Director (R&D)
Mr. Rakesh Dhar Jayal
Director (Mktg)
Source: Company
Key Events
Year Particulars
2007 Company obtains Industrial License for 7 different equipment/ systems
2007 Alpha signs a JVC agreement with Elettronica, Italy for manufacture of TR Modules
2006 Alpha signs an agreement with Sofema, France, for Hptr/ Engine spares, mobile ATCs
2006 Ultra modern manufacture facility established with Alphas investment of US$ 1 Mn
2006
Alpha acquired M/s. United Microwaves Ltd (UML), Bangalore, leaders in developing & supplying indigenous Microwave
Components
2005 Company signs a JVC agreement with Phazotron, Russia for repair of KOPYO Radars for MiG A.C.
2005 Alpha signs JVC agreement with ITL, Israel
110
Alpha Design Technologies
,1',$
Defence
Precision Electronics Ltd.

6th February 2015
To Benefit From Defence Focus Of The New Government

Background of the company
Established in 1979, Precision Electronics Limited (PEL), is registered as a Small Medium
Enterprise (SME) company in India. PEL is engaged in the supply of high technology products
and services for customers in Healthcare, Hi-tech, Energy, Telecom, Railways, Defence &
Security and Critical Infrastructure with excellent capabilities in Design, Engineering,
Production, Integration, Turnkey Project Implementation and MRO services.
PELs integrated design to production facilities are ideally suited for supplying Telecom,
Power Conversion/ Distribution/ Management systems, Data Acquisition, Antenna Mast
solutions and Command & Control solutions to support the operations of Telecom Service
Providers, Military users, Railways/ Metro, Healthcare OEMs and Hi-tech OEMs.
PEL further leverages its design and production infrastructure to provide Built-to-Print and
Built-Spec manufacturing services for Defence Offset and other export customers. In this
regard PEL leads a consortium of companies which have the combined capability to supply
assemblies and sub-assemblies in the areas of sheet metal, precision machining, LV
transformers, cables, PCBA, wire harnesses, electronic enclosures and vehicular shelter/
trailers.
PEL combines its pan-India presence together with its unique cross-functional knowledge of
Electronic, Electrical, Mechanical, Civil and Marine Engineering to offer Turnkey Technical
Services in the areas of Testing, Installation & Commissioning, Documentation, Training,
Maintenance, Repair & Overhaul.
PELs expertise in Technical Services include:
o Modernization of Airfield Infrastructure (IAF)
o Harbour Protection (IN)
o Installation & Commissioning of Core Network Switch on IN warships
o Technical documentation & computer-based Training SW for software defined
radio
o Calibration & Repair of ATE for UAV avionics
o Maintenance & Repair of EW system
o Maintenance & Repair of Precision Guided Munitions
PELs strategic technology partners include the likes of Raytheon (USA), Ultra Electronics TCS
(Canada), Shemer CLT (Israel) and A.com Electronic Measurement Technology (Israel).
Clientele includes GE Healthcare, Shemer CLT, Raytheon, Ultra Electronics, Elisra, IAI, BSNL,
MTNL, HCL, Indian Armed Forces, C-DOT, Bharat Electronics LTD, DRDO, Larsen & Toubro,
Tata Power, Indian Railways.
PELs Defence Licenses allow it to participate in the areas of C4I2SR systems and Military
Cable Assemblies & Harness. It has a manpower of over 150 employees with more than 75%
in technical resources.
Financial Summary (standalone):

Y/E Mar (RsCr)
Rev
YoY (%)
EBITDA
FY09
FY10
FY11
FY12
FY13
FY14
400
309
258
371
204
135
NA
(22.5)
(19.4)
48.0
(45.9)
(35.0)
50
30
28
32
37
(26)
Source: Company
EBITDA
(%)
12.5
9.7
8.0
8.1
20.0
(20)
Adj PAT
YoY (%)
40
(0)
(3)
(10)
9
(23)
NA
NM
(87.5)
(1,700.0)
NM
NM
Fully
DEPS
2.75
0.02
0.19
(0.7)
0.65
(1.64)
RoE (%)
RoCE (%)
11.4
0.06
0.8
(3.01)
2.72
(7.42)
0.08
NA
0.01
(0.02)
0.02
(0.12)

Y/E March
Dec-13
Mar-14
Jun-14
Sep-14
Promoters
74.62
74.62
74.62
74.62
Institutions
0.08
0.08
0.08
0.08
FII
DII
0.08
0.08
0.08
0.08
Non Institutions
25.30
25.30
25.30
25.30
Total
100.0
100.0
100.0
100.0
Source: BSE India
Facilities of PEL:
Facility
Catering To
Noida, NCR
5,000m2
Roorkee,
Uttarakhand
6,500m2
Project Implementation Office (PIO)
Design & Engineering (D&E)

Prototyping & FAI
Services teams for Installation & Commissioning, MRO, Supply Chain & Logistics
Production of Electronic & Electro-Mechanical assemblies and sub-assemblies for
Aerospace & Defence, Hi-Tech, Medical and Railways
Test and Validation as per MIL STDs
Mumbai, Kalaikunda,Karwar, Bangalore, Cochin, Bhatinda, Chandigarh, Vishakapatnam,
Kolkata
Key Management Personnel:

Name of the
Person
Designation
Particulars
Mr. Ashok Kanodia is the Founder and Managing Director of Precision Electronics Ltd. since 1979. He is
alumnus of Massachusetts Institute of Technology. Since its inception, Mr. Kanodia has promoted the
company to new heights and a wide range of products and customers.
Mr. Ashok K.
Kanodia
Managing Director
His leadership extends to shaping National Policies and Regulations as Member of the IT/Telecom
Hardware Task Force set up by the Prime Minister of India and as President of the Telecommunication
Equipment Manufacturers Association (TEMA) of India.He was member of the Kelkar committee set up
by the Defence Minister to suggest ways and means Towards Strengthening SelfReliance in Defence
preparedness.
He is currently the Chairman of the Specialist sub-group on Defence MSME in the Federation of Indian
Chambers of Commerce and Industry (FICCI) and Confederation of Indian Industry (CII), both apex
Forums for Industry in India and has made several contributions as industry representative in CIIDefence seminars, exhibitions and delegations around the world.
Mr. Nikhil Kanodia
President
Mr. Nikhil Kanodia is an alumnus of Carnegie Mellon University, USA where he obtained his B.S. and
M.S. degrees in Electrical and Computer Engineering. As a M.S. student, he worked as a Research
Assistant for Prof. Dave Johnson who is credited to be the father of Mobile Ad-Hoc Networking. As an
Engineer in the late 90s he contributed to the research of Gigabit Ethernet Technology and holds an
Intellectual Patent for his work done on "Gigabit Ethernet Link Aggregation" during his tenure at
Fujitsu Network Communications in Texas, USA.
Since then he has assimilated more than 12 years of experience in the areas of Cross functional team
leadership, Strategy, New Business Planning & Development, and Supply Chain Management. He is
currently the President of Precision Electronics Limited.
112
Precision Electronics Ltd.
,1',$
IDL Explosives
Defence
6th February 2015
Explosives The Thrust Area Of IDL

IDL is a leader in the explosives segment for more than 50 years. It is a part of the Hinduja
Group which has presence in the Defence sector through Ashok Leyland Ltd (Automotive). Like
its group company, IDL is also aggressive in the Defence sector.
IDL Explosives Limited (earlier the Explosives Division of Gulf Oil Corporation), is a part of the
Hinduja Group. Company is a wholly owned subsidiary of Gulf Oil Corporation Ltd. Company has
three major segments viz Industrial Explosives, Metal Cladding Group and Special Products
Group. It is a leader in these segments for over 50 years.
Area covered under Explosives segment are Packaged Explosive Products, Booster (Emulsion),
Bulk Explosives, Technical Services & Training, Detonators & Accessories
Industrial Explosives business manufactures the full range of packaged and bulk explosive
products. Packaged products include small diameter permitted category and small & large
diameter general purpose explosives. IDL Explosives Limiteds main manufacturing operations
are at Rourkela in Odisha, which houses facilities for manufacture of entire range of packaged
explosives and non-explosive emulsion matrix, an intermediary for delivery of bulk explosives
The company is one of the largest exporters of explosives (CE Certified) to 21 countries, which
includes Philippines and countries in South East Asia, North Africa, the Gulf, Middle East and
Southern Europe such as Greece and Turkey.
Areas covered under Metal Cladding Group are Metal Cladding Combinations and Supplies:
Metal Cladding Group manufactures explosively bonded metals that are used in a number of
applications such as Ship Building, Electrical and Chemical Industries. It has also developed a
special process of deep surface hardening of metals, which finds use in mining and railway
sectors.
The Special Products Group (SPG) is basically a project implementation group which was created
to cater to the use of IDLs products in non-mining applications especially in the areas of defence,
paramilitary forces and space organizations. This business is now being carried on by its Holding
Company Gulf Oil Corporation Ltd.
IDLs client list includes Coal India, SAIL, SCCL, Tata Steel, etc.

Y/E Mar (RsMn)
FY11-12
FY12-13
FY13-14
Source: Company
Rev
YoY (%)
EBITDA
2,549
2,212
2,599
NA
(13%)
18%
(37.9)
79.6
155.7
EBITDA
(%)
(1.49%)
3.60%
5.99%
Adj PAT
YoY (%)
(127)
(24.5)
43.1
NA
81%
276%
Fully
DEPS
(2590)
(547)
804
RoE (%)
RoCE (%)
(24.13%)
(19.53%)
42.79%
(10.10%)
34.96%
39.3%
Manufacturing & Storage Facilities
Branch and Sales Offices
Source: Company

Name of the Person
Designation
Subhas Pramanik
Managing Director
Ambikesh Dutt Sao
Chief Operation Officer
Ravi Jain
Chief Financial Officer & Company Secretary
Source: Company
114
IDL Explosives
,1',$
Defence
6th February 2015
Leader in Producing Highly Engineered Products

Incorporated in 1973, initially as Dynamatic Hydraulics Limited, Dynamatic Technologies
Limited is primarily engaged in manufacturing precision components for agriculture,
automobile, construction and aerospace sectors.
Dynamatic Technologies Limited (DTL) is an engineering company manufactures hydraulic
equipment (primarily hydraulic gear pumps), fluid systems and specialized engineering products
mainly catering to agriculture and construction equipment sectors.
The Company is also engaged in the manufacturing of critical engine and transmission
components in automotive space and has an integrated aerospace facility with capabilities to
manufacture CNC components, sheet metal components, soft tooling, hard tooling and jig
manufacturing etc. The companys manufacturing facilities are located in India (Bangalore,
Chennai, Coimbatore, Nasik), United Kingdom (Swindon, Bristol) and Germany (Schwarzenberg).
Additionally, with 3 design laboratories in India and Europe, DTL is a leading private R&D
organisation in India with numerous inventions and patents to its credit. The Company and its
Subsidiaries employ around 50 scientists and 500 engineers with expertise in Mechanical
Engineering, Advanced Computer Aided Engineering, Materials & Metallurgical Engineering,
Fluid Dynamics and Defence & Aerospace Research.
DTL is vertically integrated with its own alloy-making and casting capabilities as well as its own
captive green energy sources. The Company owns a 12MW wind farm in Tamil Nadu with
capacity to generate 18 Mn units annually. DTL has four business divisions namely - hydraulics,
aerospace & homeland security, automotive metallurgy and engineering & design. Hydraulics
division of DTL is one of the worlds largest Hydraulic Gear Pump makers employing cuttingedge technologies and modern machinery to manufacture a wide range of sophisticated
hydraulic valves and custom tailored hydraulic solutions.
DTLs aerospace division is a leader in developing exacting airframe structures and precision
aerospace components. The Company's modern Aerospace Manufacturing Complexes in India
and UK deliver high value to its customers by combining the technical competence of facilities in
UK with the cost & manufacturing advantages offered by its Indian plants.
In the automotive segment, DTL produces high quality ferrous and non-ferrous automotive
components for highway, off-highway and technology oriented applications for leading global
automotive OEMs. DTLs JKM Science Center in Bangalore, houses the companys Research &
Development set up with skilled professionals engaged in the design & prototyping of new
products, improvement of existing designs, continuous improvement of existing processes and
ongoing testing of products and materials. The company also has an engineering laboratory in
Swindon, UK, possessing advanced design knowledge for the Mobile Hydraulics Sector, and has
comprehensive product testing and validation capabilities.
Over the years, DTL has adopted inorganic route for achieving scale / competence under each of
its divisions. In June 2007, the Company acquired the Swindon unit (the Hydraulic division) of
Sauer Danfoss Ltd. U.K, which caters to off-highway and special purpose on-highway mobile
equipment markets supplying gear pumps, gear motors and associated products. This unit caters
to the European and US markets. Similarly, in 2008-09, DTL acquired UK based aerospace
components manufacturing company Oldland Aerospace Limited which was subsequently
merged with the Companys aerospace division. The latest among DTLs acquisitions was the
Germany based Eisenwerke Erla GmbH during 2011-12 (foundry).
Rev
YoY (%)
EBITDA
EBITDA (%)
Adj PAT
PAT (%)
Fully
DEPS
RoE (%)
RoCE (%)
FY12
4,617
687
14.9%
34
0.74%
3.05
106%
24%
FY13
4,276
(7.4%)
740
17.2%
0.55
17%
4%
FY14
4,437
3.7%
895
20.2%
18
0.4%
0.56
19%
5%
Y/E Mar (RsMn)
Source: Company
Shareholding Pattern:
Y/E March
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Promoters
55.33
55.99
54.59
51.21
51.13
Institutions
26.20
20.05
19.24
22.26
22.25
25.99
19.85
19.05
17.06
16.84
0.21
0.20
0.19
5.20
5.41
FII
DII
Non Institutions
Total
18.47
23.96
26.17
26.53
26.62
100.00
100.00
100.00
100.00
100.00
Source: BSE India
Key Management Personnel

Name of the Person
Designation
Mr. Udayant Malhoutra
CEO & MD
Air Chief Marshal S.

Krishnaswamy (Retd.)
Director
Mr. Vijai Kapur
Chairman
Particulars
Mr. Malhoutra is credited with successfully initiating, nurturing and scaling to
industrial size , various technologies associated with all three sciences, He has
been a Member, Board of Governors, IIT Kanpur (1997-2001), Member, CII National
Council (2001-2003), (2010-2012), Chairman, CII National Committee on
Technology (2002-2003), Chairman, National Committee on Design (2010-2012)
and President, Fluid Power Society of India (2004-08)
Mr. Krishnaswamy has been credited with bringing focus towards indigenous
capabilities as additional strategic dimensions of National Security Policy. He
retired as the Commander of Indias Defence forces in the capacity of Chairman,
Chiefs of Staff Committee 2004, in addition to serving as Chief of Air Staff, India Air
Force, 2002-04
Mr. Kapur has been the Chairman and Director of Dynamatic Technologies Limited
since March 2008 and 1992 respectively. Prior to this, Mr. Vijai Kapur has served as
a Deputy Managing Director of GKW Limited. He has also served as the President
of AIEI (now called CII). He possesses rich business and managerial experience.
Key Events:
Year
2014
2014
2014
Particulars
ICRA upgrades long term debt credit ratings of DTL from BB+ to BBBICRA upgrades short term debt credit raings of DTL from A4+ to A3
Signs MoU with Bell Helicopters t
2014
2013
2013
Extends Flap Track Beam Business to Airbus Long Range Aircraft (A330)
2013
2013
2013
2012
2012
2012
2012
2011
2011
2011
2011
DTL commended by Cummins for excellent support & responsiveness
British Business Secretary The Rt. Hon Dr. Vince Cable visits Dynamatic Park
DTL and AeroVironment sign teaming agreement for Unmanned Aerial Vehicles
Boeing India President visits Dynamatic Technologies
DTL Signs MoU & Model Purchase Contract with Boeing
DTL in Economic Times List of Indias 500 Biggest Companies
Gildemeister Group Chairman & Senior Executives visit Dynamatic Technologies
DTL produces 1,000th set of the Airbus Single Aisle Flap Track Beam!
Partners with Thyssenkrupp
Dynamatic Technologies conducts UAV demonstrations for Ministry of Home Affairs
DTL rebrands and launches the Sanmar Ferrotech foundry in Gummudipoondi, Tamil Nadu, as JKM Ferrotech
Dynamatic Technologies Acquires German & Indian Operations of Eisenwerk Erla GmbH
Dynamatic Technologies Conducts Ground Breaking Ceremony of Dynamatic Aerotropolis Devenahalli
116
Abbreviations
AAI
APV
BDL
BEL
BEML
BSE
CNSA
DAC
DPP
DRDO
DTC
ESP
FDI
FEMA
FET
FII
GDP
GIC
GRSE
HAL
HMV
IDSA
INR
IOP
IPR
ISRO
JAXA
L&T
M&M
MDL
MIDHANI
MPV
MRO
MSME
NASA
NSE
OEM
PSU
PWC
RUR
SEZ
SIPRI
SOC
ToT
UAV
Airport Authority of India

Armoured Patrol Vehicle
Bharat Dynamics Ltd
Bharat Earth Movers Limited
Bombay Stock Exchange
China National Space Administration
Defence Acquisition Council
Defence Production policy
Defence Research and Development Organisation
Direct Tax Code
Engineering Service Providers
Foreign Direct Investment
Foreign Exchange Management Act
Field Evaluation Trails
Foreign Institutional Investor
Gross Domestic Product
Global Inhouse Center
Garden Reach Shipbuilders & Engineers Limited
Hindustan Aeronautics Ltd.
High Mobility Vehicle
Institute for Defence Studies and Analyses
Indian National Rupees
Indian Offset Partner
Intellectual Property Rights
Indian Space research Organisation
Japan Aerospace Exploration Agency
Larsen & Toubro
Mahindra & Mahindra Ltd
Mazgaon Docks Limited
Mishra Dhatu Nigam Limited
Multi Purpose Vehicle
Maintenance, Repair and Overhaul
Micro Small and Medium Enterprises
National Aeronautics and Space Administration
National Stock Exchange
Original Equipment Manufacturer
Public Sector Undertakings
Pricewaterhouse Coopers
Raksha Udyog Ratna
Special Economic Zone
Stockholm International Peace Research Institute
Statement of Case
Transfer of Technology
Unmanned Aerial Vehicle
India: Aviation & Defence

Notes


Notes


Notes

Disclosures
Centrum Capital Ltd is a diversified financial service provider. As a group, Centrum has
Investment Banking, Advisory, stock-broking and other businesses and may have business
relationships with any of the companies mentioned herein.
This document has been prepared based on current or historical information available in public
domain or from media sources, believed to be reliable, but the accuracy or completeness
thereof cannot be guaranteed.
This document constitutes information only and does not in any way purport to constitute
investment advice or solicitation to invest / subscribe to securities of any of the companies
mentioned herein.
Merely receiving this document does not constitute any commercial relationship between the
recipient and Centrum group.
This document has not been prepared by or in conjunction with or on behalf of or at the
instigation of, or by arrangement with the companies mentioned herein or any of its directors or
officers. Neither the companies mentioned herein, nor any of their directors or officers accept
any responsibility / liability whatsoever in relation to the contents of this document.
The distribution of this document in jurisdictions outside India may be restricted by law, and
persons into whose possession this document comes should inform about and observe any such
restrictions as may apply to them.
Vivek Pandit
Vivek.pandit@ficci.com
+91-11-23354801
Bhaskar Kanungo
Bhaskar.kanungo@ficci.com
+91-11-23487276
Amit Kumar
Amit.kumar@ficci.com
+91-11-23487583
Industrys Voice for Policy Change

Federation House , Tansen Marg, New Delhi 110001
T:+ 91-11-23738760-70
F:+91-11-23765333
W: www.ficci.com
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ipe.chacko@centrum.co.in
+911143525500
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sandeep.upadhyay@centrum.co.in
+912242159714
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Foreword

Dr. A. Didar Singh

India : Aerospace & Defence

India : Aerospace & Defence

Syndication (Debt & Equity)

As on 29th January 2015

India: Aerospace & Defence

Today India, Tomorrow World Secular Growth Sector

India: Aerospace & Defence

India: Aerospace & Defence

Financial Investors Should Look Forward to Increased Activity & Stable

Risks of investing in the sector

India: Aerospace & Defence

Deals in Aerospace & Defence Sector

Larsen & Toubro

BPO (Engg. - Aerospace)

Mfg- Fibre Glass

Source: Venture Intelligence

Exhibit 2: PE Deals in the Defence Sector

Frontline Strategy (29%)

Source: Venture Intelligence

India: Aerospace & Defence

Current Domestic Defence Production is Insufficient

Key Players in Indian Defence Industry

Source: Institute for Defence Studies and Analysis

1) Defence Public Sector Undertakings (DPSUs)

India: Aerospace & Defence

Bharat Electronics Limited

Bharat Earth Movers Ltd

Mazagon Dock Limited (MDL)

Garden Reach Shipbuilders &

Bharat Dynamics Limited

Mishra Dhatu Nigam Limited

Goa Shipyard Ltd (GSL)

Hindustan Shipyard Ltd (HSL)

Source: Respective Organization Website

3) Defence Research and Development Organization (DRDO)

India: Aerospace & Defence

Increasing FDI Limit is Not the Ultimate Remedy for Addressing

OEMs Host Government Must Approve Transfer of Technology Agreement: It is a major

India: Aerospace & Defence

India: Aerospace & Defence

DPP 2013 Provides Priority to Domestic Source of Acquisition

Source: Ministry Presentation

Key Highlights of changes in DPP 2013

India: Aerospace & Defence

Major developments for Defence sector in the past year

Indo US Ties (Early 2015)

Budget (Early 2014)

Impact of the Budget announcements

India: Aerospace & Defence

Defence Opportunity has size, growth and longevity going for it

Global Defence Spend

Source: SIPRI, Indian budget documents

India: Aerospace & Defence

Estimation of the Size of the Opportunity

Exhibit 10: Assumptions made in our projections

India: Aerospace & Defence

New Arms Acquisition Spend

New Arms Acquisition Spend Imported

New Arms Acquisition Spend Domestic

Total Addressable Opportunity ($ bn)

Total Addressable Opportunity

Total Addressable Opportunity- Exports ($ bn)

India Aerospace & Defence Sector Report

India Aerospace & Defence Sector Report