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Reliance Defence seeks more alliances for a bigger share of security sector

Anil Ambani-led Reliance Defence Ltd, which has been making headlines with spate of agreements and contracts in the defence sector, is hungry for more.

The barely two-month-old entrant in the sector is looking to stitch more alliances and partnerships as it seeks to establish itself as a formidable contender in current and upcoming programmes of ministry of defence to modernize and upgrade India’s security forces.

These alliances will be in areas including artillery, land systems and unmanned aerial vehicles, said Rajesh Dhingra, president and chief executive in an interview to Mint on the sidelines of the Aero India show. The company is also participating in the Landing Platform Dock (LPD), also known as amphibious ship programme, bids for which will open in three to four weeks.

Meanwhile, Reliance Defence has started working in full swing to execute the multi-crore deal it bagged from the maker of fighter aircraft Rafale.

In September, India inked a deal to buy 36 Rafales for Indian air force from Dassault Aviation for Rs59,000 crore.

The agreement has a 50% offset clause. Of this Rs24,500 crore, 74% will have to come from India in goods and services, which could mean a boost for the government’s efforts to promote the local manufacture of defence equipment.

Reliance Defence has got into agreements with 30 firms in 11 countries. Most of them are for joint ventures, in various stages of discussion.

Many of them are expected to be firmed up in the next 12 months, said Dhingra.

“We are very excited with the opportunities in the defence sector. Whatever, efforts we have put in the last one year, has started bearing results,” said Dhingra.

Since its entry into the defence sector, the company Anil Dhirubhai Ambani Group has invested around Rs3,000 crore, to build capabilities and establish itself as a strong contender for the various programmes of ministry of defence.

The group entered the defence sector with the acquisition of Pipavav Defence and Offshore Engineering Co. Ltd, India’s largest defence shipyard with a licence to make warships.

But analysts are sceptical of Reliance’s moves and believe Reliance Defence “is biting more than it can chew” by spreading itself thin.

“While their capability in the naval ship building and servicing business is represented by Pipavav, the same can’t be said about categories such as aerospace where they don’t have the capability in terms of technology, talent and investment,” said an analyst who declined to be identified.

World over, there are practically no instances of one company doing it all and being able to do justice to it, he added.

In order to equip itself better, the New Delhi-based firm is in talks with potential foreign partners for various categories including land systems, artillery guns and unmanned aerial vehicles. “You will hear a lot more from us in the next 12 months,” said Dhingra. The company is also in the fray for orders for four amphibious ships. Dhingra said, the private sector is expected to get orders for at least two of them. “It’s a Rs25,000 crore programme. We will be a strong contender for it,” he said. The commercial bids for this project is expected to open in the next few months.

Reliance Defence has also started executing the offset deal with Rafael. It will send the first batch of people to France for an eight month training even as work to build a factory that will supply parts to the fighter jet, has started in full swing. The joint venture, Dassault Reliance Aerospace Pvt. Ltd, between Reliance Aerostructure and Dassault will commence production in company 289-acre factory which is coming up at Multi-modal International Cargo Hub and Airport (MIHAN) in the state of Maharashtra.

The Indian Air Force will receive the first Rafale fighter jet by 2019.

Eric Trappier, chairman and chief executive of Dassualt Aviation, will be the chairman and Ambani will be the co-chairman of the JV.

“At MIHAN, we are creating an ecosystem for the aerospace industry and do what Maruti Udyog Ltd did for the auto industry in the 80s,” said Dhingra.

It is expected to house 400 to 450 suppliers that will be engaged in supply of parts and assemblies and sub assemblies.

During his inaugural speech at the Aero India show, defence minister Manohar Parikkar reiterated that whoever bags the next big fighter jet deal will have to set up a facility in India and produce those planes under the proposed strategic partnership model—with no exceptions granted.

Global aircraft makers, manufacturer of defence equipment, radar, air surveillance systems and those specialising in defence technology are looking for a pie in the lucrative defence market with the government announcing series of policy changes and opening the sector to private investment as it seeks to modernise the defence forces. Several of them have signed up with local Indian companies during the ongoing Aero India show in Bengaluru to expand, manufacture locally as part of the clarion call of “Make in India”initiative given by Prime Minister Narendra Modi.

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