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September 11, 2014

Auto components leader Bharat Forge turns focus to defence technology


Flashback to 1999, and the Kargil war. The military is forced to abort missions due to heavy casualties. Then it decides to deploy the controversial Bofors gun to destroy Pakistani outposts from various vantage points. The strategy pays off, but the military realises it will soon run out of ammunition to feed the howitzers.

At the urging of army commanders, the defence ministry turns to Baba Kalyani and his company Bharat ForgeBSE 5.75 % to make shells for its Bofors 155mm howitzers. Kalyani, chairman of the Bharat Forge Group, recalls how the company got the "emergency order" to make 1 lakh shells. That's how the company's ability to turn out high-quality products at short notice, which helped burnish its global reputation in the auto parts industry, came to play a role in history.

More than a decade since then, the group led by flagship Bharat Forge is ready with artillery equipment that the Indian defence forces will soon start testing. This puts it nicely in place to take advantage of the Narendra Modi government's initiative to encourage greater private participation in the defence sector.

"A lot of emphasis on local manufacturing of defence products has been put by the current government. Thus, companies like us, who've taken defence seriously, are now production-ready," Kalyani told ET in an exclusive interview.

The government has also opened up the sector to more overseas investments to persuade foreign companies to transfer technology to Indian firms. To those who would question the competence of a forging company entering the high-tech defence space, Kalyani said manufacturers such as Bharat Forge are especially well-qualified to do so. "Companies like us from basic industries such as metallurgy and forging are the ones that are engaged in defence worldwide," he reasoned. For its artillery equipment venture, the Indian company has a joint venture with Elbit Systems, an Israeli defence equipment maker. The venture will initially work on the 155mm howitzer modernisation programme.

Bharat Forge has also built a howitzer from scratch that Kalyani says has far greater firepower than even the Bofors gun that's currently in use. "Our artillery gun would be better than Bofors," he asserted.

"On the operational parameter, it is better in terms that it can move at 25 km an hour on its own, and the gun would take 52 calibre rounds compared with the 39 calibre of Bofors. It would have 'steer by wire', which the Bofors guns do not possess," he said.

By late September or early October, the Indian Army will start testing Bharat Forge's artillery equipment. An ultra light gun will be ready for testing by late September while trials of the 155mm artillery gun will start by December. A 155mm ultra light gun will be ready for testing by the middle of next year.

The company is also actively scouting for opportunities in the small arms space, although the government is yet to give permission to private companies to manufacture such weapons. Bharat Forge decided to diversify away from the automobile sector after the global economic turmoil hit in 2008 and plant capacity had to be idled.

"We did a couple of things. We tightened costs and adopted lean manufacturing processes. We invested heavily in R&D to develop new products" to mitigate the effects of the slump. But "when the Indian economy got battered, we too got battered in the process". This forced the company to look at sectors it could enter by leveraging its metallurgical and forging prowess. Components for the shale gas fracking, aerospace, offshore oil & gas exploration and defence industries were shortlisted.
 While bets on offshore oil & gas and shale gas have paid rich dividends thanks to orders from US companies, components for aerospace equipment will need more time to develop and test. The company will focus on India for its defence equipment strategy over the next decade.

"Unless we are recognised in the domestic market, who will acknowledge us abroad?" Kalyani asked. The defence market is a potentially massive one. India's defence imports are currently worth about $20 billion a year, accounting for about 70-75 per cent of its total requirements, Kalyani said.

Along with the offset clause, any other mandatory local manufacturing requirements would be a very big opportunity for Indian companies. An offset clause relates to the local-manufacturing pledge a ..

Along with the offset clause, any other mandatory local manufacturing requirements would be a very big opportunity for Indian companies. An offset clause relates to the local-manufacturing pledge an overseas company needs to make in return for orders. Kapil Singh and Nishit Jalan of Nomura didn't put a number to the defence opportunity in a July 30 research report.

"With the focus of the Indian government on local sourcing and hike in FDI in defence to 49 per cent, the revenue opportunity for the company would be very large but difficult to build in our earnings estimates," they said.

defencenews

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