Will Mukesh Ambani’s defence aerospace gambit pay off for RIL?

Discussion in 'Economy & Infrastructure' started by AVERAGE INDIAN, May 13, 2013.



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    Hindustan Aeronautics Ltd (HAL), which enjoys absolute monopoly in India's military aviation, is the butt of many jokes. American defence historian and strategist Edward Luttwak refers to it as a "fossil of a company" famous for not delivering "operationally ready Tejas Light Combat Aircraft after 30 years of trying". Notes Neelu Khatri, head of defence and security advisory services at KPMG India: "HAL is overbooked (with orders). And it is a fait accompli that giants will emerge."

    Khatri is referring to the "emergence" of big private sector players in Indian aerospace. One of them is Reliance IndustriesBSE 0.15 % Ltd (RIL). "They will focus more on technology partnerships and on building up infrastructure [to start manufacturing products]," she forecasts. Dhiraj Mathur of PricewaterhouseCoopers (PwC) has no doubts either. "As a company that has a track record of working on large-scale projects, it (RIL) definitely has an advantage like other players such as the Tatas and Mahindra. Having deep pockets helps," he says.

    To Replicate Success

    RIL, one of the latest major private-sector entrants into aerospace, had cash reserves of Rs 82,975 crore as on March 31, 2013. The Mukesh Ambani-controlled conglomerate recently signed a memorandum of understanding (MoU) with Boeing to grab the offset work when the aerospace giant begins work on supplying P8I naval reconnaissance aircraft to the Indian Navy.

    India's biggest private sector company by revenue is looking to spend $1 billion (almost Rs 5,500 crore) in the sector and hire some 2,000 engineers over the next few years in its aerospace division; it has now agreed to partner with the world's second-largest aerospace company in the latter's offset programme — which requires for-eign aerospace sellers to source 30% of its inputs from domestic partners.
    RILBSE 0.15 % entered the fast-growing segment two years ago after hiring then Boeing India chief and Nasa scientist Vivek Lall as its head. According to the MoU signed between Boeing and RIL — documents of which are available with the Indian Navy and reviewed by ET Magazine — the two companies may go for "a more definitive agreement" in future. "Like in refining and [oil] exploration, RIL is really in for the kill in aerospace," says a Mumbai-based defence consultant who has tracked the company for years. "Maybe they are looking to do here [in aerospace] what they did some time ago in oil and gas," says this consultant who didn't wish to be named because he isn't authorised to speak to the media. Neither RIL nor Boeing responded to queries from ET Magazine.

    The Long-Haul Game

    Built from scratch by Dhirubhai Ambani, RIL went public in 1977 and over the next couple of decades pursued backward vertical integration — from textiles to polyester, fibre intermediates, plastics and petrochemicals. Towards the end of the 90s, the Ambanis had further integrated into refining by commissioning the world's largest grassroots refinery at Jamnagar in Gujarat.

    Soon, it went another step backward — into oil & gas exploration — when it secured a bid for 12 exploration blocks auctioned by the government of India. In 2002, RIL located the largest Indian natural gas field in the Krishna-Godavari basin.

    Following the split in the group between brothers Mukesh and Anil in the mid-2000s, the former inherited the oil & gas and refinery business. In fiscal year 2013, RIL — now an oil & gas major with joint ventures with the likes of Chevron and Pioneer Natural Resources for shale gas in the US and a petrochemicals giant coupled with a relatively fledgling organised retailing business and a subsidiary that will soon provide broadband wireless access — had racked up a net profit of Rs 21,000 crore on a top line of Rs 371,000 crore.

    Will Mukesh Ambani's defence aerospace gambit pay off for RIL? - The Economic Times

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