Though affected by the 'lost decade' like the rest of the Indian private sector with ambitions in defence manufacturing, L&T's chief AM Naik is determined to persevere with his firm's big dream
By the end of his tenure as defence minister earlier this year, he came to be known as St Antony.
Reason: Though his eight years were coloured by inaction, apathy and multiple shades of grey—think blacklisted vendors, cancelled contracts and stalled projects—AK Antony, almost effortlessly, managed to keep his mundu spotless.
But not much else stayed unaffected by his immobility in decision-making.
One: The Indian Armed Forces were hit because timelines on equipment purchases, which are long in the best of times, got stretched indefinitely.
Two: Contracts were tendered and re-tendered, but a lot of vital equipment was never ordered.
Three: Arguably the most lasting impact of Antony’s stay-safe policy is the setback to India’s military-industrial complex that is still struggling to take birth.
Within the industry, they call it the ‘lost decade’. Consider that around 70 percent of the country’s armaments are now imported—in 2011, India replaced China as the world’s leading arms importer. By 2010, the government’s plans to build Raksha Udyog Ratnas, high-potential Indian companies that could be groomed to become large manufacturers and exporters of defence equipment, went into cold storage.
Most of the contracts placed with domestic companies went to defence PSUs such as Hindustan Aeronautics Limited, Mazagon Dock Limited and Ordnance Factories Board. The upside: For the ministry, a straightforward way to avoid any corruption taint was to shut the doors on the private sector. The result: For private sector companies, orders were few and far between. Analysts say total defence-related orders for the private sector (including exports) were below $2 billion last year—this is less than six percent of India’s total defence spend.
Despite the slowdown, there were a few contrarians. Entrepreneurs and companies, who stayed in the game, hoping for change. These were obviously companies who had the cushion of other profitable businesses: They continued to build, hire and invest hundreds of crores of rupees, with the expectation that bigger contracts would eventually come their way.
The hopefuls include the Tata Group, Mahindra & Mahindra and, to a lesser extent, companies such as Bharat Forge, Pipavav Defence and Ashok Leyland. But, by far, the biggest and most ambitious of them is Larsen and Toubro (L&T) which has invested and built ahead of time to cater to all three defence forces. Like much else in the company, the push is led by their 72-year-old group-chairman AM Naik, who completes half a century at L&T next year.
L&T has invested close to Rs 5,000 crore in its defence and nuclear business, Naik told Forbes India in his trademark no-holds-barred style in his Mumbai office. “The idea is to build our capability and not just capacity. Anybody with money can build capacity,” he says. L&T’s strategy has been to prepare for higher-end work by building competencies at its own facilities as well as through joint ventures.
Nation Building
Treading water
“Our investments are ahead of time, but they will surely pay for us,” says Kotwal. His team is currently in South Korea, trying to evaluate its technology options for the tankers. (The Koreans use membrane-technology for their LNG ships; this is cheaper than the Moss technology developed by Norwegian company Moss Maritime.) An average LNG tanker costs around $200 million and Chinese shipyards are leading the push for business that will arise out of gas exports from the US. L&T already builds commercial ships for export, and hopes to up the game by eventually moving into larger, more sophisticated vessels.
(This story appears in the 03 October, 2014 issue of Forbes India. To visit our Archives, click here.)