Anil Ambani's ambitious defense plan; Indian missiles, copters, subs
NEW DELHI/MUMBAI: Anil Ambani's Reliance Group has never made a military helicopter, missile system or submarine in its history but that isn't stopping the Indian tycoon from seeking to win contracts to manufacture all of that military hardware and more.
Known for taking some ambitious bets over the past decade, some of which have failed to deliver, Ambani's plans to turn Reliance into a major defense company may be one of his boldest yet. It has already bid for 840 billion Indian rupees ($12.5 billion) in Indian government contracts, senior executives said, though it hasn't yet won any of those.
The success of the strategy will depend partly on whether he can persuade government officials and international partners that he can build sophisticated equipment and partly on whether Prime Minister Narendra Modi can get India's notoriously slow procurement process to work.
Modi has made defense a big part of his "Make in India" programme. As part of any defence contract, he is demanding foreign companies tie up with a local partner, transfer technology and move some manufacturing to India.
At stake is $250 billion in defense contracts the government is expected to award over the next 10 years as it looks to upgrade the military's aging equipment.
"We hope to have a significant share of this pie," said R K Dhingra, chief executive of Reliance Defence. He predicted the company will "emerge as a key player in the defence sector over the next few years."
Reliance's ambition is greeted with scepticism by many in the defense world.
An Indian military official involved in defense procurement said Reliance is overreaching in wanting to make everything from ships to planes. Some rivals and potential partners for the contracts said Reliance will struggle to master the manufacture of such a wide range of sophisticated military hardware.
"There is no quick money in this branch," said Jan Widerstrom, head of Saab India Technologies, a unit of Saab AB . "It requires a lot of experience, high tech culture, investments and a long-term business plan."
Still, Saab and Reliance are working together in developing the next generation Combat Management System for the Indian Navy and Coast Guard.
Recently, Reliance's lack of experience and questions about its ability to handle sensitive technology and intellectual property counted against it in its bid to partner with the Russians to build 200 Kamov helicopters, said a Russian diplomat in New Delhi, who declined to be identified in this story because they weren't speaking in an official capacity.
The contract, estimated to be worth a little over $900 million went instead to Indian state-controlled company Hindustan Aeronautics Ltd.
Ambani should identify core areas and concentrate on them rather than "be an inch deep and a mile wide," said Nitin Gokhale, founder of defence website Bharat Shakti.
The Reliance conglomerate split into two in 2005 after a bitter feud between Anil Ambani and his older brother, Mukesh. The latter got the flagship Reliance Industries, with interests in petrochemicals, oil and gas exploration, refining and textiles.
Anil got telecoms, power, entertainment and financial services businesses. But some of his businesses struggled, especially an ill-timed foray into infrastructure, and debt piled up.
Its Reliance Infrastructure arm, which includes the defense operations, aims to be debt free in the current financial year ending March 2017, according to Lalit Jalan, who is acting CEO of the unit.
To get there it plans to sell assets, including road projects and a stake in a power distribution company for about 180 billion rupees, according to another senior Reliance executive.
Ambani entered the defence sector last year, when he took a controlling stake in a company that made warships and energy exploration vessels, in Modi's home state of Gujarat, called Pipavav Defence and Offshore Engineering Co Ltd, for about 20 billion Indian rupees.
That became Reliance Defence and Engineering Ltd. Since then, Reliance has bought hundreds of acres of additional land to build an aerospace facility and another shipyard in other parts of the country.
It has also signed more than half a dozen joint venture agreements with foreign companies, including one with Rafael Advanced Defence Systems of Israel, to bid for Indian government contracts as they come up.
An Israeli defense industry source said for Rafael the idea is that if it wins tenders, Reliance will produce some components for missiles and other systems.
Ambani has said that lack of experience is being held against his company.
"Despite a committed reformist mindset at the top, we are still seeing opportunities being denied to new players on grounds of lack of experience," Ambani told a 'Make in India' summit on defence in March.
Reliance Defence has been building an experienced team. Dhingra earlier headed Lockheed Martin's India operations, and the company has hired a slew of senior army and navy officers who have executed large defence projects from conception to delivery, the Reliance executive said.
The group's experience in managing complex projects in India, including building roads and power plants should help it, the executive said. For design, technology and complicated weaponry, Reliance would have a foreign partner, he noted.
Reliance expects to spend up to 20 billion rupees over the next three years in upgrading facilities as it gets business, keeping its outlay low as it waits for contracts, the executive said.
Thanks to its Pipavav shipyard, Reliance expects the naval part of its business to be the first to take off, he said.
It plans to bid for a $7.5 billion submarine contract that the government is expected to give out to replace the navy's ageing and accident-prone fleet and narrow the gap with rival China's rapidly modernising fleet.
Ambani also has plans to bid for contracts in the future to make nuclear-powered submarines.
($1 = 67.3 Indian rupees)