On a High! Defence-Linked Stocks Fire on All Cylinders After Nod to New DPP.

 

NEW DELHI: Defence stocks hogged limelight on Tuesday after a committee headed by Defence Minister Manohar Parrikar cleared the new defence procurement procedure (DPP), which is set to give a fillip to 'made in India' defence products and facilitate fast-tracked acquisitions.

Shares of Walchandnagar Industries jumped 11.03 per cent to Rs 158 on BSE. Reliance Defence and Engineering soared 5.82 per cent to hit a high of Rs 69.90. Astra Microvave Products surged 5.48 per cent to Rs 113.55. Titagarh Wagons jumped 5 per cent, while BEML was trading 4.04 per cent higher at Rs 1,111.50.

Bharat Electronics rose over 2 per cent, before retreating a bit. The stock was trading 0.56 per cent higher at Rs 1,184.50. Among others, M&M, Ashok LeylandBSE 2.42 %, Tata MotorsBSE 0.01 % and Bharat Forge gained between 1 per cent and 2.25 per cent.

"In the defence sector, the whole idea (behind DPP) looks okay. We want to give more of the defence pie to Indian companies. To that extent, one can sift through what the government is really planning to do in the defence area and focus on companies that are into that business. Not all the companies will get these contracts. Those who get will do better. That said, even if you make a wrong choice, it will still do well and outperform the market," said Jyotivardhan Jaipuria, Founder & MD, Veda Investment.

Parrikar, who headed Defence Acquisition Council (DAC) said that the details of the new DPP will be loaded to defence ministry's website on March 28, while it will be effective from April 2.

DAC, meanwhile, did not finalise a key chapter of strategic partnership, which the minister said will be done in a couple of months.

Here's what defence players have to say on the new DPP policy:

SP Shukla, Mahindra & Mahindra: A very welcome provision of the new policy is formation of a category of design in India. Companies like ours have been investing in design and development capabilities in creating our own IT, so that we can design something from scratch, integrate, assemble and not just be dependent upon complete transfer of technology for a product. There will always be elements of imported technology or imported components, but largely we should be in a position to have an indigenous effort.

This policy recognises that a preference given to such a category will actually lead to skill development in the industry, it will allow us to absorb better, Shukla said.

R Shankar Raman, Whole-Time Director & Chief Financial Officer, L&T: We believe defence has always been a major ticket transaction waiting to happen and there is also lot of policy making outside of the Budget.

So we continue to remain hopeful. But it is very difficult to predict the timing and the thinking of the government around the timing and we hope that what did not happen last year, could happen in defence this year because that will be a good and large opportunity for companies, which are prepared to take advantage of that.

There are several layers including country to country arrangements and technology involved and FDI around defence capital, which needs to be dealt with, but there are still many low-hanging fruits to gain from.

Umesh Chowdhary, VC & MD, Titagarh Wagons: One needs to look at what happens to the tenders that were floated under the previous defence procurement policy.

Defence forms a part of our strategy, the focus of our strategy and our business plan for the future. I do not expect a large chunk of the revenue coming in the next one or two years from defence for my company, but definitely it should start getting built up. We already have an order book of about Rs 120-150 crore from the segment, but this according to me is just a tip of the iceberg.

VS Nornoha, Head Defence, Tata Motors: Tata Motors has been supplying logistics vehicles to the Indian army for about 50 years.

When defence opened up to the private sector in 2005-2006, Tata Motors a took a strategic decision to move from logistics to combat support vehicles. We went into multi axle vehicles. The traditional supplier of multi vehicle axles to the Indian army was a Czech manufacturer called Tatra and they were assembling the Tatra vehicles in a public-sector undertaking in South India tunnel and supplying them to the Indian army. When we presented our case to the government that Tata Motors would also like to supply the multi axle vehicles to the Indian army, the Ministry of Defence accepted our proposal and opened up that sector.

The company was generating Rs 1,000 crore business a year from several of its specialist vehicles. It has an order book of about Rs 900 crore.

Volumes from the Kestrel, the wheeled amphibious platform, will start kicking in another two-two-and-a-half years because the vehicle will go for user trial this summer.

 

Reference : http://www.indiandefensenews.in/