FDI hike key for defence technology brought: BEL

The FDI hike will be meaningful only if core and non-core technologies are brought in defence to enable self-reliance, local manufacturing and indigenisation within the country, says SK Sharma, CMD, BEL.

We look at approximately Rs 50,000-75,000 crore of business over the five-six years time

SK Sharma

CMD

BEL

As the government prepares to open the nascent defence industry to foreign investment, a proposal is being circulated to raise FDI cap in the sector to 51 percent in the upcoming Budget.

Below is the verbatim transcript of the interview:

Q: There is expected to be a lot of focus on defence. Can you walk us through what the deal pipeline will be and if there is the FDI in defence hike, what will it mean for the sector as well as your company?

A: I would not like to mention any percentage at this stage because there is a lot of debate and discussion going on about this, but an increase in FDI would be meaningful if it brings in core and critical technologies in defence which will require lot of investment and effort in terms of having core manufacturing capabilities in the country like research and development (R&D) capability, good talent, good domain experts in the field, good manufacturing infrastructure. To absorb these technologies, we must have an ecosystem here then only then larger FDI would be meaningful to absorb these technologies in defence. Of course, there are many industries here like BEL for example, other public sector undertakings (PSUs) who have excellent R&D infrastructure, manpower etc to take advantage of larger FDI if the policies and environment is going to bring in core technologies.

Q: What do you think the cap should be because for now the government officials have said that the FDI cap of at least 51 percent will attract investments but many experts have pointed out that unless it is 74 percent, good quality investments may not come in. What is the sense you are getting?

A: I wouldn't like to comment on any cap as such. Whatever percentage we have, the supporting policies and environment should enable the core technologies to come in, core and critical technologies should be the objective. The overall objective should be to improve self-reliance and indigenisation within the country. I think percentage may not be the real thing what we should be looking at.

Q: What is the kind of opportunity that you see for BEL, what is the order book currently and how much do you expect it to grow given that there could be a lot of defence orders coming in?

A: The value chain comprises of platforms, systems, parts, components, materials, services and so on. The entire value chain is a huge opportunity as we all know; we are looking at few lakh crores of opportunity over the next eight-ten years period but for BEL, who are mainly into systems, parts, components and services, we look at something like Rs 50,000-75,000 crore of business over the five-six years time and a lot of it is in the pipeline. We have to see how the orders mature and how the outlook improves over the next couple of years.

Bharat Elec stock price

On June 30, 2014, at 11:11 hrs Bharat Electronics was quoting at Rs 2093.00, up Rs 49.35, or 2.41 percent. The 52-week high of the share was Rs 2185.00 and the 52-week low was Rs 895.00.

The company's trailing 12-month (TTM) EPS was at Rs 116.45 per share as per the quarter ended March 2014. The stock's price-to-earnings (P/E) ratio was 17.97. The latest book value of the company is Rs 904.41 per share. At current value, the price-to-book value of the company is 2.31.

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