The Mahindra group is expected to make a big foray into the defence sector with the acquisition of around 30% stake in Pipavav Defence – India’s largest shipyard in the private sector. The Pipavav board will meet in the next few days to approve a preferential allotment of shares to the Mahindra group.
Post the preferential offer, Mahindra and Pipavav promoters (the Gandhis) will hold equal stake and an open offer will be made to the shareholders of Pipavav Defence, said a banking source. Mahindra representatives will also join the board of the company.
The Pipavav Defence shares were trading at Rs 56 apiece as on Wednesday.
Apart from Mahindra, two other corporate majors, including L&T, were in the race to buy stake in Pipavav. However, the Mahindra group has pipped others mainly due to its renewed focus in the sector.
The Narendra Modi government’s focus on Make-In-India has created a big opportunity for the corporate sector to get into the defence sector. The Government has promised to favour Indian companies in defence orders. This has led to a rush among Indian companies including the Tatas, Mahindras and even the Munjals of Hero MotoCorp to get into the defence sector.
With Pipavav Defence in its bag, Mahindra will get a head start in the defence sector. Apart from making war ships, Pipavav is also constructing patrol boats and cargo ships for customers across the world. For the fiscal 2014, the company reported a revenue of Rs 2,278 crore and its profits were Rs 8.36 crore.
In June last year, Modi had said India would be encouraging local companies in sectoral production, and that India should be exporting defence equipment instead of importing them at a huge cost. Experts say even if the government gives part of its estimated purchase orders worth $ 247 billion in the next three years to Indian companies, it will change the dynamics of these firms and give a fillip to the local economy.
Indian companies are vying for orders for trucks, jeeps, submarines, frigates, aircraft carriers, offshore patrol vessels, corvettes, missile systems and other military hardware as well as software. Till now, Russia, France, and USA are biggest supplier of defence equipment to India.
Currently, Mahindra’s up-armored vehicles serve the Indian Army, Air Force, and Paramilitary and State Police Forces, and many of its vehicles are exported to other nations through the Ministry of Home and External Affairs. The company supplies entire range of light combat and armoured vehicles and their derivatives for defence and security forces. The company is also the largest private-sector supplier of bullet-proof vehicles in the country.