L&T works closely with defence research organisations to develop and manufacture weapon and missile systems
Engineering and Construction major L&T is eyeing an increase in order inflows, says JD Patil, Senior VP, Defence & Aerospace. Taking on new orders, Patil added, will depend on completing the current pipeline.
Hoping this current financial year will remain positive, L&T expects USD 3 billion in defence order inflows. Patil is hopeful of the order book crossing Rs 80,000 crore for the Indian industry. Patil estimates about 15 percent of the pie to be spent on payments, putting the figure roughly at Rs 10,000-Rs 12,000 crore in the first year.
L&T is interested in taking on the government as a strategic partner. But since it is a non-competitive process, the process might need approvals, feels Patil. The defence procurement policy is a step in the right direction, especially for long-term private players such as L&T, believes Patil, calling it a 'differentiator'.
Below is the verbatim transcript of JD Patil's interview with Latha Venkatesh & Reema Tendulkar on CNBC-TV18.
Latha: How positive is the new defence procurement policy. I believe there is going to be a push for the Make In India, what you call Indian designed, developed and manufactured (IDDM) products. Is that a big deal for your company?
A: It is not only a big deal for L&T but for a lot of long-term players in Defence because this is a differentiator which essentially says that Indian companies can design, develop, manufacture military goods which in the past had always been only reserved for the government sector.
Reema: How soon will the orders come through under the new defence procurement policy and what could we expect for L&T defence in particular?
A: It should by a normal cycle of about two-two-and-a-half years but the minister clearly said that he is reviving the fast track procedure and fast track procedure can make it happen in about one-one-and-a-half year.
Latha: You mean the orders come in one-one-and-a-half year?
A: Absolutely.
Reema: FY18, since it will take one-one-and-a-half year at the earliest, so we shouldn't expect any order inflows for the industry in FY17?
A: FY17 is what will happen based on what is in the pipeline right now.
Reema: What is the pipeline, if you could quantify that?
A: As of now the pipeline of L&T is healthy because the current government is making a lot of indigenous buying decision, so we see this current financial year starting from April 1, to be quite positive. We expect about USD 3 billion of order inflow.
Latha: For the industry itself, how much do you think? Will be the orders floating for Indian industry as a whole by end of FY17?
A: I think Indian industry order should at least cross about Rs 70,000 crore to Rs 80,000 crore because that's a room which the minister would have within the current budget.
Latha: How much would get spent in the first year, FY18?
A: Typically first year is about 15 percent because when you sign up about Rs 70,000 crore to Rs 80,000 crore, you only need Rs 10,000 crore to Rs 12,000 crore to pay.
Reema: We understand that one Chapter still needs to be cleared and that is chapter VI, which deals with the appointment of strategic partners in the private sector - a) by when can we expect a clarity on this Chapter VI and b) would you be interested in getting in a strategic partner?
A: Absolutely sure, in fact the process involved for strategic partners would mean a cabinet committee approval, so very rightly the minister hasn't rush through. He wants to take his time and go through a proper process in getting this thing through because this is non-competitive process and since it is non-competitive it certainly would require proper approval.
Second, this is a game changer because instead of importing the minister is saying that I would want to buy preferentially from someone who genuinely has those capacities, capabilities in place. Therefore, to answer what you said, certainly L&T would be one who would be looking to be a strategic partner.
Latha: The relaxation of blacklisting norms, is that material?
A: Not for Indian companies. We never have been using any agent, so to that extent it's for the foreign companies.