Mahindra Group becomes first Indian entity to grow wings

Mumbai: The Mahindra Group has become the first Indian conglomerate in the private sector to acquire the capability to build aircraft. Currently, most Indian firms only have the ability to make components and subsystems.

The $6.3 billion (Rs29,358 crore) by sales Mahindra Group has bought two Australian aerospace firms in a deal that could be worth as much as Rs175 crore over five years in a move that will give a significant fillip to its own aerospace ambitions—the group is already present in the business through Mahindra Aerospace.

Mahindra has, along with Kotak Private Equity Group, bought 75% in Gippsland Aeronautics Pty Ltd and Aerostaff Australia Pty Ltd. Gippsland makes aircraft and Aerostaff makes high precision metal components for companies in businesses such as aviation and defence equipment.

“As a result of this acquisition, we now have an opportunity to play in the offset space,” said Hemant Luthra, president, Mahindra Systech, of which Mahindra Aerospace is a part.

The government’s offset policy requires foreign military aircraft and defence equipment manufactures to source components worth 30% of contracts worth Rs300 crore or more that they have won in India. India may buy at least $100 billion worth of defence equipment over the next 15 years, according to estimates by the industry lobby Confederation of Indian Industry. Experts say the programme presents a lucrative business opportunity for conglomerates like the Mahindra Group and the Tata group, and companies such as Larsen and Toubro Ltd that already have the manufacturing expertise.

In a February interview to Mint, Luthra had said, the deals, once finalized, have the potential to deliver for Mahindra the same value that the Scorpio, a multi-utility vehicle, did five years ago for the group’s auto business.

Analysts say Mahindra’s acquisition of these firms would not just give them access to technology, but also certification procedures that is required to bid for large projects from global plane makers such as Boeing Co. and Airbus SAS.

“The acquistion helps them get more advanced knowledge in quality and standards, which otherwise takes time. This puts them in a different league when competing for projects,” said Chetan Kambi, senior research analyst at Frost & Sullivan India Pvt. Ltd. “If they get the rights for the planes to be sold in different markets, that is (for) an Indian brand in the skies.”

Mahindra Aerospace, which has a contract with National Aeronautics Ltd to make two to five seater planes, will manufacture (along with the two Australian firms) 475 aircraft in the two-to-twenty-seater range and expects a turnover of Rs650 crore from the segment in the next five years. The deal structure, Luthra added gives the Australian firms a choice of a stock option in Mahindra Aerospace. By the end of 2009, the combined turnover of Aerostaff and Gippsland will be Rs90-100 crore, said Arvind Mehra, senior vice-president, strategy Systech sector.

Source : Livemint.com