Reliance Defence finds a Russian connection, stock rises 20 per cent

ADAG group's new entity, Reliance Defence and Engineering will now enter into an agreement with United Shipbuilding Company (USC) of Russia to jointly manufacture frigates for the Indian Navy, according to media reports on December 24.

Frigate is a type of mid-size warship which is basically used to protect other warships and merchant-marine ships. USC is a Russian government-owned shipbuilding, repair and maintenance company.

In line with the government’s flagship ‘Make in India’ initiative, the warships will be built at the recently acquired Pipavav shipyard in Gujarat, for the cost of around Rs 30,000 crore. This will be the first instance of a major warship being built in India rather than importing it which is a major achievement. An agreement to this effect is likely to be signed during Prime Minister Narendra Modi’s visit to Russia.

The agreement would also include partnership for re-fit and modernisation of all the existing Indian Navy surface ships of Russian and Soviet origin at the Pipavav shipyard facility. The combined value of both the pacts on manufacturing and modernization of existing fleet would take this deal to about Rs 66,000 crores for the next decade. So far only the government owned ship building companies possessed  mandate to build ships for Navy.

Recently the government has allowed even the private players to build warships for the navy as part its 'Make in India' initiative. This deal would help Reliance Defence establish itself as a leading manufacturer of warships in the domestic markets and in the  long run would help them win orders from abroad. Reliance is also likely to partner Russian helicopters to build Kamov-226T utility helicopters in India.

Reliance Infrastructure had recently acquired Pipavav Defence asserting its ambitions to be a serious player in the Defence manufacturing industry. The Reliance Defence is aggressively pursuing partnerships in the Defence and Aerospace segment with leading international manufacturers and raising equity stake in existing companies globally to meet solutions for the defence sector.

In the past few  months, Reliance Defence even signed an agreement with Emirates Defence Industries for manufacturing, services, knowledge transfer and technology development.

Reacting to this positive news Pipavav Defence, now an arm of Reliance Group shot up more than 20 per cent in trade to hit a 52-week high of Rs 100.25. On a yearly basis this company has given returns in excess of 150 per cent in view of the latest developments.

The government has made military modernization one of its top priorities, India is expected to spend USD 100 billion in excess over the next decade on a defense upgrade program. It is widely anticipated that the  Indian Navy’s expenditure on modernisation and acquisitions is going to increase multi-fold over the coming years which is  reflective of the fact that the overall hike in the Navy budget allocation has gone up from USD 2 billion to USD 4.77 billion in FY2016. With the government’s push to become less dependent on foreign military know-how & imports and with a view  to revive the Indian defense industry,  a sea of opportunities will open for companies like Reliance Defence in this sector.