Manufacturing of

Defence Vehicles

Aerospace and

DefenceGovernment of Gujarat

Page 2

Contents

Project Concept 3

Market Potential 4

Growth Drivers 6

Gujarat – Competitive Advantage 7

Project Information 8

- Location/ Size

- Infrastructure Availability/ Connectivity

-Raw Material/Manpower

- Key Players/Machinery Suppliers

-Potential Collaboration Opportunities

Project Financials 13

Approvals & Incentives 15

Page 3

What are defence vehicles

Project Concept

► Defence vehicles are armoured land automotive used for combat and logistics purposes by military forces.

► Armoured vehicles are protected by strong armour and generally armed with weapons capable of carrying out offensive /defensive operations in battlefield.

Different categories of defence vehicles

Main battle

tanks (MBT)

► Heavy combat vehicle used to perform direct fire support roles using mounted

tank gun

► Weight: >45 tons

Armored

personnel

carrier (APC)

► Used to mobilise troops in the battlefield

► It has limited firepower options

► Weight: 15-35 tons

Infantry

fighting

vehicles (IFV)

► Medium weight combat vehicle with fire power provided by medium caliber

guns

► Weight: 30-45 tons

Light multi-

role vehicles

(LMV)

► Light armored 4X4 bullet proof vehicles used for patrol, liaison and command

roles

► Weight: 5-12 tons

Mine resistant

ambush

protected

(MRAP)

► Armored vehicles capable of countering improvised explosive devices (IED)

providing increased vehicle survivability and crew protection

Tactical trucks

► Used primarily for logistics purposes

► Weight may vary from five-tons general purpose trucks to 70-ton heavy

equipment transporters (HET), capable of carrying battle tanks

34%

33%

20%

7%4%

3%

MBT IFV MRAP Tactical trucks APC LMV

Source: strategic defence intelligence *also include defence vehicle related MRO services

► Indian defence vehicle market size

stood at INR 10,100 crore* in 2015.

MBT and IFV are two largest

segments contributing more than two-

third of overall demand.

► Most of the demand for defence

vehicles is generated to address the

safety of military and paramilitary

troops operating in terrorism and

insurgency effected areas.

Indian armored defence vehicles market* (2015)

IUS$ =I NR67.93

Page 4

Market Potential

► The global armored vehicle industry is expected to grow at a CAGR of 2.6% during 2015-19 to reach US$ 27.1b.

► The US was the largest market for armored vehicles followed by China, Russia and India in 2015.

► Going ahead, demand form armored vehicles is likely to increase with rising military expenditures by eastern European, west and south Asian countries driven by regional geo-political dynamics.

► However, the US and European demand for armored vehicles is likely to be constrained due to withdrawal of forces from Afghanistan and Iraq.

24.5

27.1

2015 2019e

Global armored vehicles

market (US$b)

Source: SG Analytics

*excluding defence vehicle related MRO services

1.51.7

1.81.9

1.81.9

1.7 1.71.9 1.9

2.1

2015e 2016e 2017e 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e

Indian armored defence vehicle and related MRO market forecast (US$b)

Source: strategic defence intelligence

► Indian armored defence vehicle market stood at around US$

1.5b in 2015 and is expected to reach US$2.1 by 2025,

growing at a CAGR of 3.4%.

► The steep fall in 2021 is majorly due to expected end of

procurement of T-90S tank under MBT category in 2020.

► The industry is likely to provide cumulative market opportunity

of around US$19.9b during 2015-25 driven by favorable

government policies and India’s enhanced focus on border

and internal security.

Cumulative

market

opportunity

between

2015-25:

US$19.9b

CAGR:

2.6%

Global armored defence vehicles market

Market Potential - India

Page 5

Segment 2015 (US$b) 2025 (US$b) Total market

(2015-25)(US$b)

2015-25

growth

IFV 0.50 0.66 6.3 2.8%

MBT 0.52 0.54 6.0 0.3%

MRAP 0.30 0.57 4.9 6.5%

APC 0.06 0.87 0.8 3.7%

Tactical trucks 0.11 0.13 1.2 1.9%

LMV 0.05 0.09 0.7 6.6%

Total market 1.5 2.1 19.9 3.4%

Source: Strategic Defence Intelligence

Market Potential

► MRAP vehicles are likely to grow at the fastest rate (6.5%) among defence vehicles as they

provide safe mobility of soldiers against mines explosive/IED attacks. IEDs are one of the

most widely used weapons by insurgents/terrorists.

► The police departments in naxal affected states including Jharkhand, Chhattisgarh

and Odisha are expected to contribute significantly to the growth of demand for MRAP

vehicles.

► IFVs are likely to constitute the highest share (~32%) of the armored vehicles demand. The

Indian Army plans to replace its ageing IFV fleet of Russian designed BMP-II* operational

since 1980.

► India relies significantly on tanks to fight land battles and plans to modernize its existing MBT

fleet. This is expected to create opportunities worth US$ 6b between 2015-25.

► India shares land borders of around 15,100 kms with its neighboring countries

(including 3,500 kms with China and 3,000 kms with Pakistan), making land defence

crucial for the country’s safety.

► India is planning to develop new battle tanks using Russia’s latest battle field tank-

“Armata” as prototype.

► LMV, APC and tactical trucks together are likely to create an additional demand worth US$

2.7b between 2015-25, majorly to be procured by the Indian army and various state police

departments.

Indian armored defence vehicle market (US$b)

*Boyevaya Mashina Pekhoty-2

Page 6

Growth Drivers

1541 1709 18182034

2224 23302580

FY11 FY12 FY13 FY14 FY15 FY16 FY17

Indian defence budget (INRb)

Source: defence proac, Make in India

~ 36%of defence expenditure is spent on arms, equipment acquisition and capacity building

>60%of defence equipment are imported from foreign countries

► India’s defence budget is likely to continue growing (it has increased by more than 66% since

FY11) owing to potential threats from its neighbors, China and Pakistan.

► India has the fourth largest defence budget globally after US, China and UK.

► India’s target to reduce its reliance on imports of defence equipment is likely to boost the

opportunities for domestic manufacturers (India is the largest importer of arms globally).

► India currently imports around 70% of its defence requirements and targets to reduce

imports contribution to around 35% by 2030 mostly from Russia and the USA

1. Increasing defence spending and target to reduce reliance on

imports

2. Government of India (GoI) initiatives

Launched “Make

in India” campaign

► The GoI has

identified defence

manufacturing as

a key sector

under its “Make in

India” campaign,

an initiative to

attract

investments

across sectors.

► It has announced

tax incentives

and export

incentives for

defence

manufacturing

projects.

Increased FDI Limits

► The GoI has increased

the permissible FDI limit

in defence through

automatic approval

route to 49% from 26%.

Further, the GOI can

approve FDI up to 100%

on a case-to-case basis,

especially where

modern technologies

are involved.

► It is also supporting

manufacturing initiatives

involving JV and

alliances among foreign

and local players

through transfer of

technology.

Allowed

defence exports

► The GoI has

also allowed

private

manufacturers,

including

foreign-Indian

JVs, to export

certain

ammunitions

to friendly

countries

without prior

approval.

Implementation

of offset policy

► As per the offset

policy, foreign

companies

exporting to India

are required to

invest 30% of the

contract value in

the Indian

industry, either

through direct

procurement from

local players or

through transfer

of technology.

Page 7

Gujarat Competitive Advantage

6,069

3,555

7,080

8,160

9,839

9,950

16,230

Others

InformationTechnology

Electronics &Communication

Computer

Electrical

Civil

Mechanical

Engineering seats in Gujarat – by

specialisation (2013)

Gujarat has good educational infrastructure with

premier institutes in engineering, management,

technology etc.

In 2013, Gujarat had ~120 engineering degree

colleges with an approximate intake of more than

60,000 students per year.

The tally of subject-specific seats is led by

mechanical engineering with 16,230 seats, followed

by civil (9,950 seats), electrical (9,839 seats) and

computer science (8,160 seats).

Major engineering colleges in Gujarat that provide

auto engineering courses include:

► LDRP institute of technology and research

► Government engineering college, Rajkot

► Ahmedabad Institute of Technology

► ITM, Vadodara

Gujarat has a

significant number

of manufacturing

units which can be

leveraged to satisfy

the offset policy of

the defence sector.

There were around

22,587 large

manufacturing units

and more than

260,000 SME’s in

Gujarat in FY13.

Strong manufacturing

industry

GoI has granted

22 industrial

licenses for

defence

manufacturing in

Gujarat since May

2014 (joint highest

with Maharashtra

among all the

states), overall

GoI has granted

121 licenses for

defence

manufacturing.

.

22

Defence industrial

licenses granted to

GoG*

Gujarat is a

power

surplus state

with an

installed

capacity of

around 29

GW (second

highest in

India).

Power surplus

status

The state has Asia’s

only ballistic

research center for

testing armored

vehicles at Gujarat

forensic science

university in

Gandhinagar. This

will make India self

reliant in testing

armored vehicles

(up till now armored

vehicles were

tested in Europe).

Testing center for

armored vehicles

*GoG: Government of Gujarat

Advantage Gujarat

Availability of skilled manpower

Page 8

Project Information

Components are

finally assembled

together using

fasteners, welding etc.

Over thousand

components including

gear box, clutch,

brakes are sourced

from tier1 suppliers

Tier1

suppliers

Engine block casting

is manufactured as

per required

dimensions

Manufacturing of

automotive panels

including doors, roofs,

pillars etc.

Engine

manufacturing

Press

shop

AssemblingBullet proof

glass

Metal forming

Lightweight composite

material (polyethylene)

armor is added to each

of the sides and roof

Transparent bullet proof

glass manufactured from

polycarbonate

(thermoplastic) material

sourced for windows

Mounting

weaponry

Installing sensors

and security systems

Communication

systems, security

locks and sensors are

installed

Weapons including

tactical remote turrent

(TRT) are mounted on

the vehicle as per

requirement

*investor may set up manufacturing facility for one or more parts and source the rest from vendors.

Manufacturing

of MBT

Manufacturing of MBT is different from other armored

vehicles majorly with regard to following aspects:

► Capable of heavy firepower primarily through main

tank gun

► Caterpillar tracks are used instead of tires for

mobility to facilitate spreading of MBT heavy weight

Armored vehicles manufacturing*

Page 9

Project Information

► Dholera SIR in Ahmedabad district is an indicative location for setting up UAV manufacturing facility. Alternatively, other suitable locations in Gujarat can also be considered.

► Dholera is a coast city in Gulf of Khambatt located on Delhi Mumbai Industrial corridor (DMIC).

Dholera SIR : Key highlights

Area 920 sq. km

Developable

area567 sq. km

Land priceINR 600/ sq. meters

(Oct’15)

Focus

industries

Heavy Engineering,

automobile and auto

ancillary, defence,

electronics,

pharmaceuticals,

metals and

metallurgical products,

agro and food

processing, IT and

ITeS

► Government of Gujarat (GoG) is offering

plots measuring up to 8 sq. kms in area to

promote defence manufacturing in Dholera

(large area facilitates operating and testing

of defence equipment).

► Robust infrastructure in the region (refer to

the next slide for details).

► Access to both domestic and international

markets through key logistics nodes.

Distance of Dholera SIR from major cities (in kms)

Mumbai 516 Jamnagar 313

Delhi 815 Rajkot 225

Surat 278 Gandhinagar 128

Location suggested: Dholera special investment region (SIR)

Why Dholera

Dholera SIR

Delhi Mumbai Industrial

corridor (DMIC)DMIC influence

area

Vadodara

Surat

Ahmedabad

Bhavnagar

Kandla

Images of the proposed site

The

development

of proposed

site is under

progress

Page 10

Project Information

► Rail connection is being planned for

Dholera, while the nearest meter gauge

connection is Bhavnagar (34 km) and

the nearest broad gauge station is

Tarapur (103 km).

► A metro rail is also being proposed from

Gandhinagar to Dholera via

Ahmedabad.

► National Highways: NH–8 connects

Dholera with Ahmedabad, Bhavnagar and

Mumbai. It also has good connectivity with

NH-8A connecting it to Anand and

Vadodara.

► A new airport is proposed in Dholera SIR

on a land area of 1,426 hectare.

► It will be the second international airport

in Gujarat, the only other international

airport is located in Ahmedabad (120

kms from Dholera).

Air

RoadRail

► A seaport site is proposed near SIR

(government has already allocated 2,057

hectare land).

► Other key seaports near the SIR are

Bhavnagar 60 (kms) and Kandla (340 kms).

Port

► Electricity will be supplied by Gujarat

Energy Transmission Corporation (GETCO).

► Power will be supplied from Fedara (30kms)

substation and 38 kms of transmission line

will be laid in the SIR at an investment of

INR 1106crore.

► Gujarat State Petroleum Corporation (GSPC) will supply gas to the site through a well

established pipeline.

► The company needs to apply directly for gas to GSPC.

► Gujarat Industrial Development

Corporation (GIDC) will provide water to

the proposed facility.

► Raw water will be supplied from

Saurashtra branch canal.

Water Power

Gas

Logistics & Connectivity

Utility

Page 11

Project Information

► Ceramic

► Glass

► Composite (layer of two or more materials with

significantly different chemical properties)

► Steel

► Aluminum

► Titanium

► Plastic

IndustryLocation (Distance from

Dholera)Industry

Location (Distance

from Dholera)

Foundry &

Forgings

► Kheda (91 km)

► Anand (94 km)

► Surendranagar (88 km)

► Rajkot (176 km)

Plastic and

polymers

► Sanand (97 kms)

► Dahej (210 kms)

Steel► Hazira (310 Km)

► Kutchh (431 Km)Glass

► Vadodara (372 kms)

► Jhagadia (211kms)

Major raw materials used:

Sourcing of raw materials

Designation Number of employee

President 1

Sr. Vice president (SVP), Vice President (VP), Assistant Vice

President (AVP), 5-10

General managers, Sr. managers, managers, assistant.

Managers 25-30

Sr. engineers, engineers, assistant engineers 150-200

Skilled workers 750-1000

Unskilled workers 750-1000

Estimated manpower required (approx. 2,500)

Project is likely to a be a private investment by:

► an existing armored vehicle manufacturer (potentially in collaboration with JV)

► new entrant/s in the industry

► foreign investor/s looking to enter Indian armored vehicle industry

Project structure

Page 12

Project Information

Potential foreign collaboration options for domestic players

► Oshkosh (US)

► Lockheed Martin (US)

► BAE systems (UK)

► Nexter systems (France)

► General Dynamics (US)

► Thales (France)

► Doosan (South Korea)

► Iveco (Italy)

► Navistar (US)

Company Product portfolio Major collaborations

L&T MBT, MRAP Raytheon

Tata Motors APC, LMV, IFV, Tactical trucks Bharat Forge, General Dynamics

M&M LMV, MRAP, IFV, APC BAE systems

Bharat Forge LMV, IFV, APC, MRAP Tata Motors, General Dynamics,

Elbit systems

Asian Motor works Tactical trucks NA

Ashok Leyland LMV, APC, MRAP, Tactical trucks Lockheed Martin, Paramount group,

Nexter, Krauss-Maffei Wegmann

Indian Ordnance

factories

MBT, MRAP NA

Leading domestic players in the industry

Page 13

Project Financials

Note: 1) Detailed breakdown of other cost components, such as civil works, process plant and machinery, utility and other equipment, contingency and working capital margin money is not available)

*Figures mentioned are indicative to provide a tentative framework for the investor. The numbers are based on

recent investment announcements by major firms in the industry.

Company Project Location Investment Other details

Bharat Forge

(Kalyani group)

Upgrade and

overhaul armored

vehicles

Dholera INR 6000

million

2,500

manpower

Mahindra and

Mahindra

(M&M)

Defence vehicle mfg. Kutch/Dholera NA will span over

2,000 acres

Cost of setting-up an armored vehicles manufacturing** plant with capacity of around 200

units is likely to be ~INR 6000 million*

Project cost

Project components & specifications Cost (INR

million)

Land (Area: approximately 65,000 sq. meters, 16 acres)

Rate: (INR 600 per sq. mtr.)

39

Buildings (plant area, office, godown, lab, service area etc.)

Built-up area: 40,000 sq. mtrs.

Average rate: INR4,500 per sq. mtr.

180

Process plant and machinery, Working capital and miscellaneous

expenses

5250*

Total investment in land, machinery and working capital 5469

Contingency (@10% of machinery, land and building) 541

Total investment required : ~INR 6000 million*

**The indicated plant is for IFV manufacturing

Means of finance

Estimated industrial average (Debt/equity) 0.88 : 1.00

Debt raised (INR million) 2806

Equity invested (INR million) 3194

Estimated debt raised (INR million): 2806

Other proposed projects in the region

Page 14

Project Financials

Payback period

Capacity (units) 200

Average capacity utilization in industry (%) 75%

Production (units) 150

Average revenue per unit (AR) (INR million/ unit) 40

Industrial average EBITDA margin 19.5%

Forecasting revenues at expected industrial growth rate 3.4%

Time (years) 1 2 3 4 5

Revenue (INR million ) 6000 6204 6415 6633 6858

EBITDA (@19.5%** of rev.)* 1170 1209 1250 1293 1337

Undiscounted cumulative cash

flows 1170 2379 3629 4922 6259

Investment 6000

Estimated payback period: 4.8 years

*Rest 60% is assumed to fall under labor cost which is included in VC

Minimum viable size (all figures in INR million unless stated

otherwise)

EBIT margin (Industry average) (%) 14.5%

Total operating costs (as% of revenues) 85.5%

Total costs (85.5% @ 600) 5130

Depreciation cost (9.2%** of 315 crores)*** 290

Employee costs (11.5%** of TC) 590

Finance cost (16%** of debt) 450

Total fixed cost (FC) 1330

Variable cost (VC= TC-FC) 3800

Variable cost/Unit 25.3

Average revenue/unit 40

Minimum viable size (FC/(AR-VC)) (units) ~91

Estimated minimum viable size: ~91 units

+Investor may also target export markets

*EBITDA is assumed as proxy for cash flows

***Asset base is assumed to be 60% of total investment in PPE and working capital (INR 3150 million)

**Industrial average

Page 15

Approvals and Incentives

GoG has introduced single window facilitation portal for investors with undermentioned benefits:

► Centralized system to monitor applications

► User friendly and simplified application process for investors

► System for authorities and investors to check the status of applications

► Increased departmental ownership

► The unit shall be facilitated through ‘Investor Facilitation Portal’ for obtaining all the

necessary state approvals/ clearances - https://www.ifpgujarat.gov.in

Indicative List of Approvals

Approvals/clearance required Department to be approached and consulted

Incorporation of company Registrar of companies

Registration/Industrial license Secretariat if industrial assistance (SIA) for large and

medium scale industries

Allotment of land State industrial development corporation

No objection certificate (NOC) under

air and water pollution control acts

State pollution control board

Approval of construction and country

planning► Town and country planning

► Municipal and local authorities

► Chief inspector of factories

► Pollution control board

► Electricity board

Use and storage of explosives Chief controller of explosives

Finance For loans higher than INR 1.5 crore, all India financial

institutions like Industrial Development Bank of India(IDBI),

Industrial Credit and Investment Corporation of India(ICICI),

Industrial Finance Corporation of India(IFCI) etc.

Registration under state sales tax act

and Central and State excise act► Sales tax department

► Central and state excise department

Code number for export and import Regional office of director general of foreign trade

Environmental clearance Ministry of environment, forest and climate change after

conducting environment impact assessment (EIA) for any

project

Facilitation for setting up project Industries Commissioner will facilitate for state clearances

required to set up project.

Hazardous waste import and export

approval

Ministry of environment, forest and climate change

Exiting business Ministry of corporate affairs

Page 16

Approvals and Incentives

Incentives under Gujarat A&D manufacturing policy - 2016

Gujarat Industrial Policy 2015

Government of Gujarat has announced an ambitious Industrial Policy, in January 2015, with the

objective of creating a healthy and conducive climate for conducting business and augmenting the

industrial development of the state.

Category of

Project Location

(Taluka)

% of eligible fixed

capital investment

entitled for

Incentive

% of Net VAT

reimbursement to

the unit

% of Net VAT to be

paid to

Government

Incentive period

(no. of years)

1 100 90 10 10

2 80 80 20 10

3 70 70 30 10

Net VAT incentive will be reimbursed to the industrial undertaking in one financial year will not

exceed one-tenth of the total amount of eligible incentive.

Quantum of incentives

Net VAT incentives

Classification of the Project Amount (in INR crore)

Ultra Mega Industrial Unit 500

Mega industrial Unit 400

Large Industrial Unit 150

Micro, Small or Medium Industrial Unit 50

Government of Gujarat is in the process declaring an incentive scheme for Aerospace and defence

manufacturing in the State.

The incentives under this policy will be available to all the Talukas listed in Government Resolution

dated 25/7/2016 except municipal corporation areas.

This project profile is based on preliminary study to facilitate prospective entrepreneurs to assess a prima facie scope.

It is, however, advisable to get a detailed feasibility study prepared before taking a final investment decision.

Ministry of environment, forest and climate change

www.ic.gujarat.gov.in

Industries Commissionerate

Industrial License

http://envfor.nic.in/major-initiatives/environmental-clearances

Ministry of Defence

Department of industrial policy and promotion

https://www.ebiz.gov.in/industriallicense

www.mod.nic.in/

Industrial Extension Bureau

www.indextb.com

http://dipp.nic.in/English/Investor/Investers_Gudlines/Inv_guielines.aspx

Office of The Industries Commissionerate

Block No. 1, 2nd Floor, Udyog Bhavan,

Gandhinagar 382 010. Gujarat

Ph.: 23252683/23252617

Email ID: iccord@gujarat.gov.in

Page 18

References and Sources

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