Pipavav eyes Indian Navy contracts after FIPB nod

Pipavav Shipyard on Thursday received the Foreign Investment Promotion Board (FIPB) clearance for foreign direct investment (FDI), paving the way for it to bid for defence sector deals in India.

“Pipavav has received clearance from FIPB. The company has obtained all statutory clearances required for warship building for defence sector. The clearance will help the company to bid for all future warship projects like frigates, destroyers, aircraft carriers, LPDs, submarine, corvettes etc of Indian Navy,” the company informed the stock exchange.

“We wish to secure sizeable business out of the current and upcoming requirement of the Indian Navy,” said Nikhil Gandhi, chairman, Pipavav.

Earlier this month, ABG Shipyard received a similar approval from FIPB. However, while granting the approval, FIPB capped the current foreign equity holding in the company of 21.91% as the maximum ceiling. According to Pipavav officials, the yard has not been asked to cap its FDI at any specific limit. Pipavav’s current FDI holding is around 13%.

“The clearance would enable us to bid for all types of defence orders. We have already participated in two defence tenders, in one of these we are L1,” said Dhanajay Datar, CFO, ABG Shipyard.

The company has emerged as L1 for a tender for building two cadet training ships. Datar did not disclose the total worth of the tender.

According to industry sources, the Indian Navy is expected to add four destroyers, six submarines, four LPDs and seven frigates in the next two to three years’ time. The total for the planned six submarines orders itself is pegged at Rs50,000 crore.

Pipavav is highly bullish on the defence segment. DNA has earlier reported that the company was targeting a total order book of $7 billion in the next fiscal. While orders worth $3 billion are expected to come from overseas, the remaining is expected from domestic orders.

As of December 2010, the company’s order book was at around $ 1.4 billion. Out of these, exports were around worth $ 690 million, offshore orders $110 million and defence orders around $600 million.

While the Indian shipyards could benefit from defence orders in India, analysts look at this as more of a long-term opportunity.

“In the short term, for the next twelve months at least, we do not expect any major orders like warships. The orders could be limited at smaller boats required for coastal patrolling. However, while huge orders are expected from the Indian Navy, we don’t see them materialising in the short term,” said a shipbuilding analyst from a domestic brokerage firm.

“Pipavav could see some orders from the two international tie-ups that the company recently entered into for defence orders,” the analyst said.

Pipavav had signed a protocol with Rosoboron Export, a Russian government arm for defence cooperation with foreign governments last year and a memorandum of understanding with Saab Dynamics AB, a part of Swedish multinational giant Saab, to tap orders in the defence segment.