L&T’s defence arm to diversify into civil projects to optimise asset utilisation

The division’s name has also been changed to L&T Precision Engineering and Systems from 1 April to reflect the new business strategy.

The new business strategy will involve making non-military advanced equipment at its facilities designed for defence manufacturing purposes to better sweat these assets. The move comes even as the company remains bullish on attracting more defence contracts from the Indian as well as foreign governments in the coming years.

L&T’s defence unit makes guns, armoured systems, missiles, aerospace systems, avionics, sensors, robotics submarines, underwater platforms, weapon delivery and engineering systems, unmanned systems and radar systems. The company has an armoured systems complex at Hazira in Gujarat and a shipbuilding facility at Kattupalli, about 40 kilometres north of Chennai.

“We have developed all our technology in-house. We do not have any foreign technology partners,” AM Naik, L&T’s chairman emeritus, told Mint in an exclusive interview.

“We are building nuclear submarines independently, as nobody will provide us with the technology. DRDO and we are working together to achieve this,” he said.

The company currently has multiple overseas defence contracts and it also recently won maintenance contracts for two ships of the United Kingdom’s Royal Navy at its Kattupalli shipyard.

However, Naik said that the company’s shipyard was still underutilised and needs more naval contracts from the Indian government. More contracts from the government would also help the company attract more overseas naval defence contracts, helping India meet its target of ₹40,000 crore in annual defence exports by 2026, he said.

“We cannot get qualified for more naval defence exports until we get more contracts from the Indian government that can act as a reference for us to export,” he said.

Similarly, the company’s facilities for making 100 units of 52-calibre self-propelled gun systems has been under-utilised after executing the order it received in 2018, Naik said. The company will be utilising these facilities for other applications while it awaits more orders, but it would not be optimal, he said.

“For 28 years we had no Bofors-type gun in the country, until L&T made it. Now everybody knows L&T as a high-tech company,” Naik said. “But my view is that it is still not known to the extent it should be.”

Defence contracts accounted for around 2% of the company’s total revenue last fiscal and Naik expects the share of defence in the company’s total topline to go up further in the ongoing financial year.

Analysts at Jefferies expect India’s defence expenditure to continue at the 7-8% compounded annual growth rate, as seen in the last decade. Meanwhile, the government’s indigenisation focus will drive double-digit growth in domestic defence spend, the Jefferies analysts noted.

Further, they expect India’s defence exports to rise to ₹58,000 crore ($7 billion) by FY30.

“Some of the major export destinations for defence products have been Italy, Egypt, UAE, Bhutan, Ethiopia, Saudi Arabia among other countries,” as per the Jefferies report.

L&T shares closed 1.54% lower on the BSE on Friday at ₹ ₹3,741.65 apiece. The stock has gained 6.23% since the beginning of the year.

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Published: 07 Apr 2024, 07:41 PM IST