Defence Acquisition Council (DAC) has given its clearance to Rs 39,000 crore of which Rs 11,000 crore will be spent in buying 12 Su-30MKI aircraft. Besides, they are also buying MiG-29 and generally, it is coming straight from Russia and we will have some contribution to an extent in it when they will be upgraded. There will be a contribution of HAL in its upgradation

R Madhavan, Chairman and Managing Director, Hindustan Aeronautics Ltd (HAL), talks about the Rs 39,000 crore mega order drive cleared by DAC, expansion, CapEx, order book, Atmanirbhar Bharat and repair and overhaul segment during an exclusive interview

Q: Tell us about the big news about the government's mega order drive of Rs 39,000 crore? Break down the orders that will come to HAL and how you plan to execute them?

A: Defence Acquisition Council (DAC) has given its clearance to Rs 39,000 crore of which Rs 11,000 crore will be spent in buying 12 Su-30MKI aircraft. Besides, they are also buying MiG-19 and generally, it is coming straight from Russia and we will have some contribution to an extent in it when they will be upgraded. There will be a contribution of HAL in its upgradation.

Q: What is the execution timelines of these orders and do you think that you will need some expansions at your production facility? 

A: We are expecting that the order will be placed in the next 4-6 months. DAC has just approved and order placement will take 4-6 months from here. There is a fast track procedure in the Defence Procurement Procedure (DPP), accordingly will take this much time in placement of the orders. We can deliver our first aircraft within 12 months of order placement. It can be done in the existing capacity. There is no need for enhancement of the facility because we were developing 12 Su-30 aircraft, which was completed last month. And in the same facility in Nashik, we can also complete further production of the aircraft. 

Q: What kind of margins you are expecting on these orders? Is there any capping on the margins?

A: As per DPP, there is a nominated source and we are expecting that we are a nominated source for it. It has a margin of 7.50% and all our new projects happen at 7.50% only. 

Q: What are the existing order book of HAL apart from the orders of Rs 39,000 which has been approved and its clearance is awaited? Do you expect any new orders that may add on this year, if yes, then what will be the size of your order book at the end of the financial year?

A: Our current order book position stands at Rs 52,000 crore. If seen according to the yearly sales, then it is a left balance for another 2 years to two and a half year. Our order book position should be for 5 years in which we remain more comfortable because our next cycle time is longer. Accordingly, we expect that our order book position will reach around Rs 1 lakh and 10,000 crores this year. Over the next five year, we expect the order book will improve to Rs 2 lakh 5,000 crores approximately. It is minimum order book position. So the order book position is going to be quite strong especially in terms of Atmanirbhar Bharat (self-reliant India), under which a large portion of Indian procurement will happen from Indian sources, even in the case of defence forces. So, we will also get some benefits from it.

Q: Atmanirbhar Bharat is giving an additional push and you have envisaged an order book in the next one year and few years after it. What kind of orders you are expecting and is there any timelines by which it will happen? Is there any segment in which your participation will increase?

A: Luckily, we are in a very strong position now. Many of our projects are going and fructifying this year and a coming couple of years. Mainly 83 TEJAS will go for cabinet approval and that is the first order that we expect this year. Along with TEJAS, we will also get an order of 15 helicopters immediately. I believe that we will get these two orders by the end of this year. In addition to this, our Light Utility Helicopter (LUH) has been certified and its production will start soon. It is a new stream of business for us. Along with this we also have Light Combat Aircraft (LCA) TEJAS Mark II coming up and after that Advanced Medium Combat Aircraft (AMCA) coming up. So, there is long visibility on the order book for HAL. 

Q: You have 20 production units and 11 R&D centres in 8 locations across the country. You have said that you can complete the orders of DAC with the available capacity but you have strong visibility of uptick in the order book. Will you create additional capacity for this over a period of time, if yes, then tell us about the kind of expansion plans that you have?

A: We put around Rs 1,500 crore annually on our CapEx. Apart from this our existing capacity is good enough to take over the possible order book positions. Our expansion basically happens at vendors bases because the maximum of our manufacturing is happening through outsourcing these days. So, the better advantage will happen at Indian vendors’ who are associated with us. There are about 2000 vendors who are engaged in manufacturing with us and more possibilities are visible for them in the orders that we will get against Atmanirbhar Bharat. 

Q: Share of domestic aircraft and helicopters repair is growing in the market. Repair overhaul accounted for 55% of HAL’s overall turnover in FY20. Going forward, what is its visibility and outlook for it in terms of kind of revenue you will get from it?

A: The repair and overhaul (ROH) segment of HAL grew by around 20% last year. However, the manufacturing sector remained constant from the previous year. In future also the ROH will remain strong for us Along with ROH we are also looking towards civil aviation sector. This is one area where we are going to enter and that is one area where we feel that we have a good scope. 

Q: 40% of your revenue comes from manufacturing. In FY 20, you manufactured 31 new fixed and rotary-wing aircraft, 117 new aero engines and overall 199 aircraft and 490 aero engines. What is your view on it for FY21 and do you think that the growth in these type of products will be better this time? 

A: Our composition of manufacturing Vs repair and overhaul remains the same this year. That is we will produce the same number of aircraft and will continue to the overhaul. The overhaul sector will become slightly more because the requirements of Su-30 overhaul is increasing. So, overhaul segment will increase more this year. So, more or less the composition will remain the same that we had this year.

Q: Update us about the offer for sale (OFS) that the government has planned? 

A: The process has started and very soon we will be in the market with another 15% shares. 

Q: Do you have plans to bid for any big projects and are you L1 in any of the projects that are awaited?

A: There is no tendering process this year but we have bids in some helicopters, which are pending. Our bids are also ending in engine manufacturing. So, we are expecting the production of engines of Su-30 and MiG-29.