India’s Mahindra Plans Unmanned Sea Surveillance Vessels

(Corrects to remove reference to artillery guns in sixth paragraph.)

Mahindra & Mahindra Ltd. (MM), India’s biggest sport-utility vehicle maker, plans to build unmanned coastal surveillance vessels as the nation boosts security along its coastline following the 2008 Mumbai terrorist attack.

The company’s newly formed joint venture with Israel’s Rafael Advanced Defense Systems Ltd. will assemble the vessel at a facility in Pune, western India, “in a phased manner” after initially importing models from its partner, K.A. Hai, chief executive officer of Mahindra’s defense unit, said in an e-mail reply to Bloomberg questions. He didn’t give a timeframe.

“Unmanned patrol vessels will be needed in large numbers to protect from infiltration by terrorists, protect our offshore assets and patrol vital coastal assets such as nuclear plants,” Hai said April 18.

India created a specialized force and added interceptor boats to strengthen security along its about 7,500 kilometers (4,660 miles) of coastline after militants reached Mumbai in November 2008 through the west coast and killed 166 people in an attack that lasted almost three days. The government also encourages local private companies to build defense equipment to help pare the nation’s reliance on overseas suppliers.

“This is a good opportunity for Mahindra as India is now reducing its dependence on foreign companies for defense,” said Umesh Karne, a Mumbai-based analyst at Brics Securities Ltd. “It’s also a strategy to hedge against fluctuations in its main business.”

Indian Venture

Rafael, which will hold a 26 percent stake in the Indian venture, currently builds Protector, a remotely controlled naval combat vessel. The business, to be operational by July, expects sales to reach $50 million in the first year, Hai said last month.

Mahindra fell 1.6 percent, the most in two weeks, to 714.6 rupees at close of trading in Mumbai. The benchmark BSE India Sensitive Index also declined by a similar margin.

The company, based in Mumbai, got 61 percent of revenue from the automotive business in the quarter ended in December, according to data compiled by Bloomberg. Farm equipment contributed the balance.

Armored Vehicles

Mahindra has also formed a venture with BAE Systems Plc (BA/) for armored vehicles and a partnership with Telephonics Corp. for radars as it expects sales of about $500 million in 10 years for its defense unit.

India last year overtook China as the world’s largest arms importer, according to the Stockholm International Peace Research Institute. Locally made defense equipment now account for about 40 percent of total purchases, from 30 percent previously, Defense Minister A.K. Antony said March 29.

The world’s second-most populous country plans to raise defense spending by 13 percent to 1.93 trillion rupees ($37 billion) in the year that began April 1. Tata Motors Ltd. (TTMT), owner of Jaguar Land Rover, and truckmaker Ashok Leyland Ltd. (AL) are also expanding military equipment business after India opened defense production to private players in 2001.

To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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