Mahindra and Mahindra and the UK’s BAE Systems, which were to invest Rs 99 crore, over a three-year period, into their joint venture company, Defence Land Systems India, have decided to conduct a strategic review of the venture.

Interestingly, a review was announced exactly three years into the joint venture. An official privy to the discussion told Business Line that a review should not be construed to have a negative connotation. “The partners have decided to review the project. A review is a review. This does not mean the project is in trouble or otherwise.”

The official added that “certain investments were stated at the time of the venture. Today’s review has no relation with either the investment target nor the three-year period.”'

Mahindra and Mahindra (M&M) has been eyeing revenue of up to $18 billion over the next nine years, through the supply of various defence equipments for land, aerospace and naval equipments in India. Besides BAE, M&M has a joint venture with the US-based Telephonics Corporation to make radar systems in India. A deal with UAE-based Arabia Holdings and Ras Al Khaimah Transport has also been inked to sell armoured vehicles in West Asia.

With regards to the BAE Systems announcement, a M&M spokesperson refused to entertain queries, stating the company was in a silent period till the M&M board meet.

Way back in 2007, M&M had pipped the Tatas and L&T for BAE’s defence venture in India. BAE aimed to transfer expertise from its US and South African operations in land systems to India.

The Foreign Investment Promotion Board had, in October 2008, rejected a request for BAE to hold a 49 per cent stake in the venture. BAE’s second application for a 26 per cent stake was accepted. The decision to team up with M&M was an important step for the British company given its plans to participate in the modernisation of India’s armed forces, among the world’s largest, by entering partnerships with local companies.

The company previously identified India as its seventh ‘home market’ after Britain, the US, South Africa, Sweden, Australia and Saudi Arabia. In India, BAE already has a £1.5-billion partnership with Hindustan Aeronautics Ltd (HAL) to make 66 Hawk trainer jets for the Indian Air Force.

The company has a footprint comprising two joint ventures, one with M&M and the other with BAEHAL, for software engineering services related to companies in the defence area. The HAL deal represents the third contract of its kind between the British defence company and the Indian Air Force. HAL is now manufacturing the aircraft in Bangalore.

(This article was published on January 23, 2013)
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