BEL to invest in product development, enhance R&D spend

DW : 1. Defenseworld.net: How is your order book this year? Has it grown or come down over the years?

Mr. Ashwani Kumar Datt: Our order book has touched Rs.12,250 crore this year (August 1, 2009), which is the highest ever in the history of the company. Last year (on March 31, 2009) it was Rs.10,000 crore. We have won new orders for radars as well as other systems amounting to Rs.3,140 crore from April to August. We expect to finish the year with orders of Rs.12,000 crore. But some orders may be long-term orders going into 2 or 3 years and procurement cycles may see ups and downs.

DW : 2. What is the rate of return on investment you expect from business, considering you largely cater to defense customers?

Mr. Ashwani Kumar Datt: It could vary between 5% and 15% considering that the risks are greater in this business than in other businesses as we have to invest substantially in R&D, develop products in a relatively short timeframe and run the risk of the customers preferring another supplier. Another way to increase margins is to cut costs, which we are trying to do in every way possible.

DW : 3. What is the amount you spend on R&D? What efforts are being made to ensure that you stay ahead of the competition in developing products appropriate to your customers?

Mr. Ashwani Kumar Datt: We have been spending about 4 to 5% of our turnover on R&D and plan to progressively enhance it to 8 to 10% over the next few years. In addition, we have decentralized R&D so that every strategic business unit (SBU) has its own R&D set-up. To speed up decision-making regarding R&D, I can take certain investment-related decisions rather than taking it to the Board. We are willing to risk developing new products without a firm commitment to buy on the part of the customer. This is a relatively new strategy on the part of BEL to make itself internationally competitive.

DW : 4. What necessitated this increased focus on R&D? Is it that your customers such as the Indian defence services have become more demanding?

Mr. Ashwani Kumar Datt: Customers are now seeking shortened timeframe between the time they place an order and when they receive the equipment. For example, earlier if we took 24 months to fulfill an order, the customer now wants it in 15 months or less. The procurement policy of the Government of India allows the defence forces to get the equipment from several vendors so we must compete with global companies. This means we must not only be quick in executing orders but also anticipate what the customer is going to order by investing in R&D and developing products which the customer may want in the future. We are endeavoring to be cost competitive, technologically superior and prompt in meeting delivery schedules. We are also investing in Defense Research and Development Organization (DRDO) projects concerning defence electronics upto 20% and partnering with international companies to develop cutting edge products for the Indian and international markets.

DW : 5. Can you name some products which have emerged from BEL’s R&D?

Mr. Ashwani Kumar Datt: We develop and field several products regularly. The recent ones are: secure radios with frequency hopping, C4I systems, uncooled thermal imagers, Digital Mobile Radio Relay (DMRR), Light Vehicle-based Direction Finding system (LVDF) and Integrated Fire Detection and Suppression System (IFDSS). In addition, we have upgraded the Schilka weapon system by undertaking a joint R&D project with a foreign firm and have also upgraded the Tactical Communications Reporter Radar. There are several more projects in the pipeline in our SBUs.

DW : 6. What are the non-defence and civilian opportunities you are pursuing by making use of your expertise and technology in the defence sector?

Mr. Ashwani Kumar Datt: We are looking at developing specialized solutions for the homeland security market. Later on we may create a strategic business unit dedicated to homeland security once the business grows. In addition, we are looking at airport modernization, railway electronic systems, nuclear power instrumentation, energy efficiency solutions and e-governance solutions. Many of these high technology items are an extension of the products we have developed for the defence business.

DW : 7. What are you doing to ensure the quality of your products considering that you have such a diverse set of vendors?

Mr. Ashwani Kumar Datt: Good quality comes with good design. We endeavor to achieve designs which outlast product lifecycles. We are looking at greater involvement of vendors at the design stage itself so that they are not mere suppliers but understand the development and manufacturing process thoroughly.

DW : 8. How are you positioning yourself as a provider of offset services?

Mr. Ashwani Kumar Datt: We have identified offsets as a major growth opportunity. Given BEL’s position as the premier supplier of defence electronics and systems, we are expecting at least 50% of the defence electronics offset business, generated from sales by international companies to the Indian defence forces, to come our way. Together with offsets, we are also looking at contract manufacturing for international vendors as the new growth area. Recently, we have received an order from M/s Fincantieri, Italy, for supply of various communication, fire control and electronic warfare systems and for their integration on board a fleet tanker being supplied by them to the Indian Navy.