Reliance Venture sets sights on aerospace, defence sectors

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The venture capital arm of the Reliance-Anil Dhirubhai Ambani Group (R-Adag) is looking to invest in aerospace to take advantage of an increasing number of space technology applications and government plans to open up the sector.

"Now is a good time to train your sights on the sector," said Harshal Shah, chief executive of Reliance Venture Asset Management Ltd (RVAM). "Aerospace has a host of primary, core industries, each of which has ancillary industries such as microelectronics for machinery as well as a plethora of IT (information technology) products." Shah says RVAM is the first Indian venture capital firm looking to invest in aerospace--at a time when the government wants to see growth in the sector.

India's space budget for the fiscal to 31 March 2011 is '5,778 crore, the sixth largest in the world, and accounts for 0.14% of gross domestic product (GDP).



Nearly half the budget focuses on development and operation of launch vehicles. The rest is devoted to space technology and applications, satellite operations and satellite communication.

The sector has traditionally faced tight regulations against private investment as it overlaps with the sensitive defence and aeronautics industries.

But hoping to promote indigenous manufacturing, the government plans an offset policy that will make it mandatory for foreign firms that win space technology contracts to spend part of the value of the deal on project-related work in India, according to Shah.

"Another proposal is to amend the defence procurement procedure to encourage Indian firms to procure parts from abroad and assemble the product here," said Nidhi Goyal, director, aerospace and defence, at consultancy firm Deloitte Touche Tohmatsu India Pvt. Ltd.

Stakeholders in the aerospace sector from the US, the UK, France and Canada, including arms dealers, have been lobbying with the defence ministry to raise the foreign direct investment (FDI) ceiling from 24% to 74%. That level of FDI is already allowed in joint ventures with Indian companies.

"This makes it a good time to scout for investment opportunities," said Shah.

In anticipation of regulatory changes, RVAM has already invested in Tessolve Services Pvt. Ltd, a full-service semiconductor testing and product engineering firm; Scalable Display Technologies, a platform for super-resolution, multi-projector displays and simulators based on off-the-shelf components used for digital signage and data visualization; and Dhama Innovations Pvt. Ltd, which makes apparel for extreme climatic conditions.

Shah did not disclose the amount RVAM has invested in these firms, but said: "Once the sector opens up, the investment opportunities will be plenty. Given the demand, both at civil and defence levels, there is no doubt that the returns on investment in this sphere will be bountiful." While space technology is primarily developed for non-commercial government projects, it is finding increasing uses in a slew of non-space industries that makes it profitable.

An example is the telecom industry, an offspring of space communication, which has grown rapidly after the government deregulated it nine years ago. Today, India has the world's fastest growing and one of the most profitable telecom sectors.

Space technology spin-offs into non-space areas include 224 technology transfers, 165 patents, 17 copyrights and 10 trademarks.

The Indian Space Research Organisation (Isro) has nurtured partnerships with more than 500 domestic firms, says a report co-released last month by the Confederation of Indian Industry (CII) and Deloitte.

The report adds that untapped areas include solar energy and mining.

"With Isro's need for high-end works, critical hardware components and so on, small-, medium- and large-scale industries are set to enhance their capacities and capabilities," said Deloitte's Goyal.

"For this, they would eventually require technical advancement and more investment," Goyal added.

K.R. Sridhara Murthi, managing director of Isro's commercial arm Antrix Corp. Ltd, said that besides communication, advancements in space technology are also finding new uses in navigation, disaster management and remote sensing technologies.

"The commercial space sector has experienced unprecedented growth over the past decade," he said. "The increasing capacity in space services such as telecommunications and imaging from space across the world has driven down the cost of commercial space services drastically." "Once the technology in question becomes second generation," said Shah, "the company is allowed to dispense it to civilians at their desired cost. This creates an enticing win-win situation for all the parties involved." Recent advances in Indian space engineering are also making investors take notice.

India is beginning to compete with rocket manufacturers the world over, building cheaper, faster and better rockets. The country's polar satellite launch vehicle (PSLV) is becoming a favourite launch vehicle for small satellites, having put payloads in orbit for countries including Switzerland, Turkey, Germany, Israel and Italy.

Isro, the country's sole integrator of space launch vehicles and satellites, can now build a satellite in 28 months, beating the global average of 30 months, according to the CII-Deloitte report.

Last year's launch of the Chandrayaan-1 lunar satellite, which discovered water on the moon, has boosted India's credibility further.

As a result of these launches, "many avenues have opened up for Indian space industry," said Murthi.

In the US, arms control and export regulations forbid satellites built using locally made components from being launched on Indian rockets. But the US government is negotiating an agreement that will allow it to exclude commercial satellites from these rules.

RVAM hopes to leverage R-Adag's deep links across the Indian business landscape to help small- and medium-sized firms develop scalable products and services.

"As the corporate venture capital arm of the ADA Group, we have a host of companies that can be leveraged to an SME's (small and medium enterprise) benefit," said Shah.

It takes time for investments in space technology to be spun off into other areas before they can start yielding profits.

But Shah remains undeterred. "In a sector as sensitive as aerospace, we prefer not to have fixed expectations about returns," he said. "Moreover, investing in a company once its technologies have commercialized is far more expensive." He said the terrorist threat to India has also increased pressure on the government to deploy cutting-edge surveillance technologies--another opportunity for private companies.

"Instilling a profit motive can spur innovation as well as help the country cross new milestones," said Shah. "While the Indian space sector is years behind its competition, this fact has turned the need for the sector to open up... more urgent than ever." Murthi of Isro said if space has to remain a driver for growth, issues such as a conducive space environment, education about the cost of access to space, and global application of space technology to serve families and communities throughout the world need to be addressed.

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