Investment opportunities in defense MRO (Maintenance Repair and Overhaul)

Increase in defense acquisitions over the next 10 years will help India emerge as a dominant military MRO destination and will provide opportunity for large private MRO providers to enter this field. The investment opportunities that exist in defense MRO are as following:

Increase in defense spending

Indian defense spending is growing at a CAGR of 8.33 percent and is expected to reach $50.3 billion by 2015 from the $36.5 billion recorded in 2011. Also, the gap between capital and revenue procurement has been declining and this ratio will stand at 50:50 by 2015. The country's defense outlay is going up by around 10 percent every year and India is one of the top 10 global spenders on defense. The defense capital expenditure is expected to go up as many of the in-service equipment have to be replaced or upgraded which, in turn, will increase demand for MRO services in India.

Defense offset policy

The introduction of the defense offset policy has created opportunities for military MROs by making foreign defense equipment vendors source 30 percent of the contract value in India if their order value exceeds INR 300 Crore. 

Joint Ventures and Partnership

The opening up of the defense sector to private industry participation and foreign investment has created avenues for joint ventures and partnerships. The introduction of the “Buy and Make (Indian)” category in Defense Procurement Procedures has encouraged Indian private players to form joint ventures with foreign vendors. Also, the 26 percent FDI limit in defense equipment production has created an opportunity for the foreign companies to plan joint ventures with Indian firms, thereby, increasing the size of the overall industry.

Upgradation and modernization of fleet

The Indian defense sector has placed various orders to upgrade and modernize its fleet to deal with the depletion of force levels. The major orders on the list include the procurement of 197 light helicopters, 126 Medium Multi-Role Fighter Aircraft (MMRCA) and Upgradation of various MiG fighters. Most of the Indian military aircrafts are of Russian origin and are sent to Russia for their maintenance purposes. However, as per the defense offset policy 30 percent of the fleet order has to be procured from India, thereby providing an opportunity for MRO services in India.