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  • Apr 7, 2022 - Are Drones the Future of Defence? Check Out these 5 Companies

Are Drones the Future of Defence? Check Out these 5 Companies

Apr 7, 2022

Are Drones the Future of Defence? Check Out these 5 Companies?

The geopolitical chess game continues to progress on various fronts at an incredible rate.

Over the last one week, reports are surfacing that Ukraine recaptured more territory around Kyiv from Russian soldiers, while a disputed cross-border strike in Russia is complicating peace talks.

The implications of the current events are unknown, but commodity prices are spiking and that too aggressively.

Amid all this, the prospects of the defence sector have accelerated. The Russia-Ukraine war has made one thing very clear. The best way to avoid war is to be well prepared for it.

Given the strained relationship we share with our two neighbours China and Pakistan, the defence sector plays a crucial role. So it should come as no surprise that defense is at the centre of Atmanirbhar Bharat.

While you may have seen images of explosions and fights involving tanks and missiles in the Russia-Ukraine conflict, the little-known drones are finding their niche.

Drones or Unmanned Aerial Vehicle (UAV), were behind the destruction of a Russian convoy by the Bayraktar TB2, as claimed by the Ukrainian Air Force. These are the same drones the Azerbaijani forces used effectively in the 2020 Nagorno-Karabakh conflict against Armenia.

So it's clear that drones are playing a critical role in Ukraine's defense against the Russian invasion.

Drone technology is now a tool of frontline combat.

The various uses of drones in modern warfare

There are drones across many categories from commercial quadcopters used for observing enemy movements and coordinating artillery strikes, to a combat-proven armed drones.

Let's look at various use cases of drones in a modern-day warfare.

Logistics support - Drones can be used to provide logistics support to soldiers who are either on the battlefield or in areas that are hard to access.

Drones can create supply chains that get to the troops without delays. Here, the risk of losing an individual also gets eliminated.

When war zones and stations are hard to reach, drones come into play and take out conventional logistical methods.

Drones can carry thousands of kilos of ammo, heavy weapons and even missiles. So you get an advantage here.

Data collection and surveillance - When it comes to data collection and surveillance, drones are considered to be the best source when one needs to sneak across borders. They can stay miles away and provide real-time updates.

Strikes and combat - The track record of precision and payload of combat drones and how well it can perform in a combat mission is spectacular. Combat drones can carry a lot of payloads and can fly for hours or even days in some cases.

These were just a few use cases. In the years to come, drones may feature even more sophisticated technologies.

How drones are modernising the Indian Army

Drones are evolving Indian Army's defence tech applications and resource-multiplication. Last month, the Indian Army said it will soon operate Indian drones for surveillance.

Last year, the Indian army had surveyed high-altitude zones in LAC via indigenous drones.

Now, instead of keeping soldiers out in the cold for patrolling, drones act as their ears and eyes.

That's not all.

The Indian Army is also using drones to supply the booster doses of Covid-19 vaccines to the troops in the snowbound areas of Jammu and Kashmir.

Slowly and steadily, the Indian Army is building a solid ecosystem for drones.

Indian companies that are making their mark

Drone stocks are making headlines. The increased usage of drones across industries has created a market opportunity that's too big to ignore.

Here are few drone companies in India you should keep a watch on.

# Paras Defence & Space Tech

Through its subsidiary Paras Aerospace, Paras Defence primarily focuses on drone related aerospace technology development. This subsidiary was launched back in 2019.

Paras Defence, via its subsidiary, has tied up with a few UAV manufacturers in Israel, Latvia, & Italy.

This partnership helps the company in accessing state of the art solutions. Israel has been producing drones since 1980 for various applications. It has a strong legacy in this domain.

In fiscal 2021, Paras Defence entered into a partnership with High Lander, which provides end-to-end solutions for the management of autonomous drone fleets.

The company heavily focused on drones. It's one of the leading IDDM category private sector Indian firms catering to various defence segments. The company has received a lot of attention of late.

# Zen Technologies

Zen Technologies was the sole listed player active in manufacturing drones in India. This changed when Paras Defence listed.

Along with drone manufacturing, the company also provides defence training solutions and anti-drones solutions.

The stock was hot property back in September 2021 when it doubled in a matter of weeks. This after it received large orders from Indian Air force, including for drones.

It currently has a counter drone order of Rs 1 bn, which will be executed in the next nine months.

# Reliance Industries and Adani Enterprises

Back in August 2021, big corporates Reliance and Adani expressed interest to manufacture or assemble drones in India.

Reliance will be participating via Jio Platforms, which owns Asteria Aerospace while Adani Enterprises has Adani Defence and Aerospace, a step-down subsidiary.

Both groups showed interest after the new drone rules came out. They hope to take advantage of the PLI scheme.

# L&T

Infra giant Larsen & Toubro (L&T) is also involved in drone industry. Almost two years ago, L&T entered into a pact with ideaForge, a drone manufacturer, to offer drones and allied systems for defence use.

# Hindustan Aeronautics

Monopoly player Hindustan Aeronautics is developing a drone named 'Warrior'.

This drone is being developed to go into combat as a loyal wingman drone with existing manned fighter jets like LCA Tejas and Rafale.

The drone, which is being developed along with a private player, will be capable of performing surveillance, reconnaissance, and early warning missions to aid its mission.

It's expected that Warrior will launch in 2024. The company is also designing drones to carry payloads.

# RattanIndia Enterprises

This penny stock has been making headlines ever since it announced its foray into the drone business.

RattanIndia Enterprises has forayed into the drone business through its wholly owned subsidiary NeoSky. The company is expecting the commercial rollout of products in the first quarter of fiscal 2023.

To conclude...

Militaries across the globe are investing heavily in drone technology. Drones are expected to become a part of life for everyone in the coming years.

Drones will bring a variety of routine activities. But more importantly, they will give the needed boost to the defence sector.

Until 2016, India's R&D efforts for drones had suffered due to restrictions imposed by Missile Technology Control Regime (MTCR). This regime considers drones as weapons.

With India now a member of this cartel, it has better access to technologies and foreign partnerships.

With help from DRDO, several Indian companies are now venturing into drone manufacturing through joint ventures with foreign firms.

Drones are the future of defence. Don't be surprised if more companies tap into this evolving theme in the months and years to come.

We will keep a close watch on this space for you.

In the meantime, do watch Co-head of Research at Equitymaster Tanushree Banerjee's video on India's best drone stocks.

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Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

Yash Vora

Yash Vora is a financial writer with the Microcap Millionaires team at Equitymaster. He has followed the stock markets right from his early college days. So, Yash has a keen eye for the big market movers. His clear and crisp writeups offer sharp insights on market moving stocks, fund flows, economic data and IPOs. When not looking at stocks, Yash loves a game of table tennis or chess.

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