A Monopoly at the Forefront of Rs 5 Trillion Defence Opportunity

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It was the late 2000s.

India had secured export orders of Dhruv helicopters to Ecuador.

This was seen as a key milestone for India's indigenous defence production. India's Dhruv was positioned as a low-cost alternative to Western utility helicopters.

Ecuador had bought seven Dhruv choppers from HAL after a tough competition from Elbit, Eurocopter, and Kazan.

The export deal was supposed to position India firmly on the map of global defence exporters.

However, the excitement was short-lived.

Four of the seven Dhruv advanced light helicopters (ALH) bought from HAL crashed in separate incidents. Eventually, Ecuador grounded the remaining ones. In fact, it went ahead and unilaterally ended the contract with India in 2015.

Since then, India had been on the backfoot on defence exports. But something changed in the last decade.

First, China rapidly expanded its defence and military capabilities.

So much so that it has made most of the smaller Southeast Asian countries like Philippines and Vietnam very vulnerable.

This has forced them to reach out to like-minded countries like India to strengthen their defence capabilities.

Second, Turkey's autonomous defence production has been an eye opener for India.

Within a single decade, Turkey has considerably increased its share of defence exports, especially drones.

From a turnover of US$ 1 dollars in 2002 to US$ 11 bn in 2020, its defence companies have made Turkey the 14th largest exporter of military equipment.

Between 2010 to 2019 the country sold war material to 28 nations. While in 2000, only one Turkish company featured among the 100 largest armaments firms, today they are seven.

India is new to the drone manufacturing camp. However, the recent regulatory changes to drone laws have made the sector lucrative for private sector players.

I explained this in detail in my video.

India is also taking big strides in autonomous defence modernisation. This was evident in the huge changes introduced in the defence policy framework in 2020.

With India also opening its space sector for private and foreign participation, the sector is set for massive tailwinds.

A visit to the states of Uttar Pradesh and Tamil Nadu will tell you exactly why. Two defence corridors in these states will focus on development of indigenous manufacturing. These capacities will be the springboard for all defence procurement plans.

The latest production from one of these facilities is the Brahmos.

Brahmos is the fastest supersonic cruise missile in the world. It's a medium-range missile that can be launched from submarine, surface warship, aircraft, or land.

It was jointly developed by India and Russia. It's the first missile of its kind to be integrated on a fighter aircraft of the Indian Air Force.

Now, with a US$375 m deal, Philippines has become the first foreign customer of the Brahmos missile system.

Countries like Vietnam, Indonesia, and Thailand have also now shown inclination in procuring the Brahmos missile system.

The government is targeting US$ 5 trillion in defence exports.

Defence stocks typically have long working capital cycle due to the government's laidback payment system. So, they do need to raise debt from time to time.

One such defence stock is a monopoly with a large share of defence production. The company was out of investors' focus for years.

But now, its strong order book, reduction in debt to negligible levels and fall in debtor days are a huge positive for the stock.

I'll write to you with more details on the exciting defence megatrend in India.

Stay tuned.

Warm regards,


Tanushree Banerjee
Editor, StockSelect
Equitymaster Agora Research Private Limited (Research Analyst)

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