Goutam Das, senior associate editor, Business Today
Some Indian executives describe the defence purchase cycle in India as a "famine and feast situation" - companies can make a killing but they can also sit idle for years. Thus far, it has mostly been famine for private companies who have forayed into defence manufacturing. Many companies have built up huge capacities but they don't have orders. Some have repurposed their facilities to cater to the commercial sector.
L&T, for instance, build a shipyard at Kattupalli near Chennai with an investment of Rs 4,000 crore. The shipyard is on a 1,250-acre plot and has 2.2 km of waterfront. It was meant to build warships and submarines. The company, however, is making commercial ships for countries such as Qatar at the facility right now.
Punj Lloyd's defence manufacturing plant at Malanpur near Gwalior also follows a similar route. In 2014/15, the 65-acre factory's output will total Rs 30 crore - only Rs 5 crore of this is from defence contracts. What is, however, interesting is the "multi-modal" nature of the factory, a strategy to handle the ups and downs of different sub-scale businesses and keep the plant humming throughout the year.
There are very few multi-modal factories in the world. They typically make products for different industries on the same shop floor using common machines. The concept appears similar to 'flexible manufacturing' practised by some automobile companies, which can switch between diesel and petrol car variants.
However, a true multi-modal plant can produce everything from aviation, wind turbine, power and defence components under the same roof. One multinational that is trying out multi-modal is GE - its factory in Chakan near Pune has established fabrication and high-end welding centres as opposed to product lines. Different products pass through these centres. Earlier, separate factories would make such products.
Punj Lloyd has now got into the business of making components for the commercial sector. Apart from defence components, the plant's huge machines, welding and fabrication equipment churn out products for aviation, energy (hydro, wind, gas, nuclear), transportation, mining and shipping.
For corporates that harbour defence ambitions and have deep pockets, multi-modal sounds like a good option. Like an executive says, such factories "balance it out, keep defence going".