One of the key elements in the ecosystem is the defence logistics market, estimated at USD 12 billion and expected to grow at a compounded annual growth rate of around 8.6 per cent. Capturing this momentum, TVS Supply Chain Solutions Ltd (TVS SCS), a part of the TVS Mobility Group, managed by TS Rajaram branch of the erst while TVS Group, has forayed into this high-margin segment through a joint venture. Along with Italy-based aerospace and defence supply-chain integrator ALA Group, the JV will tap opportunities in India. It aims to generate revenue of Rs 2000 crore in three to five years, which might be a modest expectation given the significant opportunities.
Aerospace and defence segment
Major players in the defence and aerospace sector include Airbus, Boeing, Dassault Aviation, Safran Group, Rolls-Royce, Collins Aerospace, Thales Group, among others. Many of these global companies are expanding their partnerships and joint ventures with Indian companies as part of their long-term localisation and manufacturing strategies in India.
A recent Crisil Ratings analysis of 24 companies, accounting for 42 per cent of the revenue of the private defence industry, showed that the revenue of these companies will grow 15-16 per cent to Rs 20,000 crore in FY27. This will be supported by a healthy order book of Rs 50,000 crore. This growth rides on the government’s Atmanirbhar initiative to procure 75 per cent of India’s defence requirements from domestic sources. “There have been significant investments both in the manufacturing side and also for supporting the production and supply chain requirements of the aftermarket for the aerospace sector, on the defence side and private sector side,” says R Dinesh, Executive Chairman, TVS Supply Chain Solutions. The company is strongly focused on the defence business, with close to 30 per cent of revenue coming from the UK.
Certification remains a key challenge in this sector, as companies must either secure a customer before obtaining certification or invest two-to-three years in the certification process before approaching customers. “To make this happen in the best way possible, we signed an MoU with the ALA group in India and also met a few customers in India and the response has been significantly positive,” points out Dinesh. The aerospace and defence supply chain business is a high-value segment characterised by specialised procurement, inventory management and mission-critical fulfilment capabilities. These factors contribute to strong profitability, with quality companies typically delivering profit before tax margins of 8–9 per cent and healthy returns on capital employed. “We have strong customer relationships across the aerospace sector and many global companies in this sector are actively evaluating and expanding their presence in India, creating significant opportunities for specialised supply chain services. Through this partnership with TVS SCS, we will be well-positioned to support the evolving requirements of our global customers in India,” points out Vittorio Genna, Vice-President and Co-Founder, ALA Group.
JV Structure
The joint venture would be under TVS Packaging Solutions Private Ltd., a wholly owned arm of the company, which was incorporated on 28 April 2017. TVS Supply Chain Solutions would infuse Rs 10.19 crore into TVS Packaging and ALA Rs 9.80 crore in a 51 per cent to 49 per cent ratio. The indicative time for completion of funding is by 30 September and the venture is likely to commence operation by November this year. The venture will initially focus on India while exploring select international opportunities, over time.
TVS SCS’s foray into the aerospace and defence logistics segment comes at a time when private companies have made a slew of announcements about setting up manufacturing facilities in India. The company eyes a significant opportunity given that the profits before tax margins are higher when compared to the 4-5 per cent seen in a typical logistics and transport business.