Assignment - Fundamental & Technical Analysis
Submitted By -Ayush Pandey ,Avani Chaudhary ,Pankaj Verma, Prajjwal Sharma, Saraswati Rajak
Submitted To – Dr. Deepesh Mahajan
Class: MBA- FA- III Semester, Section- A
Date: October 09 , 2024
Subject: Fundamental & Technical Analysis
Title: Porter Five Forces Model on Indian Defence Industry
INTRODUCTION
The Indian defence industry is one of the largest in the world, driven by the country's significant
defence needs, ongoing modernization efforts, and geopolitical challenges. Historically
dominated by public sector enterprises, the industry is undergoing a transformation with
increased private sector participation and a strong push for self-reliance under the Aatma
Nirbhar Bharat initiative. India is one of the largest defence importers globally, but there’s a
growing focus on indigenous production through initiatives like Make in India. The sector
includes key players in aerospace, naval systems, electronics, missiles, and defence equipment,
with companies such as Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL),
and Bharat Dynamics Limited (BDL) leading in production. The private sector, represented by
companies like Tata Advanced Systems, L&T, and Mahindra Defence, is expanding its role, often
in collaboration with global Original Equipment Manufacturers (OEMs) for technology transfer
and joint ventures. India's defence industry is poised for rapid growth, with government policies
aimed at increasing exports, boosting indigenous production, and reducing reliance on imports.
The Porter Five Forces Model, developed by Michael E. Porter, is a strategic framework used to
analyze the competitive dynamics within an industry. It examines five key forces that determine
the intensity of competition and the profitability potential of a market: threat of new entrants,
bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and industry
rivalry. By assessing these forces, businesses can identify opportunities and threats, gauge the
strength of their market position, and make informed decisions to improve their competitive
advantage. It’s widely used to assess both established and emerging industries.
Porter Five Forces Model
The Porter Five Forces Model is a strategic tool used to analyze an industry’s competitive forces
and determine its strengths and weaknesses. We applied this to the Indian defence industry,
which has unique characteristics due to its nature of government control, heavy regulation, and
high entry barriers.
1. Threat of New Entrants (Low)
The threat of new entrants in the Indian defence industry is low due to several factors:
High Capital Requirements: The defence industry requires significant investment in
research, development, and production facilities. The cost of entering the sector,
especially in high-tech areas like missiles, aircraft, and surveillance systems, is
prohibitive.
Regulatory Hurdles: India's defence sector is highly regulated by the government, with
policies in place to ensure national security. New entrants face extensive scrutiny and
must navigate complex procedures for obtaining licenses and clearances.
Need for Expertise and R&D Capabilities: Defence equipment is technologically
advanced, requiring specialized knowledge, skilled workforce, and R&D investment.
Established players already have this expertise, making it harder for new entrants.
Government Favouritism of Established Firms: The Indian government often prefers to
engage with established players, both domestic and international, for defense contracts
due to their reliability, track record, and trust in meeting security needs.
Indigenization Push (Aatma Nirbhar Bharat): The Indian government’s focus on self-
reliance in defence production promotes the growth of domestic players, but this
doesn’t necessarily lower the barrier for new private entrants due to stringent
qualifications.
Company Name Market Share (%) Role/Description
Hindustan Aeronautics Limited (HAL) 15-20% The largest aerospace and defense
company in India, HAL is a state-
owned enterprise responsible for the
design, manufacture, and assembly of
aircraft, helicopters, engines, and
avionics.
Bharat Electronics Limited (BEL) 10-12% BEL specializes in electronics for the
Indian Armed Forces. It develops
communication systems, radars,
sonars, and electronic warfare
systems.
Bharat Dynamics Limited (BDL) 8-10% A key defense PSU involved in the
production of guided missiles and
allied defense equipment. BDL is the
sole manufacturer of surface-to-air
missile systems in India.
Larsen & Toubro (L&T Defense) 7-9% A leading private sector company in
India’s defense manufacturing, L&T is
involved in shipbuilding, missile
launch systems, and military
engineering solutions.
Tata Advanced Systems (TASL) 6-8% Tata's defense subsidiary focuses on
aerospace, missiles, radar systems,
and unmanned aerial vehicles (UAVs).
TASL has entered joint ventures with
foreign companies for advanced
defense technologies.
Mahindra Defence Systems (MDS) 5-7% Part of the Mahindra Group, MDS
specializes in armored vehicles,
weapon systems, and defense
electronics. It also provides logistics
and maintenance services to the
military.
Reliance Naval and Engineering 4-6% A key player in shipbuilding for
defense purposes, focusing on the
construction of naval ships, patrol
vessels, and offshore patrol vessels.
Adani Defence & Aerospace 3-5% A relatively new entrant, Adani
focuses on aerospace, drones, and
defense electronics, working towards
collaboration with global OEMs.
Ordnance Factory Board (OFB) 2-4% A government-owned conglomerate,
OFB produces weapons, ammunition,
and artillery systems for the Indian
Armed Forces. It plays a critical role in
supplying small arms and munitions.
Kalyani Group (Bharat Forge 2-3% The Kalyani Group, through Bharat
Defence) Forge, manufactures artillery,
armored vehicles, and specialized
defense products. It has been making
strides in precision technology for the
military.
Points to consider:
1. Public Sector Dominance: State-owned enterprises like HAL, BEL, and BDL continue to
dominate the Indian defence industry with a combined market share of around 35-40%.
2. Rising Private Sector Participation: Companies like L&T, Tata Advanced Systems, and
Mahindra Defence Systems have been gaining significant market share due to the
government’s focus on indigenization and allowing more private sector participation.
3. Collaborations with Foreign Firms: Many Indian companies, both public and private, are
forming joint ventures with global defence players to acquire advanced technologies and
increase their market share.
2. Bargaining Power of Suppliers (Moderate to High)
Suppliers in the Indian defence industry, particularly those supplying critical technologies and
materials, hold moderate to high bargaining power:
Limited Suppliers of Advanced Technology: Advanced defence systems, like fighter jets,
submarines, and missile systems, are often produced by a handful of global defence
companies (e.g., Lockheed Martin, Boeing, Dassault). These suppliers hold significant
bargaining power, especially when they supply critical components or technology that
domestic companies cannot easily replicate.
Dependence on Foreign OEMs (Original Equipment Manufacturers): India still depends
on foreign suppliers for critical defence technologies, giving them higher bargaining
power. The procurement of high-tech defence equipment from countries like Russia, the
US, France, and Israel makes India reliant on foreign sources for maintenance, spare
parts, and upgrades.
Offset Policy: The Indian defence offset policy requires foreign suppliers to invest a
portion of their contract value in the Indian economy. While this gives some leverage to
India, suppliers still negotiate terms favourable to them, particularly in critical
technology transfers.
Growing Indigenous Suppliers: As India ramps up domestic production with companies
like Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), and private
players (L&T, Tata Advanced Systems), the bargaining power of suppliers is gradually
reducing for some components, though critical technology suppliers still hold sway.
3. Bargaining Power of Buyers (High)
In India, the buyers of defence products and services are primarily government organizations,
making their bargaining power high:
Monopsonistic Market: The Indian Ministry of Defence (MoD) is the primary buyer,
which makes the market a near-monopoly. The MoD has significant leverage in price
negotiations, as the government sets procurement policies, project timelines, and
budget allocations.
Bulk Purchasing Power: The Indian government typically buys defence equipment in
large volumes, often under long-term contracts. This gives the government greater
bargaining power, as suppliers compete for these multi-billion dollar contracts.
Offset Requirements: The MoD mandates offsets, requiring foreign firms to invest in
local production or R&D, increasing the buyer's leverage. This also drives technology
transfer and collaboration with domestic firms, reducing India's dependence on imports
in the long term.
Increasing Emphasis on Cost: As India pushes for defence indigenization, the
government often scrutinizes foreign equipment deals more closely, focusing on cost-
effectiveness and ensuring they get maximum value for their investments.
4. Threat of Substitutes (Low to Moderate)
The threat of substitutes in the defence industry is generally low, but in certain segments, it can
be moderate:
Unique, Specialized Products: Defence equipment like fighter jets, warships, and missile
systems are highly specialized and difficult to substitute. While one defence company’s
product might replace another’s, there is no true alternative to cutting-edge defence
equipment.
Technological Advancements: In some areas, new technologies can replace older ones.
For example, drones and unmanned systems are increasingly substituting traditional
manned aircraft in reconnaissance and even combat missions. Similarly, cybersecurity
solutions are emerging as substitutes for traditional physical security measures.
Geopolitical Considerations: India's defence needs are closely tied to its geopolitical
environment. There are no true substitutes for having a robust defence system when
national security is at stake, reducing the overall threat of substitutes in the industry.
5. Industry Rivalry (High)
The level of rivalry in the Indian defence industry is high due to the presence of both domestic
and international competitors:
Public vs. Private Competition: In the domestic market, public sector units (PSUs) like
HAL, BEL, and Bharat Dynamics Limited (BDL) dominate. However, private players such
as Tata, Mahindra Defence Systems, L&T, and Reliance are increasingly gaining ground.
This public-private rivalry drives competition, particularly in the bid for lucrative
government contracts.
Foreign vs. Domestic Firms: Foreign defence manufacturers such as Boeing, Lockheed
Martin, Dassault, and Saab vie for contracts against domestic companies. The presence
of these multinational giants intensifies competition, especially for big-ticket defence
procurement.
Government Policies Favouring Domestic Firms: The Indian government’s focus on
indigenization (through initiatives like Aatma Nirbhar Bharat) has pushed domestic
companies to compete harder with foreign players. This policy shift increases the
intensity of competition among domestic and foreign firms vying for joint ventures,
collaborations, and technology transfers.
Product Differentiation: Defence products are highly differentiated, based on their
technical specifications, performance, and reliability. However, competition is fierce, as
even slight advantages in technology can sway government procurement decisions.
Long-Term Contracts: Once a company secures a defence contract, they often maintain a
relationship with the government for years. As a result, competition intensifies before
contracts are awarded, as companies vie for long-term deals that are hard to dislodge
once secured.
Conclusion
The Indian defence industry is characterized by high barriers to entry, strong buyer power, and
intense rivalry between established domestic and foreign firms. Suppliers hold moderate to high
power, especially in advanced technology segments, while the threat of substitutes remains low
due to the unique nature of defence products. The government's indigenization push is
reshaping the industry, making it more competitive for private and domestic firms, though
foreign players still hold significant ground due to their technological edge.
