How often do you find septuagenarians founding companies that end up winning contracts to build satellites for Indian Space Research Organisation (Isro)? In December 2016, a consortium of players led by Bengaluru-based Alpha Design Technologies managed just that. Established by ex-army man Colonel HS Shankar, it not only manufactures defence electronic equipment for India’s armed forces and agencies, but also has customers in developed markets like France, Germany and Israel. About two-third of Alpha’s revenue is derived from shipping their products to these countries. Alpha allocates about 40% of its expenditure for R&D to keep pace with fast changing technology. This has helped them develop state-of-the-art defence and avionics products, ahead of global competition
“I am 74 years old and still following my passion. You should, too,” laughs HS Shankar as he winds up our meeting at Alpha Design Technologies’ Indira Nagar office in Bengaluru. It is heartening to learn that he, along with his team members, started a company when most others of his age pass their time in public parks. An ex-army man, Shankar worked at Bharat Electronics (BEL) for 17 years before founding Alpha in 2004. The agelessness of passion is indeed encouraging, but what he and his team are up to, more than a decade later, is really fascinating.
In December 2016, a consortium of SME players led by Alpha Design Technologies was awarded the contract to build satellites by the Indian Space Research Organisation (Isro). For a decade, Isro had been trying to get private players onboard to build satellites, but large players insisted on a long-term commitment. So they decided to invite SMEs to throw their hat in the ring. “Isro requires a large number of satellites to be built and cannot meet that number themselves internally. So to bridge the gap, the private players were invited in October 2016,” recalls Shankar.
The idea is to assemble and test two navigation satellites over the next 18 months. In the first stage, 70 workers from Alpha will be trained at Isro in satellite assembly and testing. Once they do it successfully, the private players are expected to build satellites on their own for the space agency in the future, including larger satellites used for communication.
But for now, they are going to build medium-sized satellites for Isro’s Indian Regional Navigation Satellite System (IRNSS) programme. IRNSS is an independent system that is being developed by India. Designed to provide accurate position information to users in India, it is supposed to be a native GPS network.
More than just satellites
But Alpha is not just about building satellites for Isro. A chunk of their equipment is also exported to developed countries. “Around Rs. 300 crore of our revenue comes from exports to countries like Israel, Germany and France,” says Shankar. The company supplies missile launch detection system to Hensoldt, a European company involved in defence electronics, and tank thermal sites, displays and tank fire control systems, opto-electrical, radio communication equipment to Elbit, an Israel-based technology company engaged in defence programmes with whom they have a joint venture.
The introduction of the offset clause in India’s Defence Procurement Policy in 2005 made it obligatory for a foreign manufacturer entering the Indian market to use local suppliers and get 30% of the project indigenously manufactured. “We have been fortunate enough to use this opportunity by becoming the sole offset partner for Elbit. We have set up our manufacturing facilities on that basis,” says Shankar.
The company found its niche in manufacturing electro-optic products. Thermal imaging, a technique that detects objects in the dark, proved to be a sweet spot for the company, with its specialty being the manufacturing of optometers. “Our army, both in terms of infantry and tanks, was lacking in night vision capabilities for surveillance. In the last few years, we have supplied 1,000 night vision devices to the Indian Army,” says Shankar.
Riding on such orders, Alpha managed to reach Rs. 100 crore by FY13, more than tripling their 2008 revenue of Rs. 30 crore. Over the next four years, buoyed by strong demand from the export market, and the government increasing its sourcing of defence products from private players, the company’s revenue touched Rs. 450 crore in FY17. The company expects to touch Rs. 500 crore to Rs. 600 crore in FY18 based on their strong order-book of Rs. 2,100 crore.
HS Raghavendra Rao, director, Vinyas Innovative Technologies, an electronic manufacturing services provider, is impressed with Alpha’s ability to achieve end results in record time, which is one of the major reasons his firm engages with it. “They provide quick solutions as their structure is free of hierarchy, unlike that of other bigger players,” he says.
Betting big on R&D
It is not only Rao who has praise for Alpha. H Ramakrishna, a retired executive director of the Central Research Laboratory at BEL advises several companies about R&D in defence and is particularly impressed. “Alpha has integrated design, manufacturing and marketing, which enables design ideas to reach the end user in a very short time,” he points out.
To ensure that it stays ahead, the company spends heavily on R&D. This has helped it develop state-of-the-art equipment ahead of global competition. For instance, armies of countries like the UK and Israel are already replacing age-old radio communication systems with those guided by software. In a conventional radio system, the radio waves travel in frequency bands (low, high and ultra high), which make them vulnerable to interception. But mesh radio waves with software, and you get frequency hopping waves. “There are a 1,000 frequency hops within a minute and require very high-end encryption. These are very hard to intercept,” says Shankar. Alpha is already exporting these subsystems to Elbit. The Indian army is next on the cards. They have sent Alpha a request for information (RFI) proposal and if trials go well and they emerge as the lowest bidder, Alpha will soon be supplying the subsystems to the Indian army.
Apart from investing in R&D, the company has beefed up its team as well. Starting with just three people, today it employs 845 people, 530 of whom are engineers. While they have their own manufacturing facility in Bengaluru where they produce radio communication and thermal cameras and software-defined radio sets, among others, they also outsource to tier-II and tier-III subcontractors.
Make in India
Apart from the usual communication and thermal imaging gadgets, one sees something very unusual at Alpha’s workshop: a missile head. It imitates BrahMos – India’s supersonic cruise missile developed jointly with Russia. The missile head has a Radio Frequency Seeker (RF Seeker) embedded on its head with which it seeks the target and destroys it. “BrahMos Aerospace, approached us as it wanted to reduce the size of the missile head. We did the R&D and are reducing its size to a third of the original,” says Shankar. Only five countries in the world have the capability to manufacture RF Seekers – the US, UK, Israel, Russia and China. India will soon join this elite list.
DR Subramanyam, vice president of Society of Indian Aerospace Technologies and Industries who also runs SLN Technologies, a defence tech company from Bengaluru believes that the company’s ability to price its products competitively definitely works to its advantage. “The company has state-of-the-art defence and avionics products in the areas of thermal imager-based optronics systems, fire control systems, electronic warfare, tactical communications that are offered at competitive prices and upgrades to systems already in service,” he says.
Shankar feels it is not just the competitive prices they offer but also the quality of their products that makes them the preferred partners for their international clients. “Our clients used to buy or source products mostly manufactured in East Europe. But they have now shifted most of their sourcing to India,” he says.
While big players like Tata L&T and Reliance have forayed into defence, Shankar is not too worried. He feels that they, too, would have to face structural issues. “Though there is a lot of money to be made, you have to deal with a lot of bureaucracy, and they will find themselves fighting against the government’s defence PSUs,” he predicts. According to him, even in developed markets like the US and Europe, the core technology is with the MSMEs. “Big defence players depend on them for a lot of things,” he says.
While they may be ahead on technology, there is still one area that MSMEs like Alpha struggle with: financing. While he says the government and its policies have been very supportive, banks still ask for collateral. “What can I pledge to banks? Were they to not insist on collateral, a lot more could happen in defence manufacturing,” feels Shankar. While the company hasn’t lost an order due to a lack of working capital, Shankar is now considering an IPO as the company needs about Rs. 400 crore to Rs. 500 crore in the next three years. Though the financing issues need to be addressed and Shankar is sure that he will find a way out, one thing is clear: Indian enterprises can not only make for India but for the best in the world.