Today’s Head lines reads “Reliance, Adani-backed drone manufacturers among recipients of Type Certification from DGCA.
Type Certification is necessary for regulatory compliance as per Drone Rules 2021. It is also essential to comply with international ISO/IEC17065 standards and also for taking part in the government procurement process”.
(Copy of this article is attached at the end of this post).
This prompted me to do a little bit of deep dive in to the prospects of Drone industry in India.
In its push to the Make-in-India drive, the government is going all out to support domestic enterprises by tweaking its policies and regulations so that more and more products are manufactured within the country.
One such sector which is getting a lot of support and thrust from the government is the manufacturing of drones or unmanned aerial vehicles (UAV).
From its applications in agriculture, defence, law enforcement, surveillance, delivery services, worksite efficiency, private occasions and so on, the possibilities for the use of drones are endless. With the government showing its clear intent to make India a global hub for manufacturing of drones by 2030, the prospects for the growth of this sector are immensely strong.
According to a civil aviation ministry estimate, India’s drone sector will achieve a turnover of Rs 12,000-15,000 crore by 2026, from about Rs 80 crore now.
Drone Rules
Compared to the previous rules, Drone Rules 2021 have abolished several forms and permissions to encourage the growth of India’s drone industry. Earlier, the process involved drone operators and manufacturers to fill 25 forms, which have now been reduced to only five, and the total number of documents have also been reduced considerably.
With the new rules in place, the security clearance and lengthy approvals comprising unique authorisation number, operator permits, drone port authorisation etc are no longer required and this will facilitate the growth and encourage more players to come.
Also, the airspace over which one can fly a drone has now been increased to almost 85 percent of India’s total air space, a six-fold increase from before.
Although the airspace has increased, there is a slight catch as the new rules state that every drone operator, even if it’s for hobby purposes, must register with the DGCA.
Given the huge demand and market growth, the number of drone start-ups in the country has jumped 34.4 percent between August 2021 and February 2022. India now boasts of 220 drone startups
The civil aviation ministry has recently made a lot of amendments to the drone laws/rules applicable in the country. The government has done away with the requirement of obtaining a remote pilot certificate for flying small to medium sized drones of up to 2 kg for non-commercial purpose.
PLI Scheme
The PLI (performance linked incentive scheme) launched by the government in August 2021 will not only help encourage domestic players to play a pivotal role in the development of this sector but will also reduce country’s dependence on imports.
The PLI scheme, which has an outlay of Rs 120 crore spread over three years for drone manufacturers, has also put a ban on the imports of drones.
A few months back , the Govt had released the list of 23 beneficiaries under Drone PLI schemes ( list attached at the end of the post )
China plus
Due to the supply chain disruptions witnessed across the world following the pandemic, all major global organisations are moving to a “China plus” strategy and India stands to gain immensely due to this shift. China is one of the biggest suppliers of drones worldwide but as seen in many industries, the Chinese drone poses risk of data security as the data goes to the Chinese servers in China. Indian companies are gaining preference now because of this security concern.
Given the huge demand and market growth, the number of drone start-ups in the country has jumped 34.4 percent between August 2021 and February 2022. India now boasts of 220 drone startups.
Heightened deal activity
The sector is generating immense interest from businesses, both big and small, and some of the top businesses houses in India have bought stakes in some of the companies engaged in the manufacturing of drones.
Reliance Industries had bought significant stakes in SankhyaSutra Labs (in 2019) and Asteria Aerospace (in 2021). DCM Shriram had acquired 30 percent stake in Zyrone Dynamics, a drone maker based in Turkey. RattanIndia and Infosys are the other companies which have stakes in drone manufacturing entities respectively named as Urban Drone logistics (USA) and IdeaForge-A Mumbai based start up promoted by Ankit Mehta, M.Tech in CAD from IIT- Mumbai. Gautam Adani led, Adani Enterprises bought 50 percent of General Aeronautics in May 2022.
Drone stocks in listed space
The new regulatory changes will expand the industry and bring in more players. There are few stand alone listed players in the manufacturing space like the state owned Bharat Electronics Limited (BEL), Paras Defense & Space Technologies, Zen Technologies, Rattan India enterprise etc. Apart from this many others listed companies which have already acquired stake in different start-ups… these are Reliance, Adani, DCM Shriram , Dhanuka Agritech, Coromandel international, Info edge , Zomato and the list is getting expanded day by day.
BEL could be a major beneficiary because of its strong technological and research set up. Similarly,Zen Technologies which is a defence equipment and drone manufacturer. “Zen Technologies may be able to capture market share quickly given they already have the supply chain set up and so also Paras defence. Solar Industries has created a 100% subsidiary named EEL to manufacture Defence Drones equipped with ammunition- it is purely a defence play. EEL’s amunitions & explosive war heads can even be fitted to other Defence Drones manufactured by other companies ! And EEL’s Drones - both offensive and defensive- anti drones system have already been tested at Ladakh .
However some of these stocks like Paras and Zen stock prices have sky rocketed and so also the stock price of Solar Industries.
However, there are Some contrarian views about the sector for now “Contrary to popular opinion, pure-play drone companies are bad businesses as they are not technology companies but B2B service companies which have some limits to growth"
With so many start-ups and so many players intending in to Drone business , it would be highly competitive and there could be consolidation in the industry and we need to see which are those companies would finally survive. If one can analyse & predict the winners in space , it may make sense for investment in this space.
Disclaimer:
Invested in some of the companies named above…please do your own assessment before investing.
The information compiled from various sources such as Money control, Equity master, KPMG and various other articles.
