Mahindra & Mahindra and BAE Systems have announced that they would make a strategic review of their joint venture business- Defence Land Systems India (DLSI).

This has become necessary in view of the developments in industry environment and customer procurement and acquisition strategies, M&M said in a statement.

M&M said that since the formation of the venture in 2009, with M&M holding 74 per cent stake and the rest with BAE Systems, both stakeholders recognise that `significant evolution has occurred in the Indian Land Systems market’.

The developments in the industry environment and in customer procurement frameworks and acquisition strategies had led them to `institute a strategic review of the business’. The review would assess changes required to address the evolving market and to meet emerging customer needs. The statement clarified however that `no decision has yet been taken on the way forward’.

After the formation of the JV, it was said that DLSI will be headquartered in New Delhi with manufacturing at a `purpose built facility South of Faridabad’ near Delhi. In a release issued by the Mahindra group then, it was stated that the JV was focused on the `manufacture of up-armoured light vehicles, specialist military vehicles, mine protected vehicles, artillery systems and other selected land system weapons, support and upgrades’. The intention was to become a `centre of excellence for artillery systems’.

However it is not clear what impact the latest decision with regard to the tie up between M&M and BAE Systems would have on the overall plans of M&M in the defence sector. This was because it was only recently that another defence foray of M&M with Rafael Advanced Defence Systems was rejected by the Foreign Investment Promotion Board (FIPB) after the Ministry of Home Affairs declined to give security clearance to the JV which was to produce naval defence products.

In a communication to the stock exchanges on Dec 27, M&M said that FIPB which rejected the JV proposal between M& M and Rafael Advanced Defence Systems Ltd of Israel did not assign any reason for its rejection. The application for the JV was made by both companies to the FIPB in March 2012 for the development and production of naval system products.

The statement said `both Mahindra and Rafael are surprised and disappointed at this decision’ as both were reputed companies which have `extensive engagement with the Govt of India on projects related to Defence and Homeland Security’. The statement said that Mahindra and Rafael would `continue exploring ways’ towards forming a JV.

Mahindra said it chose Rafael as a JV partner because both the Indian and Israeli governments were `cooperating extensively’ in the defence sector. Rafael was involved in several defence projects including the Long Range Surface to Air Missile and Armouring Technologies with the DRDO at the government to government level, M&M said.

Mahindra, apart from its JV with BAE Systems for the production of defence land systems products, had received FIPB approval for a JV with Telephonics Corporation to develop and produce defence radar systems and other defence electronic systems. But with one application for JV rejected and another under review by the JV partners themselves, it is not clear what would be M&M’s long term plans to be a big player in the defence sector.

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