Defence firms carved out of OFB log profits

Defence companies carved out of the erstwhile Ordnance Factory Board (OFB) last year have turned over a new leaf and reported profits in the first six months of their existence , reversing the trend of accumulating losses in their previous avatar before the board was corporatised in a long-awaited reform in India’s defence manufacturing sector, data from the defence ministry shows.

Also Read | Cabinet clears corporatisation of OFB, to be split into 7 entities

The turnaround has been achieved on the back of a focus on cost reduction, and an aggressive approach to sales, including exports.

The new defence firms posted provisional profits during October 1, 2021-March 31, 2022, except one, which was still in the red but cut its losses by two-thirds.

Prime Minister Narendra Modi dedicated the seven new firms to the country on the occasion of Dussehra on October 15, 2021, saying that the entities would play a critical role in helping the country cut down military imports in line with the vision of “Aatmanirbhar Bharat” (self-reliant India).

While the new firms did not record significant profit – the number ranged from about ₹1.3 crore to ₹60 crore -- their performance does reflect a remarkable improvement over the last three years when they accumulated average six-monthly losses ranging from ₹44 crore to ₹677 crore.

According to the data released by the defence ministry on Friday, the companies that made profit were India Optel Limited ( ₹60.44 crore), Armoured Vehicles Nigam Limited ( ₹33.09 crore), Munitions India Limited ( ₹28 crore), Troop Comforts Limited ( ₹26 crore), Advanced Weapons and Equipment India Limited ( ₹4.84 crore) and Gliders India Limited ( ₹1.32 crore).

The average six-monthly losses for these companies three years prior to the OFB’s corporatisation stood at ₹5.67 crore, ₹164.33 crore, ₹677.33 crore, ₹138.17 crore, ₹398.5 crore and ₹43.67 crore, respectively.

The delegation of the powers to the top management of the new companies has certainly helped them perform better, and the accountability to deliver has also gone up, said military affairs expert and former army deputy chief Lieutenant General Subrata Saha (retd).

“Before the corporatisation, the board was working on indent basis (direct orders) from the three defence services. But now the new firms have moved into a system where they will be driven by competition, leading to increase in efficiency,” he said.

The firms must start outsourcing work related to spares and components to micro, small and medium enterprises to further speed up deliveries and become more profitable, Saha added.

Yantra India Limited was the only company that reported a loss of ₹111.49 crore compared to its previous average six-monthly loss of ₹348.17 crore over three years.

The new companies achieved a turnover of more than ₹8,400 crore, and secured local contracts worth over ₹3,000 crore and export orders worth ₹600 crore, the defence ministry said on Friday. Munitions India Limited topped the list of export orders with a contract worth ₹500 crore for supplying ammunition, it said.

“These new entities have also initiated various measures towards optimal utilisation of their resources and cost reduction. With focused attention on cost reduction, these companies have been able to make cumulative savings of 9.48% in areas such as overtime and non-production activities during the initial six months itself,” the defence ministry said.

The Union Cabinet, headed by Modi, cleared the board’s corporatisation in June 2021 to boost its efficiency and competitiveness.

OFB, which earlier controlled 41 ordnance factories, was split into seven government-owned entities that are producing ammunition and explosives, vehicles, weapons and equipment, troop comfort items, opto-electronics gear, parachutes and ancillary products.