Saturday 15 November 2008

Chandrayaan and all that


http://business.outlookindia.com/inner.aspx?articleid=2258&subcatgid=999&editionid=60&catgid=9

Outlook Business, 15 Nov 2008

Pie in the sky

Chandrayaan-1 is a statement of sorts: India has space capabilities and is a low-cost player. And now, it’s building an ecosystem for companies

Supriya Kurane


He just can’t conceal his excitement. "We are part of the moon mission," gushes TT Mani. His company, Avasarala Technologies, is responsible for a piece of Chandrayaan-1: heat pipes, a critical component that regulates temperature in spacecraft and satellites, and ensures that electronic components don’t fail in space. When India blasted off its first unmanned mission to the moon last month, it launched million-dollar dreams of space entrepreneurs like Mani with it.

About 40 companies have contributed to Chandrayaan-1. Companies like Tata Advanced Material, Hindustan Aeronautics Limited (HAL) and L&T built the body and solar panel array elements (which power the craft). A clutch of small companies made myriad components like heat pipes, ground fixtures and power packages—critical components that have no scope for error. They are all part of the troupe of about 100 Indian companies in the private sector—big (the Tatas, L&T and Godrej) and small (Walchandnagar Foundry, Venkateshwara Engineering and Shoma Industries)—that have been quietly powering the country’s space ambitions.


No limits in the sky

At the Indian Space Research Organisation (ISRO), it’s take-off time. Following the success of Chandrayaan-1, ISRO is planning more launches. There’s Chandrayaan-2 in 2011, a mission to an asteroid or comet in 2015 and a Mars mission in 2019. ISRO is collaborating with several countries to carry an ultra-violet telescope (which captures images normal satellites cannot) in an Indian satellite within a year. It’s building a tropical weather satellite with France and collaborating with Japan on a project on disaster-management from space. It is building capabilities to launch heavier satellites (which can go 10-15 times further than conventional geo-stationary satellites that rotate along with the Earth) by 2010. The more satellites and crafts ISRO launches, the more business comes the way of Indian companies.


Besides its own launches, ISRO plans to step up commercial satellite launches for other countries and private players. This is a market worth $138 billion, and forms the lion’s share of the total global space opportunity of $251 billion, notes The Space Report 2008 (See table below: The Space Pie). To start with, ISRO wants to increase its commercial launches—which it began in April 2007, with the launch of Italy’s Agile astronomical satellite—from two to five in a year, and earn $70 million a year in the process. The bigger, long-term goal is a 10% market share, leveraging its 60-70% cost advantage over foreign players.

The business opportunity for India exists in three areas. One, building and launching satellites. Two, leasing space on these satellites for applications like direct-to-home (DTH) services, global positioning systems (GPS), education, telecom and weather monitoring, among others. Three, disseminating and processing data and images generated by satellites (for example, fisheries study water and weather patterns, and move their trawlers accordingly). In India, currently, ISRO dominates all three. The private sector, though, is gradually increasing its capabilities in satellite building and data processing. And, as the Indian space ecosystem develops, so will the opportunities for private firms.


Star wars

India’s space programme is largely self-sufficient—partly the unintended outcome of sanctions imposed by the US and Europe following India’s nuclear test in 1974—and aims to soon become completely independent of foreign support. India’s six remote-sensing satellites, the largest such constellation in the world, monitor the country’s land and coastal waters. India’s seven communication satellites, the biggest civilian system in the Asia-Pacific region, provide communication access, television coverage, even remote healthcare services and education to the rural poor.

What ails India’s space programme is weak marketing, which cramps the overseas There are three business opportunities: building and launching satellites, leasing space on these satellites, processing data and images generated by satellites

revenue potential of ISRO and private ancillary industries. The need to market better led to the birth of Antrix Corporation 16 years ago. Antrix, an anglicised spelling for Antriksh (space in Hindi), is the commercial arm of the Department of Space, and does the grunge work of convincing foreign space agencies the cost savings of launching payloads through ISRO.

In 2007-08, Antrix saw a spike in revenues to Rs 940 crore (Rs 660 crore in 2006-07), on the back of two satellite launches for overseas clients. The bread and butter, however, remains the leasing of transponder capacity on ISRO satellites. Even then, it pales before Europe’s Arianespace, which controls almost half of the global commercial launch business. But that’s also the opportunity for ISRO, Antrix and the private sector to aim for—and chip away at. Says Sridhara Murthi, Executive Director, Antrix: "PSLV is a proven vehicle to carry satellites. We are marketing its capabilities to get more business."

In addition, Chandrayaan is a statement to the world that India has top-notch space capabilities. And low cost—Chandrayaan is the cheapest moon mission. Says Murthi: "Opportunities for the private sector are huge because of growing demand for satellites. The challenge for Antrix is to cater to the diverse needs of the global market on the one hand and get the private sector ready on the other."

Still, in a business where geo-political loyalties run deep, because of privacy issues and because volumes aren’t big enough to look beyond, crossing over won’t be easy. In satellite manufacturing, Antrix competes with players like Orbital Sciences and Lockheed Martin of the US, Alcatel Alenia and Loral Space and Communications of Europe, and some Russian manufacturers. In services such as sale of high-resolution images, against SpotImage of France, and GeoEye and DigitalGlobe of the US. "We are competing with seasoned players. Currently, there is no integrated space industry in India that can work collectively," says Murthi.

This apprehension of competing in the global market is palpable across the sector. "Competing in the global market is tough," says B Malla Reddy, CEO, Astra Microwave Products, a Hyderabad-based company that manufactures TR modules (transmit/receive components) for remote-sensing satellites and automated weather stations. In 2007-08, Astra recorded revenues of Rs 25 crore from the space sector, with ISRO its sole buyer. Says Reddy: "Countries prefer sourcing from home. Indian component manufacturers can sell globally only if Antrix acts as a facilitator."

Antrix hasn’t yet started acting as a facilitator in a big way, but ISRO is helping component companies in the global market. Precision-machinery manufacturer Avasarala Technologies began by supplying heat pipes to ISRO. It has about 1,000 heat pipes in space, and recorded revenues of Rs 25 crore last year. This is expected to double next year when it enters the global market, with ISRO’s help. Avasarala will supply heat pipes to ISRO, which will then remake them into thermal panels and supply US satellite maker SS Loral. Says Mani: "Once volumes increase, we will go into the global market on our own. For now, we depend on ISRO, as we don’t have the financial muscle or technical capabilities. Also, future business is not assured."


Shifting priorities

Despite the teething troubles, everything points to greater private participation in space programmes. ISRO has been gradually getting out of the production cycle and has even been transferring technology to private players. Some large international players are also looking at India as an outsourcing centre to manufacture critical components or develop software to interpret data, and are looking to set up captive units in India. An increasing number of ISRO veterans are leaving to join private companies.


The ecosystem is building up and investment is trickling into the private sector. November 2007 saw the first private equity (PE) deal in the defence and nuclear space, with Blackstone picking up 26% in MTAR Technologies, a Hyderabad-based nuclear, defence and space components company, for Rs 260 crore. Shortly before this, AIG, through its AIG Asian Opportunity Fund II, had loaned $20 million to Avasarala Technologies to build a new production unit on the outskirts of Bangalore.

Most of the work being done by private companies is either low-end or marginal. "For the private sector to truly get into the space sector, a policy shift is needed," says Mukund Rao, COO of ESRI India, a GIS (geographic information system) software provider and an ex-ISRO scientist.

Rao says ISRO should take on only R&D and support functions, and pass on satellite manufacturing completely to the private sector, as it is in the US and Europe. Adds Shivanand Kanavi, VP-Special Projects, TCS, and a space industry specialist: "ISRO can only be unshackled through the creation and implementation of forward-looking, business-oriented policies. ISRO should network with private enterprise to pass on its scientific and engineering expertise and products," he says. Indian Inc would like that, and Chandrayaan-1 may just speed up the transition.

5 comments:

L. Venkata Subramaniam said...

Excellent article. You said it very aptly, there are no limits in the sky!

I agree with most things you say but when someone like you talks about our great capabilities at low cost, it really rankles.

We have achieved this low cost by underpaying our scientists. Let's not have any illusions about that.

I think you will agree with my post I think you must highlight the plight of our scientists through your column.

Shivanand Kanavi said...

Hi thanks for your comment and post on your blog. I agree that scientists' pay should be increased etc and I am sure the 6th pay commission will do something about it. meanwhile the cost of man power is not the only cost involved in making a launch vehicle or a satellite, besides the hardware there is also infrastructure. For example I was told by ISRO almost ten years ago that they need a million litres of liquid nitrogen for testing satellites and that is really expensive in India, leave aside powercuts, back up power etc. More over, many hitech components have been denied to India due to technology denial regimes, thereby increasing component cost.
Hopefully with the nuclear deal things will start easing off.
As for comparing costs, there is a constant problem due to exchange rates not reflecting PPP (Purchasing Power Parity, which according to WB is $1=Rs5). In IT too we do not pay $ 200K to $300K to a VP or even an experienced coder/technology person.
There is something called frugal design philosophy in India, as expressed by Carlos Grossn of Nissan/Renault.
One of the reasons Nano has low price tag and has attracted international attention is it took about $300 million to develop including creationg of infrastructure, where as any new auto model takes over $1 billion in development elsewhere!

L. Venkata Subramaniam said...

6th pay commission pay scales have been implemented and what I have given on my blog are those precisely.

You are right PPP pegs dollar to rupee at 1:4 or 1:5. And if you look at IT salaries they are in that range.

But IT to ISRO salaries are also at 1:3 to 1:6

Frgality as a virtue cannot be the reason to deny scientists reasonable salaries.

In the past 5 years according to a report tabled in the Parliament about 700 scientists employed in the govt sector have left due to better salaries elsewhere.

Also you are right that high technology has been denied to India. But that has further highlighted the exploitation of our scientists. If they are freely available institutions like ISRO and Atomic Energy Dept. dont mind paying millions or billions of dollars to US companies get them. But during the denial regime these same components were developed by our scientists and the same departments showed their "frugality" in underpaying them. Now you will again see ISRO and dept of atomic energy overpay to sustain higher US salaries.

Most of the cost of high technology can be attributed to the intellectual property cost which comes from paying the scientists. Space research is expensive not only because nitrogen cost. It is high because it takes years of research by highly qualified people.

Let us not quote our frugal mentality and national honour as reasons to underpay our scientists and then bask in the glory of their success.

Shivanand Kanavi said...

LVS,
The article is not written by me. It just quotes me at the end.
I think you misunderstood what I wrote. I was referring to the cost advantage that India enjoys in launch vehicle and satellite design and fabrication. I was trying to point out is that it is superficial to say that only labour arbitrage accounts for it. There are other positive factors as well and some are not in our favour like infrastructure costs.
While I support your advocacy of increasing pay for our rocket scientists, there are limits to it, as long as it is in the government sector alone. When the private sector also enters space significantly, then the packages will improve all around. More over in IT, people had the choice of migrating or working in US under H-1B, whereas in space and atomic energy that option did not exist due to sanctions. Not only importing materiel was banned but men were black listed as well. With the easing of sanctions in the coming period I expect a massive exodus from both sectors in India to US and other countries. Already there are many top honchos in the global satellite companies that are ex-ISRO (see another piece by me in the blog). They got permission through an elaborate procedure. In fact I believe Indian nuclear engineers will contribute significantly to the global nuclear renaissance, just as it was the case in the silicon valley.

Anant said...

Dear Shivanand,

Nice to see you quoted at the end of the article!

Best regards, Anant