Saturday, November 15, 2008

Chandrayaan and all that

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.