Why are the big boys of India Inc acquiring drone start-ups?

Last month, when Prime Minister Narendra Modi lifted a drone off the ground and manoeuvred it through a remote, hundreds of heads turned with it at the inauguration of the Bharat Drone Mahotsav in New Delhi. Some heads turned miles away from the national capital too, in the plush corporate offices of Mumbai and Bengaluru. 

The nascent drone industry has been increasingly catching the attention of India Inc. especially after the government came out with a new policy last year. 

While addressing the event, Prime Minister Narendra Modi called for making drones as ubiquitous as mobile phones. He said that it was his dream that everyone in India should have a smartphone in his or her hand, and every farm should have a drone.

The opportunity to enter a sunrise sector at low valuations, along with favourable policies, has prompted some of India’s largest corporate groups to buy drone start-ups.

As Vipul Singh, CEO of Aarav Unmanned Systems, told Business Standard that many Indian firms were not in the aerospace and space tech race. But now no one wants to miss the bus. They realise that the market cap of tech companies with problem-solving capabilities will exponentially rise in the future.  

The primary factor shaping the drone business strategy at large Indian corporates is the expectation that the market will expand rapidly from niche defence use to the commercial space, starting from agriculture and then moving to mapping and delivery. Specifically since government policies are enabling the commercial drone ecosystem to develop rapidly.

Recently, the Adani Group scooped up Bengaluru-based drone start-up General Aeronautics in an all-cash deal. Sources cited in a previous Business Standard report said that the investment for this acquisition was less than Rs 50 crore.  

The amount may be tiny, but General Aeronautics will give Adani a foothold in the agri-drone space. This comes at a time when the Centre has announced funding of up to Rs 6,000 per hectare to promote the use of drones in agriculture.  

In 2019, Mukesh Ambani’s Reliance Industries had acquired a 51 per cent stake in Bengaluru-based Asteria Aerospace at just Rs 23 crore.

In May, Asteria Aerospace co-founder and director Nihar Vartak had told a news agency that Asteria Aerospace expects to grow around 10 times in the current financial year and cross the Rs 100-crore revenue mark.

DCM Shriram Industries, which has forayed into defence manufacturing, has invested $1 million to buy a 30 per cent stake in Zyrone Dynamics, a Turkish drone company. The acquisition is aimed at producing drones for India and the global market.

Expert byte on how changes in regulations have boosted industry and brought in investor attention:  

The government has significantly relaxed regulations for operating drones and simplified the approval and certification process over the past year. It has also given a green signal to testing beyond visual line of sight drone operations. When finalised, this will make drone deliveries possible.

In September, the government had announced a production-linked incentive scheme for drone manufacturers in India. Before that, it had allowed heavier payloads so that the devices could potentially be used as unmanned flying taxis. Note that India will also offer Rs 120 crore of incentives for drone makers.

There is a large pie on offer, from which companies can carve up their share. According to the Civil Aviation Ministry’s estimates, India’s drone sector will achieve a total turnover of Rs12,000-15,000 crore by 2026, from its current turnover of about Rs 80 crore.