Avinya’s take on defence tech opportunity

The Opportunity:

India is charting a new course to enhance its defence and offensive capabilities through the Make in
India initiative. The objective is to diminish reliance on imports of defence equipment and
technology while boosting defence exports to capture a share of the $2.4 trillion global defence
market. Historically, India was the largest importer in the defence sector until approximately nine
years ago.

Richard McCallum, Vice Chair of UKIBC India, remarked, “It is a paradox that while India has one of
the largest defence industrial complexes in the developing world, it continues to be overwhelmingly
dependent on imports for arms and equipment.”

However, times are changing. India's defence manufacturing sector is evolving, with established and
emerging players preparing to capitalize on anticipated lucrative opportunities in the defence and
aerospace industries. According to senior officials, this shift is attributed to India’s plan to invest an
average of INR 1.5 lakh crore ($18.3 billion) annually until 2030 to modernize its military capabilities.

Export Opportunity:

The focus is not only on reducing imports of defence equipment but also on increasing India's
exports by relaxing export regulations, promoting public-private partnerships, and inviting global
delegations from emerging countries to view India as a defence supplier. India now supplies defence
products to over 90 nations—a groswth spurred by global conflicts such as the Russia-Ukraine war
and the Israel-Hamas conflict. These geopolitical tensions have prompted many nations to bolster
their military capabilities, positioning India as a key supplier. In Q1 of FY 2024-2025 alone, India's
defence exports surged by 78%, reaching ₹6,915 crore compared to ₹3,885 crore during the same
period last year.

Emerging sub sectors:

Artificial Intelligence (AI): The extensive application of AI-based technology in the defence sector
covers many functions and possibilities such as training, surveillance, logistics, cybersecurity, UAV,
advanced military weaponry like LAWS, autonomous combat vehicles & robots. These applications
ensure a robust footing in modern warfare strategies.

DRDO's Centre for Artificial Intelligence and Robotics (CAIR) is dedicated to researching and
developing AI systems for decision-making, reconnaissance, and surveillance.

Quantum Technologies: There are three main uses cases of quantum computing in defence:

 Quantum computers - To process large amounts of data faster and more accurately than
traditional computers
 Quantum sensing - Detecting enemy submarines or mines and
 quantum communication - Secure channels for communication protected from eavesdropping.

India has launched a National Mission on Quantum Technologies and Applications (NM-QTA) with an
initial corpus of US$1.1bn to develop quantum communication, computing and cryptography.

Cognitive Technologies: Cognitive technologies can automate tasks from the routine (robotic
process automation) to the complex and abstract (machine learning and AI). They can detect subtle
patterns in data and make predictions about what might be coming down the line. Cognitive
technology is bringing automation to processes previously thought un-automatable, such as
reviewing contracts, classifying images or detecting inappropriate content.

DRDO is researching cognitive technologies to improve human machine interactions in complex

Stealth and Anti-Stealth Technologies: Stealth technology is a military technology that makes
vehicles or missiles nearly invisible to enemy radar or other electronic detection. anti-stealth
technology, also known as Counter-Very Low Observable (CVLO) techniques, are methods that can
overcome the effects of stealth design.

India is working on projects like the Advanced Medium Combat Aircraft (AMCA), incorporating
stealth technology to evade enemy radar detection. Additionally, the DRDO is developing anti-
stealth technology to counter adversaries’ stealth capabilities.

Robotics: Some of the uses of Robotics in defence include; Unmanned aerial vehicles, ground based
robots and even autonomous underwater robots. These technologies also reduce risks associated
with involvement of human beings in unnecessarily hostile territories to protect the soldiers
involved.

DRDO’s Centre for Robotics and Unmanned Systems (CRUS) focuses on the development of ground
and aerial robotic systems for various applications, including surveillance, search and rescue, and
explosive ordnance disposal.

Success stories in the sector:

ideaForge:

Founded in 2007 by IIT Bombay alumnus, Ankit Mehta, Ashish Bhat, Rahul Singh and Vipul Joshi,
ideaForge specialises in the design and development of unmanned aerial vehicles (UAVs), commonly
known as drones.

With a market share of around 50% during the fiscal year 2022, IdeaForge is the foremost and pre-
eminent market leader in the Indian UAV market. The company’s products include the SWITCH, Q4i,
NETRA V4+, NINJA, RYNO and Q6 UAVs, which are used by the Indian Armed Forces, state police
departments, disaster management forces, forest departments, government and private contractors
and enterprise sectors, among others. The company was listed on stock exchange on 7 th July 2023
and today has a market capitalisation of INR 3000 crores.

Alpha design technologies:

Alpha Design Technologies is a Bangalore-based defence electronics manufacturer that was founded
in 2004. The company specialises in researching and developing, manufacturing, assembling, testing,
qualifying, integrating, and installing defence electronics, avionics, and space satellite systems. It was
acquired by Adani Defence on 20th April 2019 for INR 400 Cr ($48.7 Mn). Its annual revenue stood at
$87.7 Mn in 2021, displaying a growth of 46% over its last year’s revenue of $60.2 Mn. Its product
portfolio consists of a range of command, control, communications, computers, intelligence,
surveillance and reconnaissance (C4ISR) technologies, such as smart switchboards that can be
mounted on vehicles for local communication, receivers that use radar, up and down converters that
operate in the c-band, compact jammers, and target acquisition systems that use laser and thermal
technology and are equipped with night vision capabilities.
Government Support:

In the FY25 Union Budget, ₹6.21 lakh crore (12.9% of the total budget) was allocated to the defense
sector. The Make in India initiative encourages indigenous production of defense equipment through
tax incentives and favorable policies. To further promote innovation, ₹518 crore was allocated to the
iDEX scheme, supporting technological solutions from startups and MSMEs.
Key initiatives include the Defence India Startup Challenge (DISC), which identifies and supports
disruptive technologies, and the Defence Innovation Organization (DIO), managing iDEX to drive
innovation. The government has also banned imports of 411 defense systems, including high-value
items like lightweight tanks and aircraft.
What Does Avinya Look for when evaluating a defence tech startup?

 The team's technical capabilities and prior experience selling to defence forces.
 The intellectual property (IP) developed and its use cases for defence forces.
 The size of the addressable market.
 The competitive landscape for the product or technology.
 Relationships with larger system integrators such as PSUs like BEL, BDL, HAL and large private
sector companies like L&T Defence and Tata Advanced Systems.

From the Managing Partner’s Desk

In our view, while the government is effectively supporting startups through iDEX programs to tackle
challenging projects and develop innovative technologies, more needs to be done for further
support of defence startups. Given the substantial tailwinds in this sector, early investors in defence
startups can anticipate significant returns over time but will need patience as developments unfold
over the next five years.