#RaGaSaga: Connecting more dots…

#RaGaSaga: Connecting more dots...
#RaGaSaga: Connecting more dots...
Red Book on Sale!

In our previous post dated November 18, 2015, we had summarized the following sequence of events:

  1. Rahul Gandhi and Ulrik R McKnight were Directors of Backops, which they closed in 2009.
  2. DCNS of France, the manufacturer of Scorpene submarines, announces a deal with Flash Forge to supply critical parts as part of a ₹20,000 crore ($4.5 billion) deal to supply 6 submarines in India, some time in June 2011.

  1. Flash Forge acquires a majority stake in Composite Resin on December 20 2013 and in Optimal Armour on March 23, 2012.


Despite being in business for 24 years (it was incorporated in 1991), Flash Forge Private Limited (FFPL) is an Unlisted company. Their authorised capital was ₹80 million – $1.4 million (with a paid up capital of ₹72 million). The company website does not list the number of employees but we got some employee reviews from Indeed.com website. Not exactly a ringing endorsement of how it feels to work there.

Let us imagine the scenario in June 2011. FFPL is selected to be one of the partners in the Scorpene submarines project, a ₹20,000 crore ($3.025 billion) value (for the initial 6 submarine order). A typical spare parts component of a purchase of this size and magnitude would be at least 10% (₹2000 crores – $302 million). (This number is too conservative, as our research on spares for submarines shows – for more on this read on). In selecting a partner, DCNS (and its India partner Mazagon Docks Limited (MDL)) would have asked for a company whose size is atleast 2-3 times the expected value of this contract. Which means FFPL should have had Sales of at least ₹5000 crores ($756 million)!

If FFPL did not have the money to be able to deliver to Scorpene’s expectations, then they should have quoted the Scorpene deal in June 2011 and raised money in the Stock Market. After all, they had been selected as a partner in one of the biggest Defense deals that India had ever done! But they are Unlisted! How then did they manage to get the operating cash as well as the money to acquire Composite Resin and Optimal Armour?

Spares for submarines are difficult to find, as mentioned in this Nova Scotia, Canada article as there are few suppliers. This presents a golden opportunity for an Indian company to get into this in a big way. The world needs Submarine spare parts manufacturers! As the saying goes, “in a blind kingdom, the one-eyed man is king”, FFPL could have become the one-eyed man in the business of Submarine Spare parts! According to CARE Ratings for FFPL released on June 16th, 2015, the ratings firm gives them a BBB- for long term Bank facilities for a paltry amount of ₹20crores! Is FFPL still involved in Scorpene project?

It is November 2015 and still not one submarine has been delivered. The reason for the delay? Lack of spare parts! As Russell Peters would have said, “Somebody is gonna get hurt real bad!”

Questions for DCNS/ MDL and FFPL

  1. DCNS said that its Indian partner MDL did a rigorous selection process before identifying the suppliers. Can they make this process report public? How may finalists were there?
  2. Why is DCNS addressing the problem of securing spare parts? Is it not the job of FFPL to do this?


Note:
1. The conversion rate used in this article is 1 USD = 66.16 Rupees.
2. 3. Text in Blue points to additional data on the topic.

Team PGurus

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