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Indian billionaires Mukesh Ambani, Azim Premji and Adi Godrej made their fortunes in refining, software and toilet soaps. These days the moguls see big money in bullets, bombs and ballistics.

India is the world’s largest weapons importer, depending on foreign companies including Boeing Co. and MiG Russian Aircraft Corp. for about 70 percent of its $35 billion military budget. Now Asia’s third-biggest economy is revising its rules to give domestic private-sector companies a better shot at more of the spending. That’s got big Indian companies such as Premji’s Wipro Ltd., the country’s third-largest software exporter, setting up weapon-making units, forming new partnerships with foreign defense companies or eyeing acquisitions overseas.

“This is a sexy market with a huge capital acquisition program,” said Dhiraj Mathur, an executive director at PricewaterhouseCoopers LLP’s India unit. “The advantage the big players have is that they are large, have deep pockets and the resources.”

The tilt to domestic companies comes as India ramps up its defense budget, looking beyond its traditional rivalry with Pakistan to counter China’s rising power. India tripled military outlay over the last decade to become the world’s seventh-largest defense spender in 2011. China is the second largest at $105 billion. In the next five years, KPMG International estimates, India will seek bids for $42 billion of military hardware -- from fighter jets to artillery guns.

‘Major Area’

“Defense will be a major area of expansion” for Indian companies in the next few years, said Godrej, chairman of Mumbai-based Godrej Group, whose consumer unit is India’s third-largest maker of personal-care products, such as deodorants and soaps. “We are looking at all opportunities” to expand into the segment and discussing partnership possibilities, he said, declining to name companies.

Billionaires such as Godrej, Ambani and Premji accumulated their fortunes as India started opening its economy in 1991, ending decades of license requirements, scrapping state monopolies in industries ranging from telecommunications to aviation and allowing foreign investments and ownership.

Last year the government revised its policy on military procurement, opening the door for private-sector companies to expand into a new market. They now account for only 10 percent of India’s defense spending, mostly as sub-contractors to state-owned entities, which contribute about 20 percent, according to a March report by Boston Consulting Group Inc. Foreign suppliers account for the remaining 70 percent.

Advantage Locals

The new procedures added a “buy and make Indian” provision. For contracts that require certain expertise, only local companies, including joint ventures with overseas companies, can enter bids.

India also tweaked rules governing local purchase requirements. Foreign suppliers were required to source at least 30 percent of a defense contract from local companies, a rule known as the offset policy. The scope of that has been expanded to allow foreign arms makers to purchase civil aerospace components, and offer weapons and services for homeland security, to meet the obligation.

Lacking extensive military-manufacturing expertise, Indian companies are forming partnerships with foreign defense contractors to take advantage of the new rules. That will benefit both local and overseas companies, said Nidhi Goyal, director of the aerospace and defense team at Deloitte Touche Tohmatsu Ltd. in India.

Naval Weapons

The State Department approved a record number of export licenses, estimated at a value of $44.3 billion, last year for weapons and military parts and services sold overseas by U.S. companies, according to an annual report to Congress yesterday. It approved licenses valued at $217.3 million for sales to India, up from $154.5 million in fiscal 2010.

Mahindra & Mahindra Ltd., India’s biggest tractor maker, has set up several joint ventures including one in March with Israel-based Rafael Advanced Defense Systems Ltd. for naval weapon systems.

Mahindra expects sales of about $500 million in 10 years for its defense business, up from zero now, Vice Chairman and Managing Director Anand Mahindra said in March.

Premji’s Wipro last year agreed with a European Aeronautic, Defense & Space Co. unit to manufacture aerospace actuators, a controlling system, and related precision engineering components. The work will be done at a factory Wipro is building in India, said Sunil Rajagopalan, who heads aerospace and defense at Wipro Infrastructure Engineering. Premji ranks 37 on the Bloomberg Billionaires Index with a $15.9 billion net worth as of June 6.

Fighter Jets

Ambani’s Reliance Industries Ltd., the Mumbai-based operator of the world’s biggest refinery complex, signed an agreement this year with Dassault Aviation SA to explore defense projects. India is negotiating with Dassault, based in Paris, to buy 126 Rafale warplanes in the world’s biggest fighter-jet purchase in 15 years, estimated to cost at least $11 billion.

Tushar Pania, a Reliance spokesman, declined to comment. Ambani, Reliance’s chairman, is the world’s 23rd richest person, with a $20.4 billion net worth as of June 6, according to the Bloomberg Billionaires Index. Mathieu Durand, a spokesperson at Dassault, also declined to comment.

Shares of Reliance rose 1.2 percent to 729.70 rupees at the close in Mumbai. Wipro added 0.6 percent to 403.35 rupees. The benchmark BSE India Sensitive Index gained 0.4 percent.

Scouting for Acquisitions

Indian companies are also scouting for acquisitions, targeting small military-equipment makers in the U.S., U.K. or Europe.

Ajay Piramal, who controls drugmaker Piramal Healthcare Ltd., reiterated May 16 he is considering a defense acquisition and other defense projects.

“We currently have more requests from Indian companies interested to buy overseas than in the last two years,” said Nicolas Ribollet, a Mumbai-based partner at Mazars LLP, an accounting and consulting group in Paris.

Kalyani Group, which makes machined components, is going it alone. Controlled by billionaire Baba Kalyani, it is spending 1 billion rupees over the next two to three years on new defense projects including bombs, shells and a 155 millimeter towed artillery gun, according to Amit Kalyani, executive director of Bharat Forge Ltd., the flagship firm.

Kalyani said the growth of a homegrown military industry will take a long time, in part due to regulatory uncertainty and India’s bureaucracy. “As an entrepreneur it can be quite deterring,” he said.

Richer Margins

Yet richer operating margins in defense contracts is luring companies, according to Alok Deshpande, a Mumbai-based analyst at Elara Securities Ltd.

Reliance posted an operating margin of 6.4 percent in the year ended March 31, according to data compiled by Bloomberg-- about half the margin reported for 2011 by Northrop Grumman Corp., maker of the U.S. military’s Global Hawk drone.

“Anybody with anything in their pocket is talking defense now,” said Neelu Khatri, a defense analyst at KPMG. “I get calls every day from companies in all kinds of manufacturing fields, wanting to find out how they can enter the space.”