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Published: March 15, 2024
Updated: March 15, 2024

Outer Space Emerging New Sunrise Sector

It was a reform that was waiting to happen. The (outer) space sector has been dominated historically by a handful of countries, with the US and China being the biggest spenders of the $ 450 billion global space industry. Despite India’s historic achievement in being the first country to put a lander on the moon’s south pole, the undeniable fact is that India currently accounts for only 2 per cent of this global investment in outer space.

Seeking to fast-track growth in the sector, the Modi government has made a sea change in the country’s space policy by welcoming private sector participation and putting in place a supportive framework . Not only will this be a huge boost for India’s place in the (outer) space club, this latest sunrise sector will be a new and lucrative investment avenue for institutional and retail investors alike.

The $ 8.4 billion Indian space segment is undergoing a dramatic transformation. During its second term in office (2019-2023), the Narendra Modi government has made epochal changes in the country’s space policy which is bound to usher in a new era in the sector. Besides the pioneering Indian Space Research Organisation (ISRO) which achieved extraordinary success recently by guiding Chandrayaan- 3 to land near the moon’s south pole – the first by any country — new public and private sector organisations have come into existence to push up the pace of growth in the space economy for which even the sky is not the limit.

The new space policy 2023 has opened up the sector to the private sector, putting an end to government monopoly of the space sector. This policy change will result in a complete break from the past, where the government was the only source of funding for the country’s space sector. With this revoluntary policy change, the space segment has emerged as a new sunrise sector for private sector entrepreneurship.

Today, the Indian space industry consists of ISRO, New Space India Ltd (NSIL), a space sector PSU, Indian Space Association (ISA), Indian National Space Promotion and Authorisation Centre (IN-SPACE) — an interface between ISRO and nongovernment entities — and over 500 private sector entities, including small, medium and large companies, and various suppliers to ISRO. Already, there are around 200 space start-ups in the private sector with a total investment of $ 125 million. The entry of the private sector has opened the door to booming investments in the space sector. For retail investors, there will be new opportunities to invest in shares of private companies that get listed on the stock exchanges.

SHARE OF PIE

Why did the Modi government go in for such a radical policy change? Explains S Somnath, Chairman, ISRO, “Even after 75 years of Independence, the size of Indian’s space sector is around $ 8.4 billion. Viewed in the context of the global space economy of $ 447 billion (according to estimates by McKinsey), India’s share of the pie is currently minuscule. So the Modi government thought, why not to invite the private sector to participate.” Comments Lt Gen AK Bhatt (retd), Director-General of Indian Space Association (ISA), “This is a historic moment for India’s space sector as the policy change will bring much-required clarity in space reforms, and private sector participation will drive the space economy of the country.”

The new space policy seeks to institutionalise and facilitate the access of the private sector to the space sector. The policy will delineate the responsibilities of ISRO, NSIL, ISA and IN-SPACE. Thus, ISRO will not do any operational and production work but will focus its energies on developing new technologies, new systems and R&D. The operational part of ISRO’s missions will be moved to IN-SPACE, a public sector undertaking under the Department of Space (DoS). Strategic activities related to the space sector will be carried out by NSIL, a public sector undertaking under the DoS, which will work in demand-driven mode.

THE FRAMEWORK

The recently created IN-SPACE will be the interface between ISRO and non-government entities. Now, private sector companies will be able to build rockets, satellites and landers and will engage in data collection and dissemination. The private sector will have thus again access to endto- end space activities. The new policy reflects five major changes in the mode of execution of space activities in the country:
1. In order to enhance utilization and maximize benefits from the space assets, it is proposed to change the approach from “Supply Based Model” to “Demand Based Model”. NewSpace India Limited (NSIL) will act as the aggregator of user requirements and obtain commitments.
2. NSIL to take ownership from DOS for operational launch vehicles, commercialize launches, satellites and services.
3. Permit NGPE’s to carry out space activities through an Indian National Space Promotion and Authorization Center (IN-SPACe)
4. ISRO to carry out capacity building in Space domain through development of new technologies and capabilities and enable sharing of facilities by NSIL and NGPE’s.
5. Announcement of Opportunities for NGPE’s offering challenges in new domains of technology.
The policy also spells out the framework for the private sector to use ISRO facilities for a ‘small charge’ and will encourage private companies to invest in creating new infrastructure for the sector. According to an expert, the global space industry is worth around $450 billion, with the US and China spending the most. India currently accounts for only 2 percent of this. According to the Economic Survey of India, there are 100 active space companies, many of whom are currently waiting for approval from IN-SPACE.

WIN-WIN POLICY

The entry of the private sector in the space economy has proved beneficial to several countries. Points out one expert, "Allowing private companies to perform space missions has benefited nations such as the US by promoting private sector investment. For example, Elon Musk's SpaceX's reusable Falcona rockets have become a popular choice for space missions around the world."

Encouraged by high-profile successes elsewhere, India has also started thinking that its private space companies should increase their share of the global launch market fivefold within the next decade. Efforts in this direction have been boosted by the personal support of Prime Minister Narendra Modi. Little wonder that the Union cabinet under the leadership of Mr Modi devised the new space policy 2023. Earlier, as a preclude to this historic policy, the government had allowed the private sector to go for private launches in 2020. The effect was immediate: the number of space start-ups shot up from 21 to around 100. Then, in late 2022, Skyroot Aerospace launched India's first privately built rocket into space. Taking a cue from Prime Minister Modi's personal thrust on the space sector, private investors poured $ 119 million into the sector in 2022. They realized that in India launches are a less costly alternative to European launches. This means that it is boomtime for young space companies like Skyroot and Agnikul Cosmos, Satsure and Pixxel.

NO RED TAPE

Maintains an elated Pawan Chandma, co-founder of Skyroot, "It was a big surprise for all of us that the launch and the policy change all happened on time and we were able to meet our deadlines. With complete support, we did not have a single day's delay because of policy issues. Funding was the major problem as customers want to see successful launches before committing costly payloads to unproven designs. So funding started trickling in very slowly."

Points out the promoter of a startup, "No doubt there are some very good companies in India but at the moment we are much behind the US and China. Policy unlocking is very important but the world will not take real notice until we do something remarkable like what SpaceX did." For the record, SpaceX, which serves private customers as well as governments, conducted more than 60 launches in 2022 alone. According to Mr Somnath, ISRO Chairman, India will now work on public-private partnerships to fully tap the space sector's commercial potential. Says an expert, "PPP is the only way to increase the size of India's space economy from the current $ 8.4 billion to $ 50 billion. Opportunities for growth are unlimited. Following the successful deployment of One Web Satellites, ISRO is looking forward to doing more third-party launches."

FDI ROUTE

After the entry of the private sector in the space economy, ISRO will examine new ways of bringing in fresh investments through both the FDI (foreign direct investment) route as well as enhanced private sector participation. The private sector is excited at the opening of the space sector and is now waiting as to see how the PPP model works. There are hundreds of private sector companies which are involved in the space sector at present, including large cap companies like Larsen & Toubro, Bharat Forge and Walchandnagar Industries, and several mid-cap and small-cap companies, including 400 companies created by ISRO to manufacture components for ISRO's requirements.

INVESTOR DELIGHT

The opening of the space sector for private companies will provide new opportunities for savvy investors who seek to explore the vast potential within India's financial landscape. As we approach the dawn of a new age in space exploration and technology, we need to examine the existing companies and await the emergence new players. Needless to say, of the hundreds of companies, big and small, in this sector, we have to limit ourselves to public limited companies listed on recognized stock exchanges. In order to cut the clutter, we have selected top companies which are attractive for investors with a long-term perspective. Our choices are engaged in manufacturing satellites, providing space-based services and contributing to space exploration activities.

Admittedly, the Indian stock market does not play host to space stocks like Lockheed Martin (the world's largest defence company with a substantial space business), Virgin Galactic Holdings (a space tourism stock backed by Richard Branson), and Rocket Lab USA (a launch specialist). But the Indian stocks we have chosen, if they live up to their potential, will grow into multibaggers and enrich investors. With the Indian space sector opening up for investment, with privatization at home and the green signal for 100 per cent FDI holdings, the prospects for Indian space stocks are very bright. Here goes the list. Happy investing.

State-owned Hindustan Aeronautics is the biggest player in the aerospace sector, with its CMP ruling around the 52- week high price and also above the long-term average. The company has a good pipeline of orders from the government and is also pushing its products in overseas markets.

A vertically integrated defence and aerospace electronics solutions provider, Data Patterns offers a good opportunity to invest in the aerospace sector. The stock is near a 52-week high and has strong momentum. A low-debt company, Data Patterns has high EPS growth and decent quarterly results.

A state-owned company, Mishra Dhatu Nigam has got itself a foothold in the aerospace industry through a tie-up with Boeing to develop raw materials for aerospace parts and defence components in India. While MFs have decreased their exposure to the stock, it is still trading near a 52-week high and above long-term averages, and has earned a hike in the target price from many brokerages.

A parts supplier for various industries, including aerospace, MTAR Technologies' stock price is above the short-, medium- and long-term moving averages. A low-debt company, MTAR Technologies has seen a positive breakout even at second resistance, leading to increased interest from foreign investors.

Another good opportunity among the best defence and aerospace stocks, Paras Defence and Space Technologies has low debt and its stock has seen a positive breakout from first resistance. Its current stock price is above the short-, medium- and long-term moving averages and the company has low debt and a zero promoter share pledge.

A low-debt company, Apollo Micro Systems has also seen promoters cutting down the share pledge. It recently saw its highest recovery from a 52-week low, attracting the interest of foreign investors.

Bharat Electronics Ltd., a defense and aerospace giant, plays a crucial role in the space sector. BEL is known for manufacturing electronic systems, radar systems, and communication equipment and is a significant contributor to India's satellite and space programs. Its strong financial standing and expertise in advanced technologies position it as a cornerstone in the country's space exploration initiatives.

Dreamfolks Services Ltd. operates in the space sector by providing various services, including satellite communication solutions and satellite-based services. Its performance is influenced by the growing demand for connectivity and communication solutions, positioning the company as a player in the evolving landscape of space technology applications.

Walchandnagar, with a diverse portfolio, including heavy engineering and technology solutions, contributes to the space sector. Its performance is marked by manufacturing critical launch vehicles and satellite application components. The company's engineering capabilities position it as a significant player in supporting India's space missions.

Incorporated in 1993, Zen Technologies Limited designs, develops and manufactures state-of-the-art Combat Training Solutions for the training of Defence & Security Forces worldwide and is a leader in providing Counter- Drone Solutions for safeguarding the borders, critical infrastructures etc. Zen Technologies is headquartered in Hyderabad, India with offices in India, UAE and USA. The company is built on strong R&D capabilities and has filed or received over 125 patents. Zen Technologies Limited is an ISO 9001:2015 (QMS), ISO/IEC 27001:2013 (ISMS) and CMMI Maturity Level 5 Company.