Ordnance Factories Board is a ‘cautious bet’

The government’s decision to corporatise the Ordnance Factories Board (OFB) and look at listing it on the bourses will offer investors an opportunity to own shares in a niche company, but a lot would depend on how the government would act it in terms of funding, order flow and bureaucratic control, say market players.

On Saturday, Finance Minister Nirmala Sitharaman said that the long-pending corporatisation of OFB had been approved and while the entity would not be privatised, the government would look at listing the entity to enhance the transparency in its operations.

The OFB manages the network of ordnance factories across the country that are engaged in indigenous production of defence hardware and equipment for the Indian armed forces.

“This offers savvy investors an opportunity to buy into profitable, well-managed niche companies serving only the armed forces,” said Arun Kejriwal of Kejriwal Research and Investment Services.

“The government has many ordnance factories and in all probability, there would be some sort of reorganisation to classify them into different categories and then list them on the bourses with clear indication that these companies would not be privatised. Another advantage for the company could be that once it is listed, it could get exposure to overseas markets as well which may not be the case today,” he added. A section of market participants, however, feel that investors would take a cautious approach.

“Defence is a lucrative niche segment, but has huge working capital requirements and government control,” said Paras Bothra, president – Equity Research, Ashika Stock Broking.

“Ordnance factory would enjoy limited competition due to licensing related entry barriers, but at the same time it would be dependent on a single customer, which is the government. It will have to deal with bureaucracy and order flow could be erratic due to slow decision making. So, there would be certain impediments as well,” added Mr. Bothra.

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Printable version | Nov 30, 2021 3:51:12 AM |

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