American defence equipment maker Telephonics Corporation will hike its stake to 49 per cent from 26 per cent in Mahindra Telephonics Integrated Systems, a defence joint venture with Mahindra Group as India opens up the sector to foreign investment.

The joint venture, formed between Mahindra Defense Systems and Telephonics Corp in 2013, makes electronic surveillance and communication systems for the Indian aerospace and defence market.

The joint venture received regulatory permission allowing the foreign partner increase its shareholding to 49 per cent in August, making it the first private company in Indian defence sector to receive the nod.

"Increase in ownership goes to show Telephonics has faith in the capability of the joint venture," says S P Shukla, group president, Aerospace and defence business, Mahindra group told ET. "They are showing commitment to the sector." "With Telephonics infusing several million dollars we will expand capabilities," he added.

Telephonics will put in not more than $10 million in the next one year.

In June, the joint company started manufacturing Radar Series of Airborne Weather Radars for helicopters. Indian government is encouraging defence manufacturing in the country as a part of its 'Make in India' campaign.

Shukla said the next area of growth for the company will be to make radars for border surveillance and later for naval applications.
The government has raised the permitted level of foreign direct investment to 49 per cent. This can go higher, if the foreign partner transfers state-of the art technology to the Indian venture.

India's attractiveness to global defence companies is rising due to shrinking global defense budgets. India was the sixth-biggest spender on defense worldwide from 2000 to 2010, according to a report by consultancy firm McKinsey. The initial transfer of technology in 2013 was for the manufacture of transducers used for both commercial and aerospace applications.

Telephonics Corp is part of the US-listed Griffon Company.

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