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July 8, 2010
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Lockheed Martin Corporation (LMT) has formed a joint venture with Indian behemoth Tata group’s defense and aerospace arm, Tata Advanced System for the manufacture of defense equipment and aircraft parts. The joint venture is however pending authorization of the Indian Foreign Investment Promotion Board.
Lockheed Martin will have a 26% stake in the new company, Tata Aerostructures Ltd. while the majority stake of 74% will be held by the Tata group. Tata Aerostructures will design, develop and manufacture aerospace and aerostructure products. The partners estimate an export potential of $200 million over a period of five years in addition to a fair share of the Indian pie.
India’s military budget of approximately $32 billion for 2010 to 11 rose 8.13% year over year and is expected to reach $42 billion by 2014 to 15. India is expected to shell out more than $80 billion for defense procurement over the next five years.
The joint venture enables Lockheed Martin to gain a foothold in the lucrative Indian defense market although as the junior partner. This is due to a cap of 26% on foreign direct investment (“FDI") in the defense sector in India. However, the Indian department of industrial policy & promotion is seriously considering increasing the FDI limit in the defense segment to 74%. Lockheed’s arch rival Boeing Company (BA) is also strongly pitching for India’s search for a new fighter aircraft.
Lockheed Martin generated only 15% of its revenues from international sales in fiscal 2009. The company is focusing on expanding its international exposure to reduce its dependence on the US government (85% of sales in 2009). Budget deficits and political uncertainty make future U.S. defense budgets vulnerable to cutbacks.
Headquartered in Bethesda, Maryland, Lockheed Martin is a global security company and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.
Lockheed Martin remains a key player within the military space and continues to benefit from strong defense spending. The company’s customer base includes the U.S. government, foreign governments and other commercial buyers. Lockheed’s traditional defense focus appears strong, with increasing interest from domestic and international customers.
We currently have a long-term “Neutral" recommendation on the Zacks #2 Rank (Buy), Lockheed Martin stock. In the near term, the stock shows greater prospect than its Zacks #3 Rank (Hold) peers such as General Dynamics Corporation (GD) and Northrop Grumman Corporation (NOC).
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