Siddhartha Ahluwalia 1:22

Hi, this is Siddhartha Ahluwalia, your host at Neon Show and managing partner at Neon Fund, a fund that invests in the best of enterprise AI companies building from India for the globe, like Atomic Works, Spotdraft, CloudSec. Today, I have with me Ashok Atluri Sir on the Neon Show podcast. Welcome, Ashok, on the podcast.

So glad to have you.

Ashok Atluri 1:47

Thank you for having me here.

Siddhartha Ahluwalia 1:48

Ashok, you have built Zen in 1993, almost 32 years ago.

Ashok Atluri 1:53

That’s right.

Siddhartha Ahluwalia 1:54

And you have been an IP driven defense technology company from the beginning.

Ashok Atluri 1:59

Absolutely.

Siddhartha Ahluwalia 2:02

So, India has been for the longest period of time lacking in IP, our own IP, right. For example, we were discussing previously the podcast, like how Make in India campaign is encouraging manufacturing, which is great. But Apple, which sells the iPhone for $1,200, roughly 1 lakh rupees, maybe putting $450 in making of the phone, in equipment, right.

Foxconn, the manufacturer makes $15, $20 on it.

Ashok Atluri 2:32

Absolutely.

Siddhartha Ahluwalia 2:32

And the rest is taken by Apple in their parent country.

Ashok Atluri 2:36

Absolutely, absolutely.

Siddhartha Ahluwalia 2:36

That’s the same game Apple is playing in manufacturing in India?

Ashok Atluri 2:39

Yeah, you know, the thing is, it is like that in the sense that the bill of material is about, you know, $485, $15 to $25 are paid by Apple to Foxconn. That is the make in component, whether it’s in China or India. And the rest 700, almost $700 are taken by Apple because they own the IP.

So, we have, you know, it’s almost, it looks like we’re living in a matrix where everybody’s talking about manufacturing, that $15, $25. Nobody wants to talk about the remaining $700, the IP creator is capturing. There’s something, I mean, when we look at it, we, you know, I keep thinking, you know, why aren’t we talking about IP creation?

And very early in 2005, 2006, when I used to talk about, you know, we should create IP and why are we only talking about manufacturing? They would say first learn walking then consider flying. You know, and there was some industry compatriots. So, most of the industry was invested in getting tie up with somebody and doing their manufacturing work, get the contract from India.

So, and you know, very frankly, it’s a long haul game. In the sense, you start investing three to five years is a very, very optimistic time when the first sale happens. But even though now the government is much aggressive through IDEX and all those policies.

But yeah, so, you know, it was a difficult game and we are, so, fortunately, when Parrikar came in 2015, he got the game and, you know, but there are certain restrictions. When if you create something for the government and you say, listen, this is world’s best, what are they going to say? They’ll say, oh, great, no, embrace, you know, they’ll, you know.

So, we have these bureaucrats and who are completely socialist set of mind. First thing is, they’ll say, I want three vendors. Where the hell will you get three vendors?

And you know, when they say three vendors or two vendors, they all have to get equipment, which is really that much of class. Where will you create all that from? So, and you know, and you say, no, there is nobody else except me.

Then also you want to do monopoly because they’ll fall out of their chair. So, you know, you are creating a technology that’s India first and maybe world first and there is, you cannot sell it to the government of India till 2015. And that’s when Parrikar came and I gave him this IDDM proposal.

Where it’s indigenously designed, developed, you know. So, it was a lot of inputs were there. So, when I gave it to him and there was another proposal called make two.

So, these are two proposals in which we said, listen, if it is indigenously designed, developed and manufactured, you please give them preference even if they are single vendor. So, Parrikar was able to get it. I mean, he is one of the greatest guys I have ever seen, not politician but generally.

He immediately put it and there were a lot of resistance at that point in time from the bureaucracy and all that. But he stuck to the gun and put it in. Now, today that has become the most sacred and most sought after category.

Siddhartha Ahluwalia 5:26

And what happened in the first 22 years of building the company from 1973 till 2015?

Ashok Atluri 5:32

So, it was actually very painful in the sense that, you know, you create the world’s best products and, you know, you are, you just cannot sell because there are no other two other competitors. So, you know, they would, and you know, they used to proudly say, listen, we do not care. We will keep diluting the specifications till we get the competition.

And then we will give the bid to who? Who is L1. So, you may have, you know, you may have a rocket, Falcon rocket developed here, but they will keep diluting it till it becomes Sivakasi rocket or Diwali rocket and they will buy Sivakasi.

They will not buy what serves their purpose. So, that was the challenge. But now I think it is dramatically improved.

They are using this IDDM category a lot. And, you know, what happens is, if you look at Elon Musk’s rocket versus Lockheed and Boeing, they were doing contract forever. Lockheed and Boeing had a cost plus contract model.

And how many rockets flew? Almost none flew from them. Because if the moment the rocket start flying, the project has to be closed down.

And then this guy who our Elon Musk said, don’t pay me if the rocket doesn’t fly. Give me based on milestone if I achieve. So, he went and he got the, he delivered.

So, when the skin in the game is there, which is what happens when a private company has self-funded the R&D. When skin in the game happens, then the products are delivered. When I say skin in the game, what do I mean by that?

I mean, when skin in the game is not there and if there is a failure, there is no downside to the guy. When the skin in the game is there, it may ruin the guy. So, when you are facing a ruination, your family may be out on the roads, employees may be saying you may not be able to pay the next bill.

That is when, you know, actually miracles start happening. So, that is what we have seen that, you know, in our case, it’s purely that. And so, we say encourage the self-funded private R&D companies to be treated in a, to be given orders if they deliver the product.

Don’t delay it once they make it, because that will start a virtual cycle. You know, if I get, and again R&D companies, self-funded R&D companies, if you give them money, they are not going to buy a Lamborghini, they are going to make another better product. So, most of these guys will keep, so that will start a virtual cycle.

So, India will keep developing more and more defense R&D, indigenously developed products and then we will become a global leader. Again, we do, again, a lot of people want to do everything. I want to do tank, I want to do this, I want to do that.

Just focus on the 20% Pareto technologies. The emerging technologies, you know, maybe drones, anti-drone systems, you know, maybe electronic warfare, what is happening. Then maybe this quantum communication, safe communications, how do you do that?

The space, the satellite technologies, just get those 20% right and they will have 80% impact on the world. And you emerge leader in this category with the self-funded R&D, this will only happen if they do extreme encouragement of the self-funding with the private companies. So, if that happens, I think India can become a leader in 5 years.

My estimation is a little aggressive, but that government will have to get aggressive and place orders on these guys who have made the product. Do not try to do any charity, have the strictest standards and then do it, I think it will be a miracle, it will be a miracle for Indian defense system.

Siddhartha Ahluwalia 8:52

So, you have built simulators for defense tech in India, right? There are simulators for tanks, there are simulators for drone, you know, for drone protection from the neighboring countries, right? So, tell us the journey of how did this started?

Ashok Atluri 9:09

So, you know, for the first 25 years, we were just focused on army simulators. What is that? The army simulators are the land forces, you know, the weapons, the tanks, the artillery and, you know, just the army, not the air force or the navy.

So, we were just focused on this and so, we were able to, so, you know, and we were not doing anything. A lot of opportunities came, we said let us just focus on these things only and they have become number one in the world. And this is your IP?

This is completely our IP. We have more than 195 patents filed till now, about 85-90 have been granted. So, we are completely owned by as the IP and we have also asserted through filing the IP.

Again, you know, the IP developing is different from IP assertion. If the technology is too secretive and too complex, we do not patent that because anybody can make it there otherwise. So, you know, so, when if somebody looks at it says, oh, this is obvious, let me make it, those are the kinds we create for patents for.

So, yes, we have patented and we have created the product absolutely world class and we, you know, by the way, when we are growing, Tata s, India s largest conglomerate, one of the largest conglomerate tied up with CAE, Canadian company and bid against us. Mahindra is tied up with the UK, it s a simulation company, they bid against us. Thales, the French company, they came and bid against us.

All of them were completely disillusioned, not because we were cheaper, we were technically superior to them and they went back from the market. Because when we initially came, we were not given any preference, we are like any other company. So, yeah, so, the technology that we built is absolutely world class and we know as Bruce Lee famously says that, you know, I do not fear the man who has practiced 10,000 kick once, but I do fear the man who has practiced one kick 10,000 times.

So, that was our one kick, army simulators. Then, of course, in 2018, we started looking what are the technologies in which, you know, nobody is focusing on and everybody was talking about drones. We also thought we should get into drones, but then there was absolute dead silence from the threat that drones placed with the anti-drone systems.

So, we started looking around where is that capability and we were able to locate a company called UTS, a very, very dynamic two promoters and we talked to them and with their many projects, we said that, you know, why do not we focus on this technology and then we anti-drone system was.

Siddhartha Ahluwalia 11:29

You acquired them?

Ashok Atluri 11:31

We invested 51, 51 percent of the companies acquired by Zen.

Siddhartha Ahluwalia 11:34

And they built the anti-drone simulator.

Ashok Atluri 11:35

So, they make anti-drone systems, not simulators.

Siddhartha Ahluwalia 11:38

What is anti-drone system?

Ashok Atluri 11:38

Anti-drone systems are the system that actually bring down the drones. So, in operation Sindoor, our system, our systems were used and we effectively blocked the drones from entering into our space and we were able to get them down.

Siddhartha Ahluwalia 11:52

So, you are, you have been able to enter from simulator?

Ashok Atluri 11:55

Simulators to actual operational equipment, from training to operational equipment, you are right.

Siddhartha Ahluwalia 11:59

And any other such equipment that you have entered in?

Ashok Atluri 12:01

So, you, we are getting into now weapon systems to be integrated with the, and so, earlier we had something called a soft kill, which is just a, you know, signal based jamming of the thing. But now what we are doing, kinetic killing can be done by actually firing. So, we have got that remote control weapon station along with the weapon and we can bring them down.

Yeah, that is the new addition that we did.

Siddhartha Ahluwalia 12:21

And these technologies are real-time deployed right now in the army? You are killing guns?

Ashok Atluri 12:24

Yeah. So, not the guns, but the anti-drone systems have been developed, soft kill.

Siddhartha Ahluwalia 12:29

Okay.

And let us say between your, today you are at 900 crores revenue, you are a public company for the last 25 years?

Ashok Atluri 12:37

Yeah, since 2000, yeah, 25 years now, yeah.

Siddhartha Ahluwalia 12:40

And when you went public, what revenue were you at?

Ashok Atluri 12:43

We did about 1 crore at that point.

Siddhartha Ahluwalia 12:45

Okay, you did.

Ashok Atluri 12:45

1 crore and we raised about 1.9 crores. Okay. So, we raised about 9, for that par issue, we had 7.8 crores was our market, so the total size of the company equity. We, after issuing 21%, 25% to the government, 1.91 crores or something like that, that was what we raised, yeah.

Siddhartha Ahluwalia 13:04

And today, what is the market cap of the company?

Ashok Atluri 13:06

So, we are at about 2 billion dollars, 1 million to 2 billion dollars, yeah, 2000 lakhs, yeah.

Siddhartha Ahluwalia 13:13

Got it. So, that has been a great journey in the last 25 years.

Ashok Atluri 13:18

Yeah. So, yeah, again, you know, very frankly, we were till, almost till 2013, 2012-13, we were at 40 crores market cap.

Siddhartha Ahluwalia 13:29

Okay. So, you shot up like almost.

Ashok Atluri 13:30

We have grown almost 400, more than 400x in the last 12 years, yeah.

Siddhartha Ahluwalia 13:37

But this is amazing, amazing growth.

Ashok Atluri 13:39

The growth again, you know, again, I think, you know, I wish I could claim it for my thing, but I think the government policies actually enabled us to grow like that.

Siddhartha Ahluwalia 13:47

So, what are the policies that helped you grow?

Ashok Atluri 13:49

So, one is the Buy Indian IDDM, the second was.

Siddhartha Ahluwalia 13:52

Can you tell the full format for that?

Ashok Atluri 13:53

So, Buy Indian IDDM means, so earlier we used to have a category called Buy Indian in which you could collaborate with somebody and actually develop, manufacture it here, that would qualify as Buy Indian IDDM. But now what we have done is that we, what we wanted was the Buy Indian, we said IP should also be owned by that and they should be given special preference. Otherwise, nobody will develop IP, they will only keep getting from outside and be manufacturing coolies or, you know, just push the box pushers.

So, Mr. Parrikar was able to get that IDDM, Indigenously Designed, Developed and Manufactured category was created under which if the company has developed the IP, they will be given first preference and even if they are a single vendor, the order will be placed on them. So, this was one thing and the second thing was Make II. Make II is that you make a proposal or the government asks for to make a proposal that this is what they want or this is what we will build.

If they accept that, okay, this is something they want, then they will say, okay, they will invite the bids from everybody, but this funding is not done by the government. It has to be self-funded by the private sector. So, that was a key change in opinion.

Everybody used to say, let the government fund, let the government fund. So, when we proposed that, you know, we are willing to, because, you know, very frankly, innovators are not paper pushers. So, in most of the government projects, if you want funding, it is a more, mostly a clerical job of making the paper and putting it without developing the product.

Most of the time, you know, projects go on for years and decades. So, we said, listen, the actual tinkerers are very poor paper pushers. They actually can develop the product, deliver it without even taking one rupee from you.

So, Parrikar immediately got it and he said, okay, if you are able to do that, I will put all the products under Make II category. So, of course, a lot of the products have been pushed under Make II. So, that is where the private company is funding for the government project and they are paid only if the project is successful.

That s Make II, yeah. Make II is R&D involved, IDDM is product is ready and they will buy it.

Siddhartha Ahluwalia 15:47

So, in the first category, the advantage India has is the company who have owning the IP in India, they are getting the preference even if they are the only company. And that is also helping India in a way that, let us say, if we tie up with a France-based manufacturer. So, Pakistan can also get the same sourcing.

Ashok Atluri 16:04

Absolutely, yes, yes, yes.

Siddhartha Ahluwalia 16:06

But with the Indian only IP.

Ashok Atluri 16:07

We are facing that. I think it was Saab or some other company where they are giving, they supplied the same thing to both the things and they also supplied counter, how to counter it. So, it is a completely neutralized.

So, we should be, so I think the game, complete game is ensuring that India becomes IP creator and of course, we can always help our allies, whoever are aligned with our thing, yeah.

Siddhartha Ahluwalia 16:32

Yeah, then we could export the IP from India to other countries.

Ashok Atluri 16:36

Absolutely. So, you know, that is where the thing, if you want, if you create the IP, then others will come, come to you and say, we want to buy it. Like after Operation Sindoor, we got a lot of export inquiries.

So, they said because the thing has worked in the actual situation. So, yes, that is an opportunity and it will only come if you are IP owned. If you are just manufacturing for somebody else, they will have to go to the owner and say, boss, can I sell it or not?

And again, what happens is the product evolved and now it is evolving very fast. Three years later, you will again go and beg at the door, boss, give me the latest technology

Siddhartha Ahluwalia 20:38

And so far, you know, how far is India today from being completely, you know, let’s say, if you had to put a number 10 years, 20 years, that India could manufacture its own air, like jets like Rafale. And India could manufacture its own defense equipment, like the machine guns, the tanks.

Ashok Atluri 20:57

I think if they can really create enabling policies. So, in fact, as we speak, the 2025 defense acquisition procedure is being revised. If they can create a very sacred inviolable category called self-funded private R&D category, if they make the product that works, we will place the order within 6 months and deliver it immediately.

And we will fund them like, and proven companies. If you feel unsafe with newer companies, proven companies. And if they say that, you know, and 18 months we’ll try to conclude the orders, place the, so that will start again a virtual cycle.

If that happens in a very, very earnest way, and these private self-funding companies are rewarded contracts, I think we can cut down the cycle from 5 to 6 years. We should be having the world’s best product, again, the Pareto category, the drones, anti-drone systems, space satellite. Again, satellite, we have a lot of guys, very cool guys working in that.

And we have in a kind, you know, this quantum communications we have guys. So, but they need really, really, you know, the handholding support and only government can support. Unfortunately, you know, for other things, there are private guys being done.

But in this case, government has to take a call. And if they are able to embrace these private self-funded companies, I mean, even if they give one-tenth of the fund that they give to a DRDO, we are on our way.

Siddhartha Ahluwalia 22:25

And in the simulation category in India for defense tech, who is the number two player after you?

Ashok Atluri 22:31

You know, that’s the, the fact is that there are in different categories for truck simulator, there is somebody for, you know, this is the advantage or, you know, the downside of develop putting in money for 30 years into technologies. It is very, very difficult to have competition. Now, if I give you, you know, 100 million dollars and say, okay, go compete with Zen, you will return that money and say, I do not want to compete with Zen.

Why? Because we have not been playing a manufacturing game or incremental game. We have been developing on and again the 10,000 kicks that we, my 10,000 kick is more lethal than my first kick when I practice.

So, we are at a very, very fast stage. We do get sometimes people who collaborate with foreign companies and they come and do it. But again, you know, Indian government, Indian armed forces are very, very demanding.

So, and you know, for example, in one of the things with the weapon simulator that you have seen, they said that we, you know, if the Indian army gives the weapon, we will do it. Then if you take the weapon, actually morning you have to take and evening you have to return that weapon, even if it is simulated weapon. If you have modified the real weapon, it has to be returned to the guard, to the room, strong room.

And so, we said, you know, why are you doing that? If you want to, what if you want to practice beyond 5 o’clock or something like that? And then we said, have simulated weapons, you can have three shifts if you want, whether you use it or not.

So, when the moment they said simulated weapons, the foreign competition disappeared. So, the thing is, yeah, so because you are keeping this thing on and really developing cutting edge, this is the reason we are able to sell in foreign companies also. Foreign countries also we compete with the best of the best and we have been reasonably successful there also.

Siddhartha Ahluwalia 24:19

And globally which would be number one company in this category?

Ashok Atluri 24:21

So, you know, I think the, you know, there are four companies in this category. One is Rheinmetall, the German company and Thales, French company, Saab, Swedish company and then Cubic which is an American company. So, these are the companies that, and CAE, there is another company called CAE in Canada.

They are not into much into army simulation because we competed with them once or twice, then they disappeared from India, but they are also there. So, I think in terms of just, maybe CAE is the largest simulation company.

Siddhartha Ahluwalia 24:51

And in terms of your revenue today, how much comes from simulation versus the real machinery you are deploying for defense?

Ashok Atluri 24:57

So, I think they are in the category, so it keep varying, but it may be 60-40, 60 from simulation and 40 from non-simulation.

Siddhartha Ahluwalia 25:04

Like the anti-drone?

Ashok Atluri 25:05

Anti-drone systems, yeah.

Siddhartha Ahluwalia 25:08

And I believe you shared that in the last four years, the company went from 60 crore revenue to 900 crore.

Ashok Atluri 25:14

60, 160 crores in 22, 60, 23, 160, 24, 430, now we did 930 crores, yeah.

Siddhartha Ahluwalia 25:21

So, what has been in the last, what is the magic recipe for the last four years?

Ashok Atluri 25:25

One thing is that government started seeing the benefit of simulators. One of the, TERI did a study on sustainability and he said a 15 crore investment over 30 years will result in a savings of 387 crores. That is like almost 25x saving happening.

So, that was a kind of a shocker and then this is much more efficient. The people who get trained on simulator versus actual thing, this is a much more result-oriented thing. And then the time, you know, just imagine driving tank, going to a logistic nightmare, practicing there and coming.

And then after that is the wear and tear of the actual equipment. So, given all these things, I think the simulator was, and government issued a policy also. They said the simulation policy framework for simulation and the way they mandated the transition to simulators.

So, all these almost like, you know, I would say a perfect storm in a positive sense took us to the next level.

Siddhartha Ahluwalia 26:23

So, how much you or ZEN was part of this policy making process?

Ashok Atluri 26:27

So, you know, in the case of IDDM and MAKE-II, you know, I was directly interacting with Mr. Parrikar and the other people who were involved in. And, but in the case of other simulation, we have been making representations that, you know, see they should move to simulation. So, I do not know how much of impact that had, but eventually I think definitely the efforts were, again we are talking about sustainability, climate response and all that.

I think everything moved in that direction. I do not know how much indirect effect we had, but we never had any direct engagement on this with anyone.

Siddhartha Ahluwalia 27:05

So, assuming India would have at least 1 million or 10 lakh people in Indian army today.

Ashok Atluri 27:12

Yeah, all put together, yes, yeah. Yes.

Siddhartha Ahluwalia 27:15

So, how much of this population of Indian army is getting trained on simulators today?

Ashok Atluri 27:21

I mean, I would be hazarding a guess, but I think they have started, maybe at least 10 to 15 percent would be trained.

Siddhartha Ahluwalia 27:28

Only that.

Ashok Atluri 27:29

There is a lot of mileage to go, yeah.

Siddhartha Ahluwalia 27:33

And how is government choosing which part to simulate, which part not to simulate?

Ashok Atluri 27:36

So, weapon platforms are something they want to simulate because the very fact is that, if I take a tank, it is costing, if I fire a missile, it is costing.

Siddhartha Ahluwalia 27:44

So, all tanks are simulated today?

Ashok Atluri 27:45

So, yeah.

So, we have T-72, T-90 and Arjun MBT. So, all have simulators, yeah.

Siddhartha Ahluwalia 27:52

And 100 percent of the drivers are getting trained on this?

Ashok Atluri 27:54

Yes. So, almost all are getting trained on this tank simulators only, yeah.

Siddhartha Ahluwalia 27:59

And which are the other parts where you believe that almost 100 percent simulation is there in defence on the weapon side?

Ashok Atluri 28:06

So, I think weapons, they are going to move into that, AK-47 and the artillery, they will probably move in. And this integrated air defence is something that they are going. So, there is a lot of, so we have only covered the very small part, maybe 5 percent of what the simulation market is, the other 95 is to be covered and we are a very sweet spot at this point in time.

Siddhartha Ahluwalia 28:29

Got it. And how, like for example, there is a new weapon that is coming in the next few years. So, how do you get updated that hey, you have built a…

Ashok Atluri 28:37

So, we have this huge library of how the weapon behaves, of the initial force, what is the trajectory it will take. So, based on that, we are able to simulate any weapon. And when weapon comes, they generally come with all the specs, what is the recoil, how much is the G-force, etc., etc.

Siddhartha Ahluwalia 28:53

No, but a new weapon is coming, let us say next 2026, how would you come to know about it?

Ashok Atluri 28:57

Typically, the developer contacts us. He says, can you integrate our system into your simulator? So, typically, the thing is the OEMs do not want to develop simulators because for example, a tank costs 40 crores, our simulator costs 2.5 crores. If you ask a tank guy to make a simulator, he will say 40 plus 20 crores, 60 crores. So, the ability to create a simulator is a unique ability. So, I think we really excel at that.

And then after you supply, 10 years you have to maintain. For example, while maintaining, 3 years later the graphics card fail and this happens to us. Graphics card fail, you try to replace the graphics card.

Today’s graphics card does not fit the old motherboard. Then you replace the motherboard. Then the operating system says, sorry, I do not play the old operating system.

Then you replace the operating system, your app does not work. So, you have to rewrite the app. So, all these capabilities are not there in the manufacturer’s game.

These are special set of skills that company like Zen has, that actually attracts weapon manufacturers to partner with us and that becomes a very, very strong proposition. Now, if you are a weapon manufacturer, you say, boss, listen, I am going to deliver it in 2 years, but 1 year later I will deliver the simulator. You can train for 1 year and by the time a weapon comes, you are ready to operate it.

So, that becomes an extremely attractive training package, training collateral as they call. And so, lot of people are doing that. Whenever they are building a weapon, they are interacting with us and asking us to develop it later.

Siddhartha Ahluwalia 30:23

So, you shared one interesting fact, that a tank would cost like 40 crores, but a simulator would cost how much?

Ashok Atluri 30:29

2.5 crores.

Siddhartha Ahluwalia 30:30

So, almost 20 times the difference.

Ashok Atluri 30:32

Yeah, yeah, yeah, absolutely.

Siddhartha Ahluwalia 30:34

So, the government would prefer much more.

Ashok Atluri 30:37

For training, yeah, it makes absolutely sense. Not only here, but across the board for all the, most of the weapon systems, yeah.

Siddhartha Ahluwalia 30:42

But is, are there any tanks getting manufactured in India today like IP wise?

Ashok Atluri 30:47

Yeah, I think Arjun MBT, Zorawar, all these will be Indian IP owned only, yeah.

Siddhartha Ahluwalia 30:53

And helicopters like for defense?

Ashok Atluri 30:54

Yeah, I think that they are also, I mean, we have some helicopters that are being manufactured in India. HAL is doing now. So, yeah, we are doing, but I know how much of it is India, what are the critical components, are they made in India?

Those, there is some gap there, we still buy it from outside. But yeah, but there is definitely a move towards manufacturing.

Siddhartha Ahluwalia 31:14

But if you have to categorize for our audience to know, today the IP that the government is using is defense, right, all the ammunition tanks planes, trucks, how much is the IP owned by India today, what we are using?

Ashok Atluri 31:29

So you know, for example, company, for example, simulators and anti-drone system, I think we also, except for the, you know, like example, we may buy a computer, a Windows-based computer, but all the application layer over that is completely built by us. So the, I mean, the operating system, the Intel motherboards or, you know.

Siddhartha Ahluwalia 31:47

No, but I’m mostly talking about the equipment, not the…

Ashok Atluri 31:51

So yeah, so I think, depending on the equipment, the hardware has been designed in-house now. There are weapon systems that are being designed completely in-house and there is 100% ownership of those things. So sometimes they do import the barrel of a weapon, but otherwise the IP is completely owned by India.

Siddhartha Ahluwalia 32:09

On most of the weapons.

Ashok Atluri 32:10

Some, most of the, actually the basic weapons.

Siddhartha Ahluwalia 32:12

I think except the aircrafts and all.

Ashok Atluri 32:14

Yeah, absolutely.

Siddhartha Ahluwalia 32:15

And how has the defence budget of India increased over the period of, let’s say, the last 10 years?

Ashok Atluri 32:21

So I think this government has been very aggressive on increasing it. They have been increasing very, and not only that, more important than that is how much are they reserving for Indian manufacturers. So that has been really dramatically gone to the extent that, you know, foreign companies know if they don’t tie up with the Indian company, even like, you know, manufacturing coolies or whatever you want to say, but at that basic level, if we don’t tie up, we will not get the orders.

So things are moving in that direction. But again, you know, I keep saying that, you know, please focus on developing the IP, own the IP. If you want to, so even if you, I think sometimes you may feel that we want to acquire some foreign tech, but give, it should be acquired by companies that can understand the tech and evolve it to the next level.

Invariably, the foreign guys select people who are very dumb, who will just take the tech and manufacture, not try to understand, absorb it like, you know, the China does. So they don’t want to absorb it. They would just want to be the dumbest of the dumbest manufacturers, bureaucratic kind of structure.

They want to give it to them. So that next time when there is any requirement, they come back to them. But so, but, you know, we think that there should be, when they are buying the tech from outside, Indian government should take, undertaking that, you know, that you will indigenize in this manner.

And by this year, you will actually, IP owned product, next product will be delivered. Otherwise, you know, we’re going to levy heavy penalties or something like that.

Siddhartha Ahluwalia 33:41

So over a period of time, you know, what has been the hardest part in convincing the Indian government for, for adopting your technology?

Ashok Atluri 34:50

So when we started in 93, you know, when we say, used to say simulators, they would say stimulators. I mean, I’m talking about really senior IAS officers kind of thing. So it wasn’t really known at that point in time.

So obviously, I would also say stimulators to not defend them. But we have come a long way after that. And now, you know, everybody knows, likes the importance of simulators.

And again, our biggest pain point was, you know, we have developed world first technology and you’re asking three vendors kind of thing. Parrikar came and he’s, you know, really evaluated that. But even now, you know, at some places in state governments and other places, they say, aapto single vendor hum kaise karenge single vendor.

That continues to be a pain point for us.

Siddhartha Ahluwalia 34:29

But why does state government needs defence tech?

Ashok Atluri 34:32

They have police, you know, weapon systems on weapons. Yeah, they have, they have vehicles, they do everything. Then there are this CAPFs, VSFs, CRPFs and all that.

They all buy our things.

Siddhartha Ahluwalia 34:44

So they have also equal demand, you are saying?

Ashok Atluri 34:47

Not equal demand, but they have, you know, but they don’t invest so much because they say something in the central government used to do something as modernization fund. Then they used to buy it. But now when the modernization fund is not that much, the demand has come down.

Siddhartha Ahluwalia 35:01

There’s a belief in the Indian entrepreneur ecosystem that dealing with government is very difficult. Like you can maybe supply your equipment or manufacture it and send it and even sell it. But payment coming back.

Ashok Atluri 35:18

So, you know, I would be very, I want, you know, the thing is, this was a little difficult, but you know, in during COVID time, they introduced a policy called payment within 45 days. So that really, really worked very strongly in the next, the last four, five years.

Siddhartha Ahluwalia 35:34

And it happened on the ground?

Ashok Atluri 35:35

It happened on the ground. So now Babu can delay your payment? So 45th day, they started paying.

What happens is when you delay payment, the companies die.

Siddhartha Ahluwalia 36:11

Has any company died because of it?

Ashok Atluri 36:12

I’m very sure that they have suffered severely. I mean, especially in the last few months, it has some, some delays have happened from somewhere. But frankly, we are in a very good position.

So we’re not suffering. But I know a lot of small companies that are really, really under a lot of stress. And the thing is, there’s so many costs involved when you delay. A lot of people don’t understand that, you know, when you delay, the first is, you cannot manufacture that product because you have not placed the order on them.

Second is that you are, the armed forces are not ready. Because you have delayed the supply, there are chinks in your armor. Third is the business itself.

So the national cost, the armed forces cost and the business cost. Again, if you go deeper, if I’m an R&D company, if I don’t make payment, my guy is going to go to Amazon warehouse and work there at a better salary, three times the salary. He will be doing the warehouse job.

He is very happy with the warehouse job. Because I’m not going to pay even if he is the best of the guy. So the costs are humongous when the payments are delayed or the orders are not placed.

So, you know, and I’m surprisingly, the whole of Indian bureaucracy is never judged by delays in orders. They are judged by, is there any file you signed in which I can take out a CBI or a CBC. So nobody is judged.

You know, suppose, you know, there’s a 100 crore project. And if I have to take a decision in two weeks as per the, if I take the decision in three days, so I have saved about one and a half week. So there is actually cost, there is savings happening in terms of, you know, I did a calculation of 100 crore into 6 lakhs per day of saving.

So that is 6 into 9, you save 45 lakhs. You should track these savings. And if it goes beyond two weeks, there is a cost to delay.

So if you are able to track bureaucracy and officers in the cost of delay, which is costing the Indian, the nation so much, and you start promoting them on the basis of that, and you know, typically, you know, we are rank based guys. So the moment we know that today the thing is, did you have any file in which there was a CBC angle? Did you sign any controversial file?

Then what will be the thing will be, how much did you save to the nation? If that becomes actual measuring tool, I think things will change dramatically. So this should be one of the main point in agenda where, you know, governments are, government officers are judged by how quickly they place the order, how do they, you know, hasten the manufacturing, development of products, and then how they make the armed forces battle ready, and then how do they make the businesses so strong that they do more and more R&D and bring more and more products.

So just by one variable, I see this is a Pareto, ultimate Pareto is cost per day of delay. This is the cost per delay.

Siddhartha Ahluwalia 39:25

And in your journey, right, as an entrepreneur till now, right, has this delay caused any major repercussions in the last 32 years?

Ashok Atluri 39:36

You know, fortunately, you know, the thing is, financially, we have been very conservative. In fact, that’s actually costing us now in the sense that we always were preparing that we get an order. So 32 years if you have survived, very rare for a company to survive.

32, so you know, so what, the only way you can survive in a downturn is only if your fixed costs are low. If the fixed costs are high, you are finished. So we have been able to keep the structure low by hiring, by hiring not from the IITs or the IIMs, anyway, I’m a little wary about them, but hiring from tier two cities and then creating, running them through a training program, which is very, very tough and then creating the sense of high agency, not in the sense that, you know, I’m working for the country, which we all do.

So when that thing comes, they stick with you in spite of adverse. Again, you know, we have a record that never delayed even one day’s salary for any of our staff. We are fortunate and financially, we are conservative.

We always kept some money for bad terms. We say at next two to three years, we should have funds to sustain even if there is zero business.

Siddhartha Ahluwalia 40:47

And which are the other companies in private sector like yours in defense tech, not by the large conglomerates in India, but.

Ashok Atluri 40:54

But I would say there is a company called Avantel that’s into satcom space and radio frequency space and there is another HPF, they build something and there is a company based in Nagpur called Solar Industries. They do a lot of their own R&D and I think that’s in the drone space. Also, some companies are coming up now.

I think we’ll have some good one. I think idea has done some good work in that ring. Yeah, I think.

Yeah. But there’s a lot of other companies. I’m definitely missing and not getting it now.

There are a lot of companies that are doing a lot of.

Siddhartha Ahluwalia 41:29

But are entrepreneurs building for the government now? Like private companies or defense tech only serving Indian government.

Ashok Atluri 41:38

So, yeah. So, you know, the thing is one thing good about is if you develop for the Indian armed forces, for the Indian defense, the government of India is actually pushing exports for us.

Siddhartha Ahluwalia 41:48

What does it mean?

Ashok Atluri 41:49

So, what does that mean? In our practices that our products are circulated to various embassies throughout the world and these guys, the different attaches there, they actually go into the other governments and say, this is the product that India has bought or they have passed the trial. Why don’t we have a look at it?

So, that aggressive marketing is going on. When we go there, the embassy coaches us, which was a strict no-no before 2014. You know, we are a peaceful nation.

Why will we export something? Well, they would splurge on a lot of money, taxpayers’ money on foreign equipment. But now things have changed.

I think we are much more respected also.

Siddhartha Ahluwalia 42:25

So, has the process in the entire bureaucracy for you, like from first demo to purchase to deployment of the machines, you know, to you getting money actually in your bank has become like, what is the cycle like if you can share?

Ashok Atluri 42:41

So, you know, it will depend. If it’s an emergency, you know, everything is completed within 24 months, 18 to 24 months.

Siddhartha Ahluwalia 42:27

Let’s talk about normalcy.

Ashok Atluri 42:48

Emergency procurement. The regular procurement may take from the time you start doing the R&D, you know, 5 to 6 years, which is actually very, very long. So, once the product is made, I think, you know, so we have a case in which the product is almost made, but again, you know, had some cycles, but at least took us 4 years after that.

So, we think that can be compressed to 18 months. If they can compress that cycle to 18 months, India is out of the woods.

Siddhartha Ahluwalia 43:15

And what is required to compress it from 4 years?

Ashok Atluri 43:17

The policy. If there is a self-funded private R&D company that has created some product, please create a policy around that. You don’t try to force fit a policy onto them.

If the product is ready, tell me how can you procure it in 1 month, 3 months, 6 months. Everything should be tailor-made. If that happens, self-funding will keep coming.

You will invest in those companies. You will say, guys, these guys are making in 2 years, they are making a ton of money. You will invest.

And the IITs instead of delivering in 10 minutes, they may actually deliver missiles against the Pakistanis and others. Which is a great thing.

Siddhartha Ahluwalia 43:53

So, what role did you play in the recent insurgencies like Operation Sindoor and the other which have taken place in the past?

Ashok Atluri 44:00

So, Operation Sindoor, our products were used in, you know, detecting the incoming drones and they were used in neutralizing them, not entering them. So, that is where…

Siddhartha Ahluwalia 44:12

And you were the only technology that was used in neutralizing drones?

Ashok Atluri 44:16

To my knowledge, yes. To my knowledge, indigenous simulators, indigenous anti-drone systems worked very well. And second was, even the Agniveers who performed very well, they said, some of the Agniveers were good, they were trained on our simulators.

So, these two things was… Actually, lot of us felt that, you know, this is the moment we have been actually living for, where our products are actually demonstrably being very helpful to the nation.

Siddhartha Ahluwalia 44:43

And where would you say India today would be globally amongst its defence technology capabilities?

Ashok Atluri 44:50

So, I think in army simulators, we are number one. I mean…

Siddhartha Ahluwalia 44:53

Globally.

Ashok Atluri 44:53

Number two, number three, I think we are number four or number five.

Siddhartha Ahluwalia 44:56

India is number one globally.

Ashok Atluri 44:57

Absolutely.

In army simulators, we are number one. Absolutely. There is no doubt about that.

Second is anti-drone system, we may be in the top two or three. I think we are little… and we need to integrate this kinetic kill, the hard kill in a very big way.

Siddhartha Ahluwalia 45:10

What is that?

Ashok Atluri 45:11

So, we will… So, and we have a three to four year plan by which time we will be number one in the world in the anti-drone systems.

And there are some… I think we are good in missiles, BrahMos and all that. But as a collaboration, Akash missile, they are doing well.

So, I think, yeah, I think overall in some of the categories, we are really there. And some we have to really focus now. Again, my whole submission is don’t play catch-up game.

You know, in the ice hockey, they call the puck. So, don’t go to where the puck is, go to where the puck will be after some time. So, you have to predict the game.

You know, China never made a petrol-based car, really good car. But they caught on, what they did was, they said, they gave special permission to Elon Musk. And they said, please put it in 100% ownership.

And then they reverse engineered the hell out of it. And they did BYD and all that. That is where the world was going.

They copied it well and they really improved on that. So, BYDs, you know, they are definitely… I, by the way, like after the Israeli pager thing, I really worry about the BYDs and all that.

They are all weapons. Of course. I mean to say the software is being sent by China.

And if the war happens, I am going to convert every EV vehicle into a weapon. Go crash into this segment, go crash into that segment. What will you do?

Siddhartha Ahluwalia 46:36

Do you think India-China war is ever possible?

Ashok Atluri 46:40

Of course, I think. So, what do you mean by it is ever possible? What was the war that happened in Operation Sindoor?

It was India-China war. These third world countries, what can Pakistanis do? They can do nothing.

I mean, they are slaves to China and they were doing whatever China wanted them to do. This war was not between India and Pakistan. It was between India, China, Turkey and Pakistan.

So, we were having a multi-front war. But next war will be part of the war actually. And we have to prepare for a multi-front war.

And that is only possible when we do this kind of rigorous private enterprise R&D and create world-class product in the next 5 years.

Siddhartha Ahluwalia 47:21

And if you have to compare India’s defense tech with China, which are the things which we are ahead and which are the things we are lacking?

Ashok Atluri 47:31

I would say in anti-drone system, we are very good. And drones, I think there are a lot of players doing very well at this point in time.

Siddhartha Ahluwalia 47:38

So, we can confidently trash down Chinese drones if they ever come.

Ashok Atluri 47:42

Yeah.

So, we should be able to handle their drone. There is no doubt of it. The way we handle it here, we should be able to.

But you know, again, and of course, in simulation area, we are way ahead of them. But you know, China is actually doing very well. Again, when Trump said, I am going to ban 3 lakh Chinese people from coming.

What would any self-respecting nation say? Okay, ban. That’s your loss.

But these guys were begging, you are racist. Because why? These guys are incapable of creating new technologies, Chinese.

They have to keep stealing forever from China, from America. So, all the students they send, they are very, very rich people, students. They are typically party members.

They are children who go there and steal the technology and get back to China. They are not incapable of actually genuinely creating new thing. So, that is where we are very strong at.

You know yourself.

Siddhartha Ahluwalia 48:34

We are building India’s AI powerhouse. That’s our mission at Neon.

Ashok Atluri 48:38

Absolutely, yeah. So, AI and AI integration into this, you know, quantum integration will take India somewhere else. Those capabilities are not there with Chinese.

I mean, they publish papers. They do patents. But that innate ability to create, which Indians have.

And the innate ability to really risk the entrepreneurship which is there in India is not there. And you know, by the way, every Chinese is worried when he will go to jail, whether it was Jack Ma or anybody. He doesn’t know what his relative has done.

You know, it’s not what he has done. If the relative is seen speaking again, these guys are jailed there. And they can’t take their money out of there.

The foreign companies that are there, they are not being allowed to take money out. So, India is in that space that we can really create world-class technologies and we can. But again, you know, I say the Parito is, you know, the government’s treatment of privately created R&D products.

Siddhartha Ahluwalia 49:31

And let’s say, if we have to go ahead of China in the next 5 to 10 years, what do we have to do? Today, Chinese economy is at 18 trillion, Indian economy is at 4, 4.5 trillion.

Ashok Atluri 49:43

So, again, I think government has to make India the most desired place for business.

Siddhartha Ahluwalia 49:49

It’s not yet. Nowhere close to it.

Ashok Atluri 49:51

I mean, they should dismantle completely all the bureaucracies and they should make it so easy for doing business that, you know, there is a serious problem. You know, problem is that our bureaucrats and all that, they think socialism is good by the way.

Siddhartha Ahluwalia 50:10

They still think that?

Ashok Atluri 50:11

They still think. I mean, they are, not only do they think, the system encourages them to conform.

Siddhartha Ahluwalia 50:22

This is solid evidence of this theory.

Ashok Atluri 50:24

No, no, no. Absolutely, boss. When I come out, I am thinking these bloody businessmen are out there to loot the poor people.

And how do I protect the poor people from these looters? So, they don’t have any concept of wealth creators. You know, who creates wealth in the country?

Siddhartha Ahluwalia 50:44

It is the entrepreneur who creates the wealth.

Ashok Atluri 50:47

It is nobody else. It is the business owners who create wealth through goods and services.

Everybody else is what? Is a parasite. But we need, even though this is an exaggerated statement, but we need some system like judiciary, the police, the military.

We need these to protect ourselves. But if the basic wealth creation is not there, nobody is being served. These are the actual wealth creators.

You may print as much money as you want. If there are no goods and services, there is going to be inflation. I mean, profit is the most noblest of word where you are trading your capability with somebody else’s. Both are benefiting and both are making profit out of that. So, you know, till I start thinking, again, you know, I mean, if you are a guy who is making money out of regulatory capture by, you know, by saying that framing the rules in your place, capturing minerals and all that, that was the fixed pie.

Now creation of knowledge is happening, creation of new technologies are happening. You are treating them with the same mentality of a crony capitalist. A capitalist is different.

A crony capitalist is as worse as a communist actually for me. He is just seeking power by, you know, aligning himself with politicians. So, I think we really need to get the act together where businessmen are treated as wealth creators and they are honored for that.

And when we go to any government office, they say, why did you come here? So, I have failed in my duty that you have to come here because your time should be spent on creating goods and services, innovating products. But when we go here, we do not get interviews.

The guy who has studied four, five years of geography and psychology thinks he is better than the guy who worked on field and created these products. So, how do you rectify this? And you know, very frankly, these guys who have gone for four, five years, they have been taught that that is where their power is.

I know a lot of very smart people who want to become IAS officer for fuck’s sake, what is happening? They should be saying because I want to create wealth. Because why?

They have seen businessmen going and growling in front of these IAS officers.

Siddhartha Ahluwalia 53:18

But they see where there is the power.

Ashok Atluri 53:20

That is where the power is. I want the creators of wealth to growl in front of the people who have power. So, you know, they say they have power over people, these guys have power.

They try to understand nature and exploit nature and create great products. But I think till that changes, I think it’s a very deep psyche change that has to happen that businessmen are honored and everything, everything that stops them should be removed from their way. But that happens in China is a small game.

I mean, Chinese, they don’t have any freedom. They are always under pressure. And you know, and if you create that to all the big business, today you are making things so that people don’t run away from you.

One of the failure of the thing, when you say East Germany and West Germany, which economy succeeded, the simple test is this, which people want to run to the other place.

Siddhartha Ahluwalia 54:12

That is a success.

Ashok Atluri 54:13

East Germany had fences, they would shoot down. North Korea had fences, they would shoot down. That is the thing.

So, if you are creating systems where you are not allowing people to go out, which is America also doing, that means you have failed as a, you know, creating system in the nation where people want to come in, forget about going out. So, yeah. So, I think it’s veering off the topic, but yeah.

Siddhartha Ahluwalia 54:34

Well, this is essential because, right, if more defense tech entrepreneurs have to be built in, there have to be 100 more defense tech companies built in India.

Ashok Atluri 54:42

I mean, they should obsolete Zen in one year, two years. I think if the really tough guys come, they’ll say, boss, these are my simulator much better than you. These are my anti-drone system better than you.

We should be competing here. That means to say intuitively, if you are number one in India, you are number one in the world. That is how many, and that ecosystem is there.

The entrepreneurs are there, but the policies are not there.

Siddhartha Ahluwalia 55:07

So, what did you understand about policymaking and navigating the ecosystem that nobody was, other was able to create equivalent to Zen?

Ashok Atluri 55:16

You know, first of all, we are like spoiled children in the sense that we have been given so much. IDDM is a policy which is nowhere there in the world. Parrikar was able to do it.

Make II is nowhere there in the world. He was able to introduce. So, even after getting, we still have a huge long list of wishes, and that is why, you know, today defense companies are able to invest a lot of money.

You know, our situation, I was saying in 2012-13, our market cap was about 40 crores, and now, you know, it’s gone to 17-18 thousand crores, you know, depending on the day and the mood of the stock market. So, that’s almost a 450X kind of growth. That 450X, 45,000% growth has happened in the last 12 years.

So, and so, you know, we are able to raise money and all that. So, having set that aside, we still think that there is a scope for government to improve in these areas where I was talking about, you know, how do you encourage. Today, if I am assured of an order, very frankly, how much do you want me to invest?

1000 crores? 10,000 crores? The solar has a market cap of 1,50,000 crores.

So, they can invest 20,000 crores. They don’t need anybody, but only show them if I develop, you develop the product, here is the order. So, that ecosystem is created.

I think we’ll eat China for breakfast.

Siddhartha Ahluwalia 56:38

But are you helping create that ecosystem in India?

Ashok Atluri 56:40

So, I mean, we are writing all these things which I am talking to you, I am actually writing to them. In the DAP, I said, please create a special category for self-funded private R&D. So, I am writing.

I mean, I hope they listen to me, but I mean, there are a lot of other forces also at work and maybe somebody has a better suggestion than me.

Siddhartha Ahluwalia 56:59

There was a movie, if you remember, Rang De Basanti came back long ago, but it was shown that how, you know, at that point in time, the government was procuring old military planes from Russia, right? And it was the corruption and because of that, what was happening is fighter pilots were dying, right? So, have you seen that?

Was that a true incident at any time in India’s history in the past?

Ashok Atluri 57:27

No, I would not be surprised if that was in the sense.

Siddhartha Ahluwalia 57:31

But has it changed today like completely?

Ashok Atluri 57:32

I think now it has changed dramatically. I mean, you know, small thing happens. There is a big reaction at this point in time.

I think that is completely, you know, the thing is now they are saying do not buy anything from foreign countries and they are begging you to indigenize everything. That is a complete 180 degrees reversal. So, the fact that these guys are pushing India to develop and trying to say, you know, one of the things very few people know is when, again, you know, you should act in the interest of the country, very frankly, whether it is Zen or a foreign company.

So, when Parrikar came to think, he saw that almost 70% of the trucks, Tatra trucks were out of action.

Siddhartha Ahluwalia 58:11

What is that?

Ashok Atluri 58:12

The Tatra trucks, there was one truck that was being used because they were blacklisted by the A.K. Antony, the defense minister preceding this government. And so, he said because there were some allegations of corruption by that company blacklisted. Now, all the components for spares were to come to, they were stopped coming and 70% of the trucks were kind of out of action. I may be wrong with the percentage.

Parrikar came and said, very frankly, I do not give a damn. He lifted the ban and started buying from them. He said, I am going to penalize them, I am financially going to do, but my country should not suffer.

So, if you have a politician of that caliber, and you know, A.K. Antony was a guy who was very, very honest guy, but he always used to think, you know, I should not be slapped. Parrikar was a thing that, you know, the country should not have any problem. If I get slapped, it is okay.

So, when he removed, so a lot of people asked, man, why did you remove him? But because he was such a great leader, nobody, everybody knew that he would never do it for money, he would only do it for the country. So, I think we need leaders like Parrikar who really understand the depth of it and act only in the interest of the country and do not give a damn about anything else.

And then, you know, I think if Parrikar was there, he would have acted on this side. He would have definitely have, because, and again, you know, he was not listening only to the bureaucrats. He was listening to businessmen like me, small businessmen like me.

Siddhartha Ahluwalia 59:48

So, did you get your time, enough face time with Parrikar?

Ashok Atluri 59:50

Yeah, I did. I did. I did.

I mean, I was fortunate to get it. And so, when he was going back to Goa, actually, I made a big hue and cry. He said that, you know, he had made up his mind to go.

Yeah. But I think I did get enough face time with him. And again, with him, anybody could get face time.

By the way, if you wrote a letter and said this is the issue, you would get face time with him. So, yeah, I did get enough face time.

Siddhartha Ahluwalia 1:00:19

Thank you so much, Ashok. It’s been a wonderful conversation, a very unique conversation on the defense tech ecosystem of India. I’m very proud that companies like Zen are built in India.

Ashok Atluri 1:00:31

Thank you. Thank you so much for coming and doing the show. Looking forward to more interactions.

Siddhartha Ahluwalia 1:00:36

Yeah, absolutely.