Mumbai: Tata Motors Ltd’s revenue may get a boost as it braces for an Indian Army programme of buying tracked future infantry combat vehicles. The owner of British premium car maker Jaguar Land Rover Plc is also considering using one of the Land Rover Discovery models for the future requirement of the Indian Army.
Tata Motors will bid for the $10 billion (Rs.54,500 crore) project and expects to corner almost two-thirds of the business, V.S. Noronha, vice-president, defence and government business, said in an interview last week. The development cost of the combat vehicles could be around Rs.300 crore, he said.
If it gets the order, India’s largest auto maker by sales would set up a facility at Dharwad, Karnataka, for making the tracked vehicles, the prototype for which is ready, Noronha said.
Tata Motors is one of the four companies which have received expressions of interest to supply around 2,000 units to the army.
In early 2010, the ministry of defence had invited Tata Motors, the Mahindra Group, Larsen and Toubro Ltd and the state-run Ordnance Factory Board to submit proposals to develop a combat vehicle.
If the order comes through, it would increase Tata Motors’s revenue by 20-30% over the period of the order, according to Umesh Karne, analyst at brokerage Brics Securities Ltd. “It will also help in de-risking the business,” said Karne.
It is not known yet over how many years the order would be spread. In the fiscal year ended March 2012, Tata Motors’s revenue was Rs.59,220 crore, excluding subsidiaries.
The government seeks to reduce its dependence on imports and own intellectual property rights for the source codes, which could become a casualty during an insurgency, firms in private sector would play a bigger role in the years ahead, said Deba Mohanty, chairman and chief executive at Indicia Research and Advisory, a Delhi-based firm that offers research and consulting services to the defence and security sector and deals with government relations.
Moreover, the indigenously produced combat vehicles would shave costs by 20-30%, Mohanty said.
Tata Motors has been making customized vehicles, including light armoured troop carriers, mine protected vehicles, armoured vehicles, missile firing units, etc., for the Indian defence forces since 1958. It has sold 100,000 units so far and claims to have half the share in the defence sector. Other companies in this space are Mahindra Defense and Ashok Leyland Ltd.
“We will be filling in the tenders for the tracked vehicles in another two to three months,” said Noronha, adding that the armament and guns would come from within the Tata Group of companies.
While the mobility platform will come from Tata Motors, Tata Power Co. Ltd’s strategic electronic division will do the fire control system, Tata Advanced Material Systems Ltd will do the protection and Tata Consultancy Services Ltd would help in the design and lifecycle management of the vehicle.
A variant of the expression of interest filed by the defence ministry in 2010 will come in another two months, he said.
Tata Motors would file its bid by December “We have a whole group of Tata companies led by Tata Motors bidding for this project,” Noronha said. “If we win, we expect 60% of the business.”
Deepak Morada, spokesman at Larsen and Toubro, declined to comment. “We don’t talk about business prospects,” Morada said.
This is the first time the government is seeking participation from private Indian companies for tracked combat vehicles. It has been importing the combat vehicles from Russia and assembling them at the Ordnance Factory.
Indicia’s Mohanty said the combat-vehicle order augurs well for private-sector companies. “The private sector has never been involved as a prime contractor. Their role so far has been confined to supply of spares, sub-assemblies, etc,” said Mohanty. According to him, it’s an opportunity for the companies to demonstrate their capabilities.
Meanwhile, Tata Motors is also considering to use the Land Rover Discovery platform to make light, bulletproof vehicles for the army, said Noronha. He expects a requirement for such vehicles to come up in another two years. The Land Rover vehicles have been in great demand by armed forces in several countries, he said.
Tata Motors is also expecting orders for heavy duty multi-axle trucks as the army seeks to replace the ageing vehicles from Tatra, the maker of off-road vehicles and trucks from the Czech Republic. The procurement of Tatra trucks has been put on hold pending a probe of Central Bureau of Investigation into bribery allegations by former army chief general V.K. Singh.
The army is expected to finalize two to three big tenders by April, the combined value of which is estimated to be Rs.800 crore, Noronha said. These tenders would be for the 6x6 and 8x8 high-mobility, all-wheel drive trucks. Tata Motors vehicles are currently being tested, he said. Exports is another big focus area for the company. Besides the South Asian Association for Regional Cooperation (Saarc) countries where it is supplying vehicles to police, army and peacekeeping forces, Tata Motors will now be exporting vehicles and kits to South Africa and Association of Southeast Asian Nations (Asean) which include Malaysia and Thailand. It would be using its existing facilities in South Africa and Thailand to address these regions, Noronha said.
Tata Motors has recently signed an agreement with DRB-HICOM Defence Technologies Sdn Bhd, a wholly-owned subsidiary of DRB-HICOM Bhd, Malaysia, to develop, promote and market Tata Motors high-mobility 4x4 trucks for the armed forces of Malaysia.
Note: The headline of an earlier version of this story gave an incorrect estimate for the revenue Tata Motors expects to get from the army project.