Tata Motors to sell stake in Telcon to partner Hitachi

Tata Motors to sell stake in Telcon to partner Hitachi

Mumbai: Tata Motors Ltd, India’s largest auto maker by revenue, is set to sell its 60% stake in construction equipment subsidiary Telco Construction Equipment Co. Ltd (Telcon) to Japanese partner Hitachi Construction Machinery Co. Ltd, according to a person familiar with the development, who declined to be named.

Discussions have started and the deal is likely to be struck in the next three months if things go according to plan, he added.

The Jamshedpur-headquartered firm makes backhoe loaders, excavators, wheel loaders and other construction equipment used for infrastructure projects. It’s a market leader for excavators in India and competes with JCB India Ltd, Escorts Construction Equipment Ltd, L&T Komatsu Ltd and Caterpillar India Pvt. Ltd among others in the space.

Tata Motors’ intent of exiting from the construction equipment business comes at a time when rival Ashok Leyland Ltd, the second largest manufacturer of trucks and buses, is eyeing a share in the Rs9,000 crore construction equipment business. It has set up a 50:50 joint venture with John Deere of the US and will roll out products from a facility near Chennai.

Telcon has manufacturing units in Dharwad in Karnataka, Jamshedpur in Jharkhand and Kharagpur in West Bengal.

A senior Telcon official, who declined to be named, said Hitachi has been keen on raising its stake in the company for several years. “Each time they meet the senior officials, they say they want more shares," he said.

A Hitachi spokesman declined to comment for this story. “I cannot answer your question. This information is considered insider information at the Tokyo Stock Exchange," he said over the phone from Tokyo.

In an email response, Tata Motors’ spokesman Debasis Ray said, “Tata Motors has, from time to time, indicated its strategic intent on divestment to deleverage the balance sheet. As and when these are concluded, we will make appropriate announcements."

He declined to give further details. As on 31 December 2009, the consolidated debt of Tata Motors, including the vehicle finance business, was Rs30,600 crore.

By selling its stakes in group firms and raising funds through various financial instruments, Tata Motors has been able to pare its debt-to-equity ratio from 6.03 in the quarter ended September 2009, to 4.29 in the quarter ended December 2009.

Jatin Chawla, analyst at the research arm of Mumbai-based brokerage India Infoline Ltd, estimated the value of the Tata Motors’ stake at around Rs1,800 crore.

Telcon ended fiscal 2008-09 with a net profit of Rs84.7 crore on a turnover of Rs2,143.04 crore. Profit slumped 73% and turnover was down 21% in fiscal 2009 as demand for products contracted in a slowing economy in the wake of the global meltdown.

The Telcon official expects the company to end the current year with a Rs2,200 crore turnover.

According to him, the industry is expected to see a compounded annual growth rate of 15% in the next four-five years.

Telcon was set up as a wholly owned subsidiary of Tata Motors in 1999 after the company spun off its construction equipment division.

In 2000, Tata Motors divested a 20% stake in the company to Hitachi with the objective of bringing in newer technologies. Subsequently, the Japanese partner doubled its stake to 40% in 2006 for Rs203.55 crore.

Encouraged by the improving performance of Jaguar and Land Rover in the last two quarters and a healthier liquidity position, global credit rating firm Standard and Poor’s upgraded its outlook on Tata Motors to positive from negative.

It also affirmed the ‘B’ long-term corporate rating and issue rating on the company’s senior unsecured loans.