Blow to Tata Motors' role in combat vehicle project

The defence ministry has made it clear that a firm's domestic operations alone would count. The winning "commercial assessment" may now be that of L&T. M&M will be marginally ahead of Tata Mo

Tata Motors' role in developing a future infantry combat vehicle (FICV) for the army has received a jolt, with its leadership hopes dissolved and its very participation in question.

On Thursday, the defence ministry ruled that Tata Motors' domestic operations alone would count towards its commercial eligibility profile - which is a key criterion for being chosen for the Rs 50,000-crore FICV project.

In a fax sent to all 10 contenders for the project, the ministry responded to a question from Tata Motors: Can the financials of a subsidiary, whether inside or outside India, be added into the financials of a participating company? The ministry's response, which has been reviewed by Business Standard, stated: "(a) Companies are required to have capital assets in India, and; (b) Their turnover in India will be accounted for determination of threshold limit of turnover."

Tata Motors' query clearly referred to its UK-based subsidiary, Jaguar Land Rover (JLR). Last year, if profits from JLR were to be counted, Tata Motors had a consolidated annual turnover of Rs 263,695 crore and a net profit of Rs 13,986 crore. Without JLR's profits, Tata Motors generated an annual turnover of Rs 38,176 crore from its domestic operations and posted a net loss of Rs 4,739 crore.

Without adding JLR's financials, Tata Motors falls to the number three position in a race that will have just two winners. The winning "commercial assessment" may now be that of Larsen & Toubro (L&T), with an annual turnover of Rs 57,017 crore in the same period. Mahindra & Mahindra (M&M), with its Rs 39,794-crore annual turnover, will be marginally ahead of Tata Motors.

On October 27, the defence ministry had reached a similar conclusion regarding JLR. But an aggrieved and unconvinced Tata Motors sent in a specific query. When contacted, a Tata Motors spokesperson said: "We have just received this notification on Thursday and, while we are still studying it in detail, we note that we meet all the requisite criteria for bidding for the FICV project."

The Defence Procurement Policy of 2008, which governs the FICV project, specifies eligibility criteria for Indian private companies. It says they should have been registered for at least 10 years, have capital assets in India of at least Rs 100 crore and an annual turnover greater than Rs 1,000 crore for each of the preceding three years, and a minimum credit rating equivalent to CRISIL/ICRA "A".

While Tata Motors meets these criteria, there is a question mark over another criterion that demands "consistent profitable financial record showing profits in at least three years of the past five years, and with no accumulated losses". Tata Motors' loss of Rs 4,739 crore last year was greater than the profits of the four preceding years.

Ten Indian companies are in race for the FICV project - L&T, Tata Power (SED), Tata Motors, M&M, Bharat Forge, Pipavav Defence, Rolta India, Punj Lloyd, Titagarh Wagons, and the Ordnance Factory Board. On Friday, these companies are due to submit their plans for building the FICV - a tracked, armoured vehicle that will protect infantrymen riding into battle. The FICV must be amphibious and air-portable in the air force's IL-76 and C-17 aircraft; and fire anti-tank guided missiles that destroy tanks at ranges of 4,000 metres.

The defence ministry will choose two proposals. Those vendors will form a consortium and tie up with foreign technology partners to design and develop separate FICVs, with the defence ministry reimbursing 80 per cent of their design expenses. The better of the two will be selected, and the vendor will mass-produce 2,600 vehicles to replace the army's obsolescent Boyevaya Mashina Pekhoty-2.