Tata Motors to sell 20% in Telcon to Hitachi

In a Rs 1,000-crore deal, the Japanese firm moves from being a junior partner to majority owner

Tata Motors, India's largest vehicle manufacturer by revenue, is selling a third of its stake in the construction equipment-making subsidiary, Telcon, to its joint venture partner, Hitachi, for Rs 1,000 crore.

Tata Motors, which currently holds 60 per cent in the Bangalore-based company, will offload 20 per cent to Hitachi Construction Machinery, which currently owns the balance of 40 per cent, according to VCCircle.com, a financial news portal.

Telcon is India's biggest manufacturer of construction equipment and the deal has valued the unlisted company at Rs 5,000 crore. A term sheet is already signed and the deal is expected to close within the next 30 days. "Tata Motors has from time to time, indicated its strategic intent on divestments to de-leverage its balance sheet. As and when these are concluded, we will make appropriate announcements. We have no further comments," a Tata Motors spokesperson said.

Hitachi had first picked up a 20 per cent stake in 2000, subsequently raised to 40 per cent in 2005. Hitachi has three members on the board of Telcon. The latest arrangement will also mean transfer of ownership of the company to the Japanese giant.

Tata Motors had stated earlier that it would continue to explore opportunities in unlocking value in some of its group companies, which includes selling of stakes, to reduce the debt on its books, which on a consolidated basis is more than Rs 23,000 crore.

The company on Tuesday had announced conversion of its bonds worth $431 million (Rs 1,975 crore) into shares about a year before these mature. The move was part of its attempt to bring down its debt further, despite a share capital dilution of 4.3 per cent, according to a city-based broking house.

Senior company executives, such as chief financial officer C Ramakrishnan, have maintained the company was working towards having a debt equity ratio of 1:1, which presently is at 4:1.

The company recently was granted an expensive loan from the European Investment Bank (EIB) of £340 million, which was given to the company at Libor plus six per cent. The capital would be used to fund operations of Jaguar and Land Rover.

Telcon has two facilities in India, one at Dharwad in Karnataka and the other at Jamshedpur in Jharkhand. Its third plant at Kharagpur, spread across 60 hectares with additional facilities for a vendor park, commenced commercial production during the third quarter.

The company makes construction equipment such as backhoe loaders, excavators, off-highway dump trucks, wheel loaders and large mining shovels.

Telcon sold 5,194 machines during the whole of the last financial year, which was a dip of nearly 33 per cent over the corresponding year, when the company saw sales of 7,698 units. Its turnover decreased to Rs 2,143 crore during the same period, a drop of 22 per cent against Rs 2,735 crore earlier. Its net profit slumped to Rs 85 crore compared with Rs 324 crore.