Fo­cus on De­fence, Tatas may Hive Off Tata Power Unit

Move on strate­gic en­gi­neer­ing di­vi­sion part of strat­egy to con­sol­i­date de­fence-re­lated units, tap op­por­tu­ni­ties of­fered by higher govt spend­ing in sec­tor

The Economic Times - - Companies: Pursuit Of Profit - Kala.Vi­jayragha­van@ times­group.com

Mum­bai: The Tata Group is said to be ex­plor­ing plans to hive off the strate­gic en­gi­neer­ing di­vi­sion (SED) of Tata Power Com­pany as part of a strat­egy to con­sol­i­date its de­fence busi­nesses.

In­sid­ers see the move as an at­tempt to tap op­por­tu­ni­ties of­fered by grow­ing gov­ern­ment spend­ing on de­fence. The val­u­a­tion of the busi­ness is es­ti­mated at about a cou­ple of thou­sand crore ru­pees, a group of­fi­cial said. Tata Power did not com­ment on the mat­ter. The com­pany is sched­uled to an­nounce its re­sults on Mon­day.

A se­nior of­fi­cial fa­mil­iar with the plan said the mat­ter has not come up for dis­cus­sion at the board level. “This is some­thing that has been in the pipe­line even dur­ing the pre­vi­ous chair­man Cyrus Mistry’s ten­ure. The SED busi­ness val­u­a­tions will have to be agreed upon by both Tata Power and Tata Sons,” he said. Tata Power’s SED di­vi­sion de­signs, de­vel­ops and pro­duces strate­gic de­fence sys­tems. It is a prime con­trac­tor to the min­istry of de­fence.

Atop fund man­ager said it would be log­i­cal to hive off a busi­ness that doesn’t have much to do with Tata Power’s pri­mary busi­ness of gen­er­at­ing and dis­tribut­ing elec­tric­ity. “Tata Power made that in­vest­ment in the SED busi­ness when it was one of the Tatas’ most cash-rich com­pa­nies at one point of time. But now it is fac­ing a chal­leng­ing busi­ness en­vi­ron­ment and should fo­cus on its main­stay: be­ing an ef­fi­cient power gen­er­a­tion and dis­tri­bu­tion com­pany. And mi­nor­ity share­hold­ers will be com­pen­sated by Tata Sons with a fair val­u­a­tion of the busi­ness,” the fund man­ager said on con­di­tion of anonymity. Tata Power SED has an R&D Tata In­dus­trial Ser­vices are stand­alone de­fence and aero­space busi­nesses. The rest are part of com­pa­nies such as Tata Mo­tors, TAL Man­u­fac­tur­ing So­lu­tions, Tata Tech­nolo­gies, TCS, Tata Steel, Tata Elxsi and Ti­tan. The group’s de­fence busi­nesses col­lec­tively con­trib­ute rev­enue of ₹ 2,650 crore.

Con­sol­i­dat­ing most of the de­fence-re­lated of­fer­ings to­gether can bring greater fo­cus on this seg­ment and holds great po­ten­tial, Credit Suisse said in a re­cent re­port.

Con­sol­i­da­tion and re­struc­tur­ing moves by Tata Sons chair­man N Chan­drasekaran are at­tempts to cut du­pli­ca­tion and costs and iden­tify scal­able busi­nesses.

The $103-bil­lion Tata Group has over 100 com­pa­nies with di­verse busi­nesses rang­ing from chem­i­cals and fer­tilis­ers to au­to­mo­tive, ther­a­peu­tics and steel. Sev­eral en­ti­ties are housed in di­verse com­pa­nies that have no syn­ergy with the main busi­nesses.

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