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
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.