Tata Engg. set to looker leaner ... and meaner - Views on News from Equitymaster

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Tata Engg. set to looker leaner ... and meaner

Feb 25, 2000

Tata Engineering plans to transfer some of its components to separate subsidiaries to ensure more focus in its core operations. Tata Engineering is India's largest medium/heavy commercial vehicles (M/HCV) (65% market share in September 1999) and light commercial vehicles (LCV) (63% market share) manufacturer. It also manufactures utility vehicles (28% market share) and passenger cars (8% market share).

According to reports in a leading business daily, Tata Engineering's board has approved a proposal to transfer the company's heavy-duty transmission axles and machine tool divisions into three separate subsidiaries by way of a 'slump sale'.

The decision to transfer the components into distinct subsidiaries was taken last year itself. This marks a change in the company's policy highlighting a departure from non-core areas to greater focus on its core business, viz. manufacture, design, assembly and marketing of vehicles.

The company has identified leading global manufacturers for tie-ups in the three component subsidiaries. According to the news report, the company is in discussions with Eaton Corp. of USA and ZF of Germany for transmission and clutches. It is also keen on a tie-up with Meritor of Rockwell for its axles division. The technical expertise of the international majors will make it possible for the company to maker deeper inroads in these businesses than if it had pursued these businesses independently.

This will also free the company's resources for its vehicle business. The move will have a positive impact on its profitability as interest cost will reduce significantly and will ease the company's cash flow position. Sale of the units will also reduce debt burden to a large extent. This will be reflected in the company's FY01/FY02 results.

Market view:
Analysts have taken a very positive view of the company's decision to hive-off the components into separate subsidiaries. They have reiterated a LONG TERM BUY on the company.

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