Tata Motors has informed the exchanges today that it has sold a 20% stake in Telco Construction Equipment Company Ltd (Telcon) to partner Hitachi Construction Company for Rs 1,159 crore. After this deal, Telcon will become a subsidiary of Hitachi with the Japanese firm holding a 60% stake while Tata Motors will continue holding a 40% stake. The deal would value Telcon at nearly Rs 5,800 crore (nearly $1.3 billion).
VCCircle was the first to report last week that Tata Motors will sell a 20% stake in Telcon to Hitachi.
Hitachi had a technical tie up for hydraulic excavators with Tata's since 1983. Currently these excavators have a market share of around 50% in India, according to a Hitachi statement. The deal will help Hitachi maintain its market share in India, improve quality of
machinery, establish a global hub, among others.
The stake divestment is likely to help Tata Motors reduce its debt. The firm had a consolidated debt Rs 23,100 crore as of December 2009 with a debt-to-equity ratio at 4.3. The debt mostly came from the acquisition of Jaguar Land Rover from Ford Motor Co for $2.5 billion.
Telcon was set up in 1999, after being spun off from the construction equipment business unit of Tata Motors, as a wholly owned subsidiary. Tata Motors inducted Hitachi into Telcon by divesting 20% of its stake in 2000. Hitachi's stake was doubled by Hitachi in 2005 for Rs 203.55 crore ($44.25 million), valuing the venture a little over Rs 1,000
The valuation of the company has climbed up nearly six times on the backdrop of increased spending on India's construction and infrastructure industry. Recently, the government said, India must double infrastructure spending to $1 trillion in the five years to 2016-17.
Telcon, which is based out of Bangalore, suffered a fall in gross revenue by more than 21% in FY09 at Rs 2,143 crore as compared to Rs 2,735 crore in the previous fiscal. Profit after Tax (PAT) also fell to Rs 85 crore from Rs 324 crores in the same period. Telcon also acquired two Spanish companies in 2008 - Serviplem S.A and Comoplesa Lebrero S.A - which operate as subsidiaries.