As part of its plans to monetise non-core assets and pare debt, automotive major Tata Motors Ltd’s has decided to sell its defence business to a group entity, Tata Advanced Systems Ltd (TASL). The sale, however, will not include the pure civilian vehicles, which will continue to be with Tata Motors.
Tata Motors will receive an upfront consideration of Rs.100 crore, adjusted for capex incurred and changes in working capital in the intervening period until closure date. It will also get a deferred consideration of 3 per cent of the revenue generated from identified specialised defence projects for upto 15 years from FY20 subject to a maximum of Rs1,750 crore.
The sale of its shareholding in its wholly-owned subsidiary, TAL Manufacturing Solutions Ltd (TAL) to TASL at an enterprise value of Rs625 crore. As a condition precedent, Tata Motors will acquire the non-aerospace business from TAL at a value of Rs10 lakh. “Tata Motors has been a strategic partner to the Indian ministry of defence in defence mobility solutions for several decades. We will continue providing civilian logistics vehicles to the Defence customers. On our transition to a full range combat vehicle player, we realised that our current portfolio is small and we need scale to unlock its true potential,” Guenter Butschek, CEO & MD at Tata Motors said.
“We believe Tata Advanced Systems Ltd will be better equipped to execute larger and more complex projects and be more globally competitive as part of the larger Tata Group. Therefore we have decided that it is in our best interests to sell this part of the business to Tata Advanced Systems Limited and participate in the future growth of this business through a revenue share agreement,” Butschek added.
This is in line with Tata Motor’s plan to drive Turnaround 2.0, take necessary steps to further strengthen its defense business by leveraging the scale and strengths of the unified aerospace and defence entity at the Group level.
“Also, TAL Aerospace Solutions is a non-core business to Tata Motors. We have been working on charting our next phase of growth and would like to use the opportunity of consolidation at Group level to monetise our investment in this area.” added Guenter.