Domestic PV and CV major Tata Motors has announced that its board has approved, subject to requisite regulatory and other approvals, to sell its defence and aerospace business to Tata Advanced Systems.
The decision is as part of its ‘Turnaround 2.0’ plan, to take necessary steps to further its defence business by leveraging the scale and strengths of the unified aerospace and defence entity at the group level, while monetise its non-core assets to reduce net-debt.
Tata Motors states that the sale of its defence business will not include its pure civilian vehicles which will continue to be part of its business. It will also receive an upfront consideration of Rs 100 crore, adjusted for capital expenditure incurred and changes in working capital in the intervening period until closure date.
Additionally, it will also receive deferred consideration of 3 percent of the revenue generated from Specialised Defence Projects for up to 15 years from FY2020 subject to a maxium of Rs 1,750 crore.
The sale of the shareholding in its wholly owned subsidiary, TAL Manufacturing Solutions to Tata Advanced Systems at an enterprise value of Rs 625 crore, as a condition precedent, Tata Motors will acquire the non-aerospace business from TAL at a value of Rs 10 lakh.
Speaking on the strategic decision, Guenter Butschek, CEO and managing director, Tata Motors said, “Tata Motors has been a strategic partners to the Indian Ministry of Defence in defence mobility solutions for several decades. On our transition to a full range combat vehicle player, we realised that our current portfolio is small and we need to scale to unlock its true potential. We believe Tata Advanced Systems 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 and participate in the future growth of this business through a revenue share agreement.”
“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,” concluded Butschek.