The automobile major, which is currently scouting for an equity partner for Telco Construction Equipment Co (Telcon), is open to giving up majority staks to overseas majors in each of these businesses as well. The book value of the three sub-assemblies is estimated at around Rs 1,000 crore.

"We are looking at the option of hiving off the sub-assemblies which may forge global alliances at a later stage," company officials said. Telco, it is learnt, is also open to giving up entire equity to a `suitable' partner, depending on what the partner can bring to the table.

The company is yet to finalise its joint venture partner Telcon, although Hitachi is understood to be ahead in the race. "We are currently in talks with quite a few foreign majors. A final decision will be taken in this regard within thenext three to six months," company officials said.

Analysts say that the deal will be structured to ensure that Telco's operating margins do not suffer as a result of the spin-off. "The company will sign up long-term price agreements with the hived-off entities, and this will ensure that the company will not suffer in anyway even if overseas partners pick up majority stakes," analysts said.

Telco has booked a profit of Rs 102 crore from the construction equipment division which was transferred to a wholly-owned subsidiary for Rs 400 crore.

Regarding the transfer of its contruction equipment business, the company said it will enable the business to be the primary focus of the concerned management.

The spin-off will enable Telco to forge international alliances for unveiling an exhaustive range of earthmoving and construction equipment. The subsidiary currently has a marketing-and-service tie-up with Japanese giant Hitachi.

With significant investments expected to flow in the infrastructure sector,the construction equipment business in India is likely to witness growth opportunities in the coming years.

The construction equipment company is a market leader in excavators and mobile cranes, and achieved a 10 per cent sales growth in the 1997-98 fiscal.

In order to fight competition from Japanese and Korean firms, Telco had been concentrating on upgrading its product range with the progressive induction of excavators with electronic controls, easier manoeuverability and improved productivity and ergonomics.

The company had also announced plans to emerge as a one-stop shop for construction equipment. It is with this objective that it had entered into a sales-and-service agreement with Hitachi whereby it would market all Hitachi products not manufactured by the company.

INSIGHT

A sensible move

Given that the three sub-asemblies have been collectively valued at around Rs 1,000 crore, the sale would make a lot of sense for Telco, as besides the induction of some much needed funds,the company might well be able to work out a deal for the supply of the parts at a decent price.

A look at Telco's first quarter results clearly reiterate the problems the company is having with its small car. Also given the fact that the Indica is only likely to achieve a breakeven at around 60,000 units, Telco might have little option but to absorb losses on the small car in the interim. All of which clearly reflect the fact that the negatives for Telco in the short term, outweigh the positives. Thus it looks like Telco could once again have little option but to resort to a one time profit on sale of its ancillary units to cushion the earnings growth.

--Percy Dubash