Industry sources say that the automobile company may soon sew up a joint venture with the US-based major Cummins for the engine business, while Meritor, a subsidiary of Rockwell, is ahead in the race for a pie in the wheel & axle business. A European company, it is learnt, is the frontrunner for partnering Telco in the forgings business. The book value of the three businesses is estimated at around Rs 1,200 to Rs 1,300 crore. Analysts say that the spin-off of the sub-assemblies will enable the company to retire a large chunk of its debts, which will substantially bring down its interest cost.

"Assuming that Telco enters into 50:50 joint ventures for each of these businesses, the interest saving could be in the region of Rs 120 crore annually," said an auto analyst.

The company's move to hive off sub-assemblies is in line with the international trend to move towards systems integration. Car makers, the world over, are moving away from the backward-integrated approach and increasingly relying on integrated suppliers for components.

The Tata group spokesperson, when contacted, said: "It is inappropriate for us to comment on the directions the company may choose to take to further its business interests."

It is understood that Telco is not averse to the idea of giving up the entire equity in the sub-assemblies." It will largely depend on what the partner can bring to the table," sources said.

Analysts feel that the deals 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 it will not suffer in anyway even if overseas partners pick up majority stakes," said an analyst. Telco, which hived off its construction equipment business into a wholly-owned subsidiary, Telco Construction Equipment Company (Telcon), has not yet finalised a strategic partner. Although Japanese giant Hitachi is ahead in the race to pick up an equity stake in the newly-floated company, Telco insiders say no final decision has been taken in this regard.

The construction equipment division had a book value of Rs 300 crore and Telco made a profit of Rs 102 crore from the transfer. Telco has said that the spin-off of the construction equipment business will enable the company to forge international alliances for unveiling an exhaustive range of earthmoving and construction equipment in India. "The company has identified construction equipment business as a key growth area for the future, and thesubsidiary will concentrate on its strengths to take on challenges from international players, who are set to enter the domestic market on their own or through joint ventures," Telco has said.