Hitachi will pay Tata Engineering around $21.5 million for a 20 per cent stake in the Telcon, while the Tata group auto major will hold the balance 80 per cent.

The shareholders' agreement and technical license agreement was signed on Monday by group chairman Ratan Tata, Telcon chairman JK Setna and Hitachi chairman Hazime Okada.

Telcon managing director Sarosh J Ghandy, who was the former executive director at Tata Engineering in charge of the division, said the company was planning an investment of around Rs 100 crore in the recently-commissioned greenfield unit at Dharwad in northern Karnataka over the next five years.

While mining and heavy equipment would be manufactured at the Jamshedpur unit, the one at Dharwad would manufacture six-tonne equipment and progressively go into heavier equipment like 20-tonners, Ghandy added.

Tata Engineering executive director Farouk Kavarana said the turnover of Telcon would cross Rs 400 crore this year.

Telco has already booked a profit of Rs 102 crore from the construction equipment division which was transferred to a wholly-owned subsidiary for Rs 400 crore. Telcon is a market leader in excavators and mobile cranes, and achieved a 10 per cent sales growth in the 1997-98 fiscal.

Tata Engineering, over the last year, has undertaken a major restructuring to focus on its core business of manufacturing commercial and passenger vehicles. The spin off of the construction equipment division was part of the same exercise.

Some of the sub-assemblies under the machine tools division - namely, axle and wheel, engine and gearbox, and forgings - will be hived off into separate companies as well.

Telco, which is also scouting for partners in all these three businesses, expects the hive-off to be through within the next few months.

Post hive-off, Telco will sign up long-term price agreements with the new entities which will ensure that the company will not suffer in anyway even if overseas partners pick up majority stakes.

The company is considering yet another restructuring of its organisational structure wherein the automotive business unit will bifurcated into two separate strategic business units - one for commercial vehicles and the other for passenger cars, as reported earlier in this paper.

The passenger-car division, which manufactures Indica and is planning to launch other models as well, has yet to break even and has consequently dragged down the company's bottomline this year, despite improved commercial vehicles sales.