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Tie-up is essential for Tata Engg: Ratan Tata

Our Bureau

MUMBAI, July 3

AS major automobile companies acquire large slices of the market through global alliances, the Rs. 8,963-crore Tata Engineering & Locomotive Company Ltd (Tata Engineering) has made its line clearer with the Chairman, Mr. Ratan Tata, seeing a partnership or alliance as ``essential'' in the company's 1999-2000 annual report.

``In this emerging environment in the passenger car segment, Tata Engineering has plans to introduce several new products, but these may still not be adequate to enable the company to compete with the global majors. It would, therefore, be essential for Tata Engineering to establish a partnership or alliance with one or more global car-makers. This would enable the company to offer a wider product range to its customers and better address the domestic market,'' he said in his `chairman's statement'.

Mr. Tata said of Indian automobile vehicle and component manufacturers that size continued to be small by international standards restricting economies of scale. As entry barriers in India are removed, they will need to consolidate themselves through mer gers or acquisitions.

``Global products with international brands, supported by high levels of promotional spending, will win a significant share of the domestic market for all vehicles, particularly passenger cars,'' he said.

Besides noting the 36 per cent growth in Tata Engineering's commercial vehicle sales and steps taken to check the erosion in market share in light commercial vehicles and utility vehicles, Mr. Tata said: ``The most heartening aspect of the year has been the strong market demand for the Indica, which saw customer sales of over 54,000 cars and a year-end market share of 21 per cent in its price segment.''

However, he said, the increased price of diesel and the recent classification of commercial vehicles under the highest slab of the unified sales tax, had put a dampener on the demand for commercial vehicles. The low-end price category of the car segment which grew during the year, has several players selling low volumes ``and the situation is likely to get even more crowded when entry barriers are lifted in the next few years.''

The car project's scheduled break-even in only the latter part of 2000-2001 had compounded the impact to Tata Engineering from the previous two years of economic downturn. ``Given this environment, the company has an urgent need to review and revitalize the manner in which it conducts its business,'' Mr. Tata said.

At its upcoming AGM, the company will seek investor approval to create charges for raising funds up to Rs. 500 crores. In 1999-2000, Tata Engineering secured borrowings totalling Rs. 477 crores. Existing total borrowing is Rs. 3,635 crores.

Also up for shareholders' approval is an Employee Stock Option Scheme (ESOS) with total number of options not exceeding 75,00,000 shares or 2.93 per cent of the company's issued share capital of March 31, 2000.

During the year, Tata Engineering acquired 100 per cent shares of Minicar (formerly, Mazda Industrial Chemicals Ltd), which will discontinue its chemical business and start the business of storage and servicing of automobiles, the report said. Tata Engin eering's Growth & Machine Tools Division was transferred to Telco Automation Ltd (TAL) for Rs. 48.40 crores. TAL was made a ``90 per cent subsidiary'' of the company.

`Magna', the large car unveiled by Tata Engineering at Auto Expo 2000, is planned for commercialisation by 2002. The report said the lock-out at the Lucknow plant will be lifted when the environment there ``is normalised and considered safe.''

Tata Engineering's debt-equity ratio was reduced last year from 0.92:1 to 0.80:1.