Tata's losses in India might impact its defence business

Tata Motors had considered itself a frontrunner for a contract worth Rs. 50,000 crore to design and build a future infantry combat vehicle (FICV) for the Indian Army. However, the company's plans appear to have taken a big hit.

Here's the problem. Tata Motors' consolidated turnover and profit made it eligible to participate in the contest to win India's biggest 'Make' category defence project. The company's turnover of Rs. 2,63,695 crore and net profit of Rs. 13,986 crore included figures of its UK-based subsidiary Jaguar Land Rover (JLR).

However, the defence ministry has issued a note saying that domestic operation alone would count whilst evaluating a company's commercial eligibility and strength - a key determinant for who will win the FICV project. This will prevent participating vendors from claiming credit for overseas income and profits and also from any operations other than manufacturing. Such income usually appears in company balance sheets as 'other income'.

Tata Motors' turnover from domestic operations stood at Rs. 38,176 crore. Further, the company made a loss of Rs. 4,739 crore. This note might mean that Tata Motors is now ineligible to participate in the contest.

According to the Defence Procurement Policy of 2008 (DPP-2008), under which the FICV project falls, Indian private companies need to be registered for minimum 10 years, have capital assets in India of at least Rs. 100 crore and a turnover greater than Rs. 1,000 crore for each of the preceding three years, and a minimum credit rating equivalent to a CRISIL/ICRA 'A' to be eligible to participate. Additionally, it requires the company to have consistent profitable financial record showing profits in at least three years of the last five years and with no accumulated losses.

Tata Motors' loss of Rs. 4,739 crore last year is greater than the profits of the four preceding years.

The FICV is a tracked, armoured vehicle, operated by three crew members, which can carry eight combat-equipped infantrymen into battle. The vehicles weight is not specified, but it would have to be less than 18-20 tonnes. It is required to be amphibious, must be air-portable in the air force's IL-76 and C-17 aircraft, and have the capability to fire anti-tank guided missiles that destroy tanks at ranges of 4,000 metres. After approval, 2,600 FICVs will be produced to replace the BMP-2 vehicles.

The ten top contenders for the construction of the FICV include Bharat Forge, Larsen & Toubro, Mahindra & Mahindra, Ordnance Factory Board, Pipavav Defence & Offshore Engineering, Punj Lloyd, Rolta India, Tata Motors, Tata Power (SED) and Titagarh Wagons.

Source: Business Standard

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