Tata Engineering and Hitachi Construction Machinery Company, Japan (Hitachi) today announced a joint venture to manufacture technologically advanced earth moving equipment in India. Hitachi will pay Tata Engineering US$ 21.5 million for a 20 per cent stake in Telco Construction Equipment Company Limited (Telcon), the Tata Engineering earth moving equipment subsidiary. Consequently, Tata Engineering will now hold 80 per cent of the equity.
A shareholders' agreement and technology licence agreement for the joint venture was signed today by Ratan N Tata, chairman, Tata Engineering, J K Setna, chairman, Telcon and Hajime Okada, chairman, Hitachi.
Announcing the joint venture, Mr Tata said, "This joint venture is a natural progression of our long-standing relationship with Hitachi from a licence agreement since 1984, to equity partners today. The emerging focus in today's increasingly competitive environment is on completing infrastructure projects without any time and cost overruns. This requires construction equipment of high reliability and productivity with advanced technology, features and services. The Tata-Hitachi range, which has gained market leadership despite not being the first to enter the market, is now better positioned to capitalise on these opportunities, drawing on Hitachi's global leadership and expertise."
Tata Engineering restructured its construction equipment business unit into a separate company, Telcon. Over the last decade, the Tata-Hitachi product range has grown at a compound annual growth rate of 21 per cent despite the economic downturn during the last three years. Telcon is the market leader in India with a 67 per cent market share in the hydraulic excavator sector.
Mr Okada said, "Our investment in the joint venture reflects our commitment to India and to the Tata Group. The joint venture company will have access to the latest technology available from Hitachi, its affiliates and its partners enabling Telcon to expand its product range in order to meet the growing demand for superior quality products in an increasingly competitive environment in India. The joint venture company will also have the opportunity to export its products to select SAARC countries and some international markets through the Hitachi network."
Telcon is currently manufactures its earth moving equipment at Jamshedpur, where it has had the facility since 1961. A greenfield project with state-of-the-art manufacturing facilities is being set up at Dharwad, Karnataka, where an assembly line for one model of excavators is functional, with the first machine having rolled out in 1999. Spread over 119 acres along the Bangalore-Pune highway, the plant is strategically located midway between its largest markets - the south and west - and will be dedicated to the high volume end of the business, and the Jamshedpur facilities will cater to the heavy equipment range. Telcon envisages an investment of Rs.100 crore during the next five years to develop world class facilities at Dharwad.
Telcon has the widest range of hydraulic excavators in the country. Its product range today includes hydraulic excavators, crawler cranes, wheel loaders and backhoe loaders. Telcon also markets specialised and high-end equipment outside its manufacturing range by importing them from Hitachi and its associates worldwide like Fiat Hitachi, John Deere and Euclid Hitachi.
Hitachi, along with its associates, is a comprehensive manufacturer of construction machinery with a consolidated turnover of US$ 2.8 billion. Formerly the construction division of Hitachi, Hitachi Construction Machinery Company Limited was established in 1970. Its main products are hydraulic excavators, crawler cranes, foundation machines and shield machines, all of which have earned an excellent reputation world-wide for performance, reliability and safety. Hitachi and its affiliates have branched out into the fields of mini-excavators, wheel loaders, bulldozers and off-road dump trucks. Hitachi's experience in the manufacture of construction equipment spans 50 years.
The financial advisors to this transaction were DSP Merill Lynch and Bank of Tokyo-Mitsubishi for Tata Engineering and Hitachi respectively.