A Tata Sons spokesperson declined to comment.
The process of combining these businesses into one consolidated entity has been underway since early 2017, when Chandrasekaran took charge as Tata Sons chairman, and has gained momentum since Banmali Agrawala, former South Asia head of GE, was handpicked by Chandrasekaran to head the defence and infrastructure vertical.
“So far, all the group companies
have been pursuing their defence plans and sought collaborations independently. Therefore, there has been some reluctance to let go of the commitments,” said a person familiar with the plans.
The move, one of the three people added, will help the Tata group pitch itself as a large consolidated entity for large-scale defence procurement projects such as government’s strategic partnership (SP) programme. While it is not clear whether this will be a division of Tata Sons or a separate subsidiary, a combined organisation will also have the financials to support bidding for large contracts.
With some of the defence-related businesses being part of listed companies, the hiving off or demerger process would require the go-ahead from the board and shareholders besides requisite statutory approvals.
Agrawala and his team are now looking at optimising resources, capital expenditure, and people, besides achieving scale, which is the single-most important factor in the defence business, said the persons cited earlier.
The strategic partnership model, made public in May 2017, seeks to identify a few Indian private companies
as strategic partners who would initially collaborate with a few shortlisted foreign original equipment manufacturers (OEMs) to create big-ticket military platforms. In the initial phase, the selection of such partners would be confined to select segments including fighter aircraft, helicopters, submarines, and armoured fighting vehicles and main battle tanks.
Laxman Kumar Behera, research fellow at Delhi-based Institute for Defence Studies and Analyses, said while under the new strategic partnership model, one had seen policy simplification, it was yet to translate into actual contracts. “The next logical step by the government should be to start awarding contracts,” he said, pointing out that so far with the exception of one contract awarded to Larsen & Toubro, no large contracts had been awarded to private sector companies.
Chandra, who completes a year in office on February 21, has been emphasising on the need to consolidate the Tata group, which comprises 100-odd companies. Defence and infrastructure is one of the several verticals identified by Chandra as he seeks to make the group companies more focused and agile, and drive growth under the “One Tata” approach. The other clusters include financial services, information technology, consumer facing businesses, and travel and hospitality.
At some point, the company would need to take a call on which are the business segments within defence that are attractive and need to be deepened and how the group would leverage its strength to get the adequate return on investment. “The ambition is to grow the overall defence portfolio, which has a minuscule share in the group’s overall turnover, in multiples,” said one of the persons quoted above.
Defence has been an area that the Tatas have been involved in for many years, but now the opportunity is larger because of the government’s make in India programme, said H V Harish, partner at Grant Thornton. “In defense contracting and bidding, the scale of the company is important. If you are a Rs 1-billion company, you cannot bid for a Rs 80 billion order,” he said. Given the enormous potential, the defence business can become the next TCS for Tata group he added.