Tata Power may hive off defence-related SED arm

The Tata Group is exploring plans to hive off the strategic engineering division (SED) of Tata Power Company as part of a strategy to consolidate its defence businesses, according to an Economic Times report.

Tata Power's SED division designs, develops and produces strategic defence systems. It is a prime contractor to the ministry of defence for indigenous defence production, and the move is seen as an attempt to tap opportunities offered by growing government spending on defence.

The valuation of the business is estimated at about Rs2,000 crore, a group official said.

Tata Power did not comment on the matter. The company is scheduled to announce its results today.

According to the ET report, a senior official familiar with the plan said the matter has not come up for discussion at the board level. "This is something that has been in the pipeline even during the previous chairman Cyrus Mistry's tenure. The SED business valuations will have to be agreed upon by both Tata Power and Tata Sons," he said.

Tata Power SED has an R&D centre in Mumbai and a production and R&D facility in Bengaluru. Rahul Chaudhry is the chief executive of Tata Power SED.

The Tatas' defence businesses are dispersed across various units.

Tata Advanced Systems, Tata Advanced Materials and Tata Industrial Services are standalone defence and aerospace businesses. The rest are part of companies such as Tata Motors, TAL Manufacturing Solutions, Tata Technologies, TCS, Tata Steel, Tata Elxsi and Titan. The group's defence businesses collectively contribute revenue of Rs2,650 crore.

Consolidating most of the defence-related firms together can bring greater focus on this segment and holds great potential, Credit Suisse said in a recent report. Consolidation and restructuring moves by Tata Sons chairman N Chandrasekaran are aimed at cutting duplication and costs and identifing scalable businesses.

The $103-billion Tata Group has over 100 companies with businesses ranging from chemicals and fertilisers to automotive, therapeutics, steel, tea and salt. Several entities are housed in diverse companies that have no synergy with their main businesses.