Monday November 2, 03:34 AM

Source: Indian Express Finance

Tata to line up $500 m to incubate new ideas

By MG Arun
The Tata Group will set aside $500 million to incubate new businesses in cutting-edge areas such as clean technologies, renewable energy and defence. A promoter company of the $70.8 billion (around Rs 3.25 lakh crore) Tata Group, Tata Industries has identified and nurtured several businesses for the conglomerate since 1945, plans to invest up to $500 million (around Rs 2,350 crore) in new technologies that can be developed into future businesses. The company, which has promoted businesses like control systems, information technology, financial services, auto components, advanced materials and telecommunications services for the group, said the immediate focus areas would be environment-related clean technologies, renewable energy and defence technologies. We have the potential to invest, internationally, in a business that would require an investment of $500 million, said Kishor Chaukar, managing director of Tata Industries, which, akin to the other Tata Group promoter company Tata Sons, remains unlisted. Whether it is one company, or several companies, I cannot say. We keep looking around for such opportunities, he added. Tata Industries will use internal resources, and may even borrow to make the investment, he said. The Tata Group s efforts to identify and incubate new businesses is in line with some of the world s large corporations like Unilever and Samsung that continuously incubate new ideas with a potential to grow to a full-fledged business opportunity in future. Sidharth Punshi, managing director of investment banking firm Jefferies India observes that the idea behind this is two-pronged. For one, it provides the flexibility for companies to constantly evaluate their business portfolios and exit businesses that are no longer exciting or rewarding and enter those that have a future potential. Two, it helps create stickiness within an organisation by providing avenues to talented managers within a company to test their mettle, so that they need not go elsewhere to put their skills to use. Over the last few years, the Tata Group exited sub-optimal businesses like telephone equipment manufacture, and others like the joint ventures Tata Honeywell and ITPL Bangalore, and entered advanced materials, auto components, logistics and interactive training programmes. In a little over a decade, Tata Industries has invested Rs 1,500 crore to Rs 1,600 crore in various businesses, and the value of these investments would now be more than double, Chaukar said. The latest was this September, when it invested an undisclosed sum in Swiss solar-cell maker Flisom, which is setting up a 5-mw plant for $36.8 million (over 170 crore). We are agnostic to technologies to a large extent and our interest is determined by the scale of benefit (in terms of sections and magnitude of human population they can impact), disruptiveness of the technology, innovativeness of the business model or approach, potential of the opportunity to become a large business and link-age with the operations of our current companies, Chaukar said. The company is not limited by geography and have investments in companies located in cities ranging from Kanpur to Boston to Zurich to Israel, he added. Punshi said shareholder concerns have put a limit on such innovative approach in the US, but not so with firms elsewhere. In India, he cited the example of the Rs 20,000 crore Mahindra Group, which has diversified into businesses like holiday homes and leisure through Mahindra Holidays. Chaukar said a company like Tata Industries would remain unlisted for precisely the same reasons as Punshi highlighted. By remaining unlisted, the firm can keep taking risks and nurture new businesses. Typically, Tata Industries would pick up a stake or acquire a start-up business with a potential to grow. It would invite some other group companies to either invest or take up the business as an independent unit within that company. Tata Industries also has to option to exit the business by selling part of the business to either to a company within the group or to an outside party. In the biotech field, the group has three investments. In 2006, Tata Industries bought a 26-30% stake in US-based Indigene Pharmaceuticals, a drug research and development firm, for an undisclosed sum. Earlier, the group, along with Rashmi Barbhaiya, the former head of research at Ranbaxy, had floated Advinus Therapeutics, a drug discovery company, apart from investing in Bangalore-based Avesthagen In 2008, Tata Industries formed a joint venture company with aerospace giant Boeing Co to work in the $500-million defence-related aerospace sector in India and also supply Boeing s international customers.