Construction equipment contributed Rs 400 crore to TELCO's turnover and Rs 65 crore to profit before tax and it would be spun off as a going concern for a consideration of Rs 400 crore, he said.

The business has been valued at Rs 400 crore including assets and working capital, the TELCO Chief said and informed that the new subsidiary would raise Rs 200 crores to pay TELCO in addition to an equal amount through issue of equity including premium of Rs 100 crore.

Tata said the new company would be based in Karnataka, the state where the company's main construction equipment activity will be based. TELCO has a market share of 61 per cent in excavators and 85 per cent in mechanical cranes.

Tata said a shell companyhas already been formed for hiving off the construction equipment business and it is expected to be operational by March 31, 1999.

Explaining the rationale behind forming the subsidiary, he said construction equipment business must expand its product base to remain in competition. "We cannot bring in a foreign partner in TELCO for five per cent of our business. We are creating a vehicle to take further steps," he stated.

"Unless we develop product capability, we may face the same fate," was Tata's response to an observation by a shareholder on Indian partners in several automobile joint ventures being overwhelmed by foreign partners.