Iran's Khodro eyes Indica deal again

Iran's largest car manufacturing firm Iran Khodro Industrial Group has reinitiated discussions with Tata Motor to procure the latter's compact small car Indica for the local market.

Industry sources said Khodro, which had initiated negotiations with Tata Motors more than a year ago, has come back to the negotiating table as the Iranian economy looks stronger after several months of uncertainty following skirmishes in the Gulf region.

Quite recently, Iran Khodro said it will increase its output 40 per cent to 650,000 units in the next Iranian calendar year of 1383 (to start on March 20, 2004) compared with the current Iranian year.

Iran, with its population of 67 million, sees a booming car market driving economic growth in the next few years.

A Tata Motor spokesperson told Business Standard, "Yes, we are in talks now. But the talks are at a preliminary stage."

But an insider explained that these discussions may take some time to materialise owing to stringent regulations in Iran.

More than a year ago, Iran Khodro, which has licensing pacts with companies such as Peugeot and Hyundai, had started discussions with Tata Motors for sourcing 20,000-30,000 units of the compact small car Indica, annually.

Khodro wanted to bridge the gap in its model line up with the Indica -- it does not have a car model in that particular segment.

Issues that the Tatas and Khodro need to sort out in the current discussions include a proposal to set up a marketing joint venture in Iran, on the nature of the shipments -- completely or semi knocked down kits (CKD/SKD) or in completely built unit -- and joint development of certain non-critical components for the car.

If the Tatas strike a deal with Iran Khodro, it will be its second such overseas alliance after the tie up with MG Rover to ship the Indica to the UK under the Rover City badge -- the first shipments have already been made.

The Indica, and some other Tata vehicles, are also being marketed in other European markets through other marketers.

Sources said that Tatas may look at ramping up production on the face of growing demand for cars in the local market.

At the current production level, its capacity utilisation is around 70 per cent, which may increase substantially in the near future.

The spokesperson said that the Tatas will undertake measure to increase back-end efficiencies to shore up production.