Tata Motors' demerger to unleash businesses, says CFO Balaji

The board has already approved the automaker’s plans to demerge passenger vehicle and commercial vehicle businesses into two separate publicly traded entities and expects the process to be completed in the first quarter of 2025-26.

By Kiran Murali and Ketan Thakkar calendar 26 Jun 2024 Views icon11160 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
Tata Motors' demerger to unleash businesses, says CFO Balaji

Tata Motors expects its proposed demerger, creating separate passenger vehicle (PV) and commercial vehicle (CV) entities, will unlock the full potential of each business by enabling a sharper focus on their distinct strategies. The management is hopeful that the demerger will be completed in the first quarter of 2025-26 and it will unlock independent capital structures for both businesses.

"The demerger is an effort to unleash businesses, ensure they can get all the focus they deserve from the board, get the agility, get the focus and more importantly keep continuing to differentiate their strategies as they go forward and do the best in that particular business," Tata Motors' Group Chief Financial Officer PB Balaji told while speaking to reporters today.

The automaker's board has already approved the company's plans to demerge into two separate publicly traded companies – one housing the commercial vehicle business and the other for the passenger vehicle business, which will include Jaguar Land Rover.

"We intend to file the scheme in the coming months and we are hopeful that by Q1 next year we should be done with that. So, let us see how that progresses," Balaji added. Tata Motors is currently India's largest commercial vehicle maker and third-largest passenger vehicle manufacturer, as well as the market leader in electric passenger cars.

Balaji also noted that Tata Motors is working "feverishly" to simply its capital structure, which has been a major request from its investors. The company delisted its American Depositary Shares from the New York Stock Exchange earlier this year, in a bid to simplify financial reporting requirements and reduce administrative costs. The company has also got shareholder approval for its plans to convert its differential voting rights (DVRs) to ordinary shares.

Currently, Tata Motors' Indian business, which includes commercial vehicle, passenger vehicle and electric vehicle businesses, is now debt-free with Rs 1,000 crore positive cash and Jaguar Land Rover is expected to be net debt zero in this financial year. However, the standalone commercial business has a net debt of Rs 6,000 crore. "Together these companies will go forward as debt free. We do not expect debt to be a stress in the demerger," Balaji said.

He also noted that the gross debt of Tata Motors will be split between the two new entities in proportion to the size of their assets. The current asset split between the commercial vehicles and the passenger vehicles would be 60:40.

Tata Motors clocked its highest-ever consolidated revenue from operations of Rs 4.38 lakh crore during the financial year 2024. JLR is the main revenue contributor, accounting for around 70% of it. The remaining revenue comes primarily from the commercial vehicle business – around 18% – and the India passenger vehicle business - 12%.

Meanwhile, Tata Motors Executive Director Girish Wagh, who heads the commercial vehicle division, said the demerger will allow the commercial vehicle business to go behind its aspirations.

"I think this demerger will allow CV business to go behind its own aspirations and within CV, I think the eight businesses that we spoke about so there will be freedom in terms of accessing capital and also growing in the areas which would not have taken priority otherwise," Wagh said.

Tata Motors' commercial vehicle business is segmented into eight verticals. This includes four product line businesses - heavy commercial vehicles, intermediate and light/medium commercial vehicles, buses and vans, and small commercial vehicles. The other four are - international business, downstream spare parts and service business, smart city mobility business, and digital business.

On the passenger vehicle side, the management noted that their focus is on expanding their addressable market to 80 percent by 2030 with new launches while working on improving the electric vehicle ecosystem. They also see a lot of similarities between the Indian passenger vehicle business and JLR.

"I clearly see a big similarity between us and JLR. A lot of combined work has already started. There is a lot of work that we can do jointly with JLR in areas that give us a forcement in terms of accelerating the growth journey for the EV business," said Shailesh Chandra, MD of Tata Passenger Electric Mobility and Tata Motors Passenger Vehicles.

Tata Passenger Electric Mobility has already licensed JLR's Electrified Modular Architecture platform to develop premium pure electric vehicles series under the Avinya range.

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