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Automobile giant Tata Motors (TML) board on Monday approved the proposal to demerge TML into two separate listed companies housing the commercial vehicles (CV) business and its related investments in one entity and the passenger vehicles (PV) businesses including domestic PV, electric vehicle (EV), and Jaguar Land Rover (JLR) and its related investments in another entity.
Analysts and industry watchers felt that this was the ‘right time’ for the company to separate its passenger and commercial vehicle businesses so as to unlock value for the electric vehicle business.
The announcement was made after market hours. TML stock had ended the day’s trade at Rs 987.2 apiece on BSE, marginally down.
The demerger will be implemented through an NCLT scheme of arrangement and all shareholders of TML shall continue to have the identical shareholding in both the listed entities. The NCLT scheme of arrangement for the demerger shall be placed before the TML Board of Directors for approval in the coming months and will be subject to all necessary shareholder, creditor, and regulatory approvals which could take a further 12-15 months to complete.
The company said demerger will have no adverse impact on employees, customers, and its business partners.
Chairman N Chandrasekaran said, “Tata Motors has scripted a strong turnaround in the last few years. The three automotive business units are now operating independently and delivering consistent performance. This demerger will help them better capitalise on the opportunities provided by the market by enhancing their focus and agility. This will lead to a superior experience for our customers, better growth prospects for our employees, and enhanced value for our shareholders.”
Since 2021, these businesses – PV (ICE and EV), JLR, and CV – have been operating independently under their respective CEOs. TML said in a statement today that these businesses have delivered a strong performance by ‘successfully’ implementing distinct strategies.
The company further said that the demerger is a ‘logical progression’ of the subsidiarisation of PV and EV businesses done earlier in 2022 and shall further ‘empower’ the respective businesses to pursue their respective strategies to deliver higher growths with greater agility while reinforcing accountability.
“Furthermore, while there are limited synergies between Commercial Vehicles (CV) and Passenger Vehicles (PV) businesses, there are considerable synergies to be harnessed across PV, EV, and JLR particularly in the areas of EVs, autonomous vehicles, and vehicle software which the demerger will help secure,” it added.
Analysing the rationale behind the demerger, Deven Choksey, managing director, DRChoksey FinServ told Business Standard, “The electric vehicle business, which is a separately carved out entity, has an investment demand of around $2 billion for development of portfolio and growth. This is the right time to demerge the PV and CV businesses to unlock valuations. As an industry trend, EV companies are fetching good valuations. Tata Motors PV portfolio which includes JLR (which has announced plans of going electric by 2025), EV business, and its domestic ICE business – would be a fantastic proposition for attracting investors. As a combined PV-CV entity, that is unlikely.”
Choksey further added that, “If one looks at the profitability numbers as well, JLR and domestic PV businesses together are estimated to post Rs 20,000-22,000 crore PBT in FY24. The PV business got back in black (after seven quarters) in Q3FY23, and has been going well from there.”
As of the third quarter FY24, JLR business leads both in terms of revenues as well as margins – it posted Rs 76,655 crore in revenues in the third quarter with an EBITDA margin of 16.1 per cent; PV business revenues were Rs 12,910 crore with an EBITDA margin of 6.6 per cent, and CV business posted revenues of Rs 20,123 crore and EBITDA margins of 11.1 per cent.
First Published: Mar 04 2024 | 6:19 PM IST
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