Indian automaker Tata Motors Limited (TML) announced the demerge of the company into two separate listed companies. The first entity will be the commercial vehicle business and its related investments. 

The second will be the passenger vehicle businesses including passenger vehicles, electric vehicles and JLR and its related investment in another entity.

The demerger will be implemented through an NCLT scheme of arrangement and all shareholders of TML shall continue to have identical shareholding in both the listed entities. The scheme of arrangements for the demerger will be placed before the TML Board of Directors for approval in the coming months.

TML stated that the demerger will have no adverse impact on employees, customers, and our business partners.

“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,” said Chairman N Chandrasekaran.

The company stated 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.

“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,” the company informed the stock exchanges.

Tata Motors’ commercial vehicle business saw revenue of Rs.57.2 thousand crore YTDFY24 while the passenger vehicle business witnessed a Rs.37.9 thousand crore YTD FY24. 

The company’s commercial vehicle business had a 38.7 per cent domestic market share in quarter three of FY24. The passenger vehicle business along with electric vehicles had a market share of 14.6 per cent in the third quarter of FY24. 

The company stated that the dermeger will not impact the manufacturing as they have separate Manufacturing facilities for Commerical and passenger vehicles.

“The CV industry witnessed a pause in sales growth in Q3FY24 on account of the higher base effect, While M&HCV and Passenger Commercial segments witnessed healthy growth, shrinking IL&CV and SCVPU sales pulled down overall volumes during the quarter, “Girish Wagh, Executive Director of Tata Motors Ltd had said during the financial results.

Experts have pointed out that the demerger is a strategic move and will assist in the growth of all the auto segments that the company operates.

“We continue to remain positive on TATA MOTORS as a long-term story. The commercial vehicles business and its related investments will also be spun into one entity like the vehicle financing business, Tata Technologies etc. but it would be too early to comment on how this will look. We need to wait and watch for more clarity on how they would go ahead. As of now with limited details available Tata Motors will be demerged into two separate listed companies A) the Commercial Vehicles business and its related investments in one entity and B) the Passenger Vehicles businesses including PV, EV, JLR and its related investments in another entity,” said Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd. 

“We believe that the demerger of Tata Motors into two businesses is a step in the right direction as it offers agility to chase opportunities in their respective segments of PVs and CVs and also makes each business more accountable in terms of their performance. The company’s PV business will benefit from factors such as higher EV adoption, continued premiumization in the SUV space, richer product mix due to JLR business, higher acceptability of the company’s products in Indian markets and a move towards technologically advanced products, while the CV segment is likely to benefit from greater infrastructure thrust, focus on improving public mobility and a replacement cycle on the horizon,” said Dhruv Mudaraddi, Research Analyst, StoxBox.

In 2022, Tata Motors had demerged its non-banking finance business. 

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