Tata Motors Ltd will split into two listed businesses comprising the commercial vehicle and the passenger vehicle businesses that includes its British luxury car unit Jaguar Land Rover (JLR).
Separation of the two businesses will help them capitalise on the opportunities and enhance focus and agility, N Chandrasekaran, chairman, Tata Motors said in a statement.
While the commercial vehicle business and its related investments will be housed in one entity, the passenger vehicle business (PV), electric vehicles, JLR and its related investments will form another entity “as there are limited synergies” between the two, the company said in a stock exchange filing on Monday.
The strategic overhaul tracks Tata Motors becoming India’s most valuable automaker on January 30 after a seven-year gap, overtaking Maruti Suzuki India.
With JLR currently generating about 70% of Tata Motors’ consolidated revenue, the move will likely see the listed passenger vehicle business eclipse the listed commercial vehicle entity in revenue terms.
Ahead of the announcement, shares of Tata Motors closed almost unchanged at Rs 987.20 apiece on the BSE in line with a flat benchmark index. The shares have gained 26.5% so far this financial year.
Tata Motors investors have termed the demerger as a positive move. “Investors can now choose whether they want a CV or PV play. While it won’t be value accretive in the near term, if the business continues to deliver, it will benefit the shareholders,” said an analyst at a domestic brokerage.
With independent values being assigned to each of the businesses, one will also see the holding company discount coming down, pointed out another analyst.
A holding company or conglomerate discount occurs when a holding company’s market capitalisation is less than the sum of the investments and other net assets that it holds. The level of discount is the difference between the aggregate value of each investment in the conglomerate and its market capitalisation.
More accountability
The demerger will help the top management lend sharper focus on each of the two companies and make them a lot more accountable, said an analyst at a domestic brokerage. The domestic PV business, which has yet to turn profitable at the PAT (profit after tax) level, will now be comparable to other listed peers such as Maruti Suzuki India, while the commercial vehicle business would be compared to companies like Ashok Leyland Ltd.
Tata Motors said 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 demerger will be implemented through an NCLT scheme of arrangement, and all shareholders of Tata Motors will continue to have identical shareholding in both the listed entities. Tata Motors said the entire demerger process could take a further 12-15 months for completion.
Source: Economic Times