Tata Motors is undergoing a significant change by splitting into two separate listed companies – one focusing on commercial vehicles, and the other on passenger vehicles, including Jaguar Land Rover (JLR). This decision aims to seize opportunities, enhance concentration, and boost agility, according to N Chandrasekaran, Tata Motors' chairman.
The commercial vehicle business and related investments will form one entity, while the passenger vehicle business, electric vehicles, JLR, and associated investments will constitute another. The reasoning behind this separation is the limited synergies between the two segments. Tata Motors achieved the status of India's most valuable automaker on January 30, surpassing Maruti Suzuki India.
Given that JLR presently contributes about 70% of Tata Motors' consolidated revenue, the move is anticipated to position the listed passenger vehicle business ahead of the commercial vehicle entity in terms of revenue. Before the official announcement, Tata Motors' shares closed nearly unchanged at Rs 987.20 apiece on the BSE, aligned with a flat benchmark index. The shares have witnessed a 26.5% gain so far in this financial year.
Investors have generally welcomed the demerger, providing them with the option to choose between commercial vehicle or passenger vehicle investments. While immediate value accretion might not be evident, sustained business performance is expected to benefit shareholders over time, as suggested by an analyst from a domestic brokerage.
The independent valuation of each business is also predicted to reduce the holding company discount. This discount occurs when a holding company's market capitalization is less than the sum of its investments and net assets, with the difference representing the level of discount.
The demerger is viewed as a move towards greater accountability, allowing top management to focus more sharply on each of the two companies. The domestic passenger vehicle business, which has yet to achieve profitability at the profit-after-tax level, will now be comparable to other listed peers like Maruti Suzuki India. Simultaneously, the commercial vehicle business will be compared to companies such as Ashok Leyland Ltd.
Tata Motors highlighted "considerable synergies to be harnessed across PV (passenger vehicle), EV (electric vehicle), and JLR, particularly in the areas of EVs, autonomous vehicles, and vehicle software," which the demerger aims to secure.
The demerger process will be implemented through an NCLT (National Company Law Tribunal) scheme of arrangement. All shareholders of Tata Motors will retain identical shareholding in both listed entities. The entire demerger process is expected to take an additional 12-15 months for completion.
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