Team-BHP (https://www.team-bhp.com/forum/)

-   The Indian Car Scene (https://www.team-bhp.com/forum/indian-car-scene/)

-   -   Tata Motors to demerge into two separate listed companies (https://www.team-bhp.com/forum/indian-car-scene/277750-tata-motors-demerge-into-two-separate-listed-companies.html)

The Board of Directors of Tata Motors Limited (TML) has approved the demerger proposal for two separately listed companies.



TML will split its commercial vehicle and passenger vehicle businesses into separate entities. The latter includes all passenger vehicles, EVs, JLR, and its related investments.

TML has stated that the demerger will be implemented through an NCLT arrangement scheme, and all TML shareholders will continue to have identical shareholding in both listed entities. The company believes the demerger is a logical progression of the subsidiarization of PV and EV businesses in 2022.

Speaking about the demerger, N Chandrasekaran, Chairman of Tata Motors, 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 capitalize on the market's opportunities by enhancing their focus and agility. This will lead to a superior experience for our customers, better employee growth prospects, and enhanced value for our shareholders.”

The official statement further adds that the NCLT scheme of arrangement for the demerger will 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 demerger will not adversely impact employees, customers, and the company's business partners.

Link to Team-BHP News

I think, this is a great move. Within PV, they should create separate experience for EV+Premium segments. May be have a new logo for the PV

Press Release

What difference does this bring to the average Joe? I mean PV's and commercial vehicles were never sold under one roof.

By 'demerging' the India PVs plus JLR they clearly want access to more and cheaper capital. Through large strategic fresh-investors, presumably a big global auto company, or two. Also presumably: well short of a 'merger'? Too much net-debt, too small 'free' cash flow, if any, to deal with the expensive and risky investment load for electrification especially of JLR. With all the other risks being huge too (recessions in their main markets, etc.)

Tata Motors pv s, especially JLR, are too sub scale (well, at least financially.) This spin off is a good, if very delayed, step! Imho.

In corporate speak, it will Unlock Value.

No benefits as such to the average Joe or Jane unless you're invested in the merged entity or plan to invest in the subsequent demerged entities. But if you're a shareholder, you're looking at quite a lot of wealth creation if the companies do well.

For the parent organisation there can be many benefits like tax breaks, increased profitability and of course improved cash flow.

It is indeed a great move! TATA motors is anyway a huge company with a $28 billion entitie. Smaller companies lead to better management and more value unlocking. Also as you said they should seperate ICE and EV divisions. They have already created a seperate entitie named TEML (Tata Motors Electric Mobility limited) to get independent funding from ICE division so that they grow individually. Factories will also be held independent as the Ford acquired plant at Sanand will exclusively assemble EVs. Once the company grows to it's full potential, it will be listed and investors will move out getting in public and institutional investors as shareholders.

But TATA should also try to re-launch the defunct company ROVER based in UK but made in India (Just like MG) as a upper mid sized company between Land Rover and TATA motors so that they can create a new brand for the world market. The synergies between sister companies can cause a better value unlocking and set the bar much higher covering all the value segments.

Personally, I'm against demerger of any company, but especially Tata Motors. Because it is already a demerged entity (part of Tata Group) with focus on automobiles. Before this, there was talk about splitting Tata Motors into EV division & ICE division. So now, after this news, we will have:

Tata Electric Vehicles Ltd
Tata Passenger Vehicles Ltd
Tata Commercial Vehicles Ltd

How about cranking it up a notch? Tata SUVs Ltd & Tata Cars Ltd? How about Tata Buses Ltd & Tata Trucks Ltd?

Splitting a company like Amoeba does not always guarantee 'value unlocking'. Under most circumstances, it actually increases risk -> because you cannot move capital from one division to another. Remember, all these years, it was Tata CVs that was keeping Tata Motors' head above the water, when the passenger division was bleeding. If management had decided to split CV & PV business 10 years ago, does anybody think Tata Motors would be this successful now? Or hypothetically, in the year 2034, if Tata passenger division is struggling because of bad decisions but Tata CV division is booming thanks to global sales, what will be PV division's future outlook? There is no cash flow support from CV division this time.

Also, it is mostly Indian promoters who are fascinated with demergers. Most large US/Europe companies think opposite - they are focussed on becoming bigger in size.

TML had earlier separated PV and CV dealerships, but just more than a decade ago. Prior to that the Tata Estates, Sierras, Tatamobile 207, the trucks, buses and later their Indica and Indigo would be sold and serviced under the same roofs. Its never a good idea to sell and service both these categories of vehicles together as Mahindra still does. In fact, Mahindra too needs to demerge their CV and PV businesses. Bolero pickup and Bolero MUV's salesfigures are reflected as "Bolero".

The TML demerger will also directly reflect on their balance sheets when if the CV segment like during the pandemic, is sluggish it will show. PV sales, profits and shareholder dividends will reflect separately and show their lately cash rich balance sheets.

Normally companies do this for,

- To put pressure on the respective group to perform and sustain as the books are highly visible.

- To keep ready for a future sale, as he case maybe, of the ailing business.

Indian Automobile industry is going through a tremendous upgradation. From cars to buses to trucks for Tata’s.

To create any JV or association at various levels, separate identity would be required to satisfy any incoming partner. Individual valuation would make things far easy to form an JV or to raise capital with specific companies specialised in that particular field.

Does anyone know how does CAFE norm rating of a company is affected by how a it
is structured?

Is it possible that in the current structure, the CV side is negatively affecting the company's CAFE rating (which focusses on the average emissions of their entire fleet?) and this is an easy way for TATA to immediately resolve that issue?

CAFE regulations are becoming stricter across the world and also set to kick into top gear in India and if TATA has any aspirations of exporting their vehicles, they will need to meet these CAFE norms.

This move may not make sense now, but with the advent of EVs, it will make sense to have them in separate units free from any probable or potential operational and financial shackles from the commercial vehicle business. Commercial vehicles have different timelines for everything, from electrification of the vehicles to meeting future stringent emission norms. PV business is more competitive and strict. PV business is also business-to-consumer, while CV is more tuned to business-to-business; this changes a lot of end-user expectations, which could intensify or broaden with more competition and more EV or Hybrid options available.

While it is a win-win for the company and the investors, it needs to be seen how this will change the dynamics at the ground level - at the dealer and showroom level, where the vital business transaction, that is, the purchase of automobiles, happens.

:thumbs up. Exactly

I believe this move is intended to make each and every entity a separate individual profit centre. This implies a greater degree of accountability and transparency.

Exactly what came to my mind after reading this news. They haven’t mentioned about the PV and EV demerger at this point, have they?

But, you never know, that might be the medium term goal which has started with PV and CV demerger. Time will tell.


Edit:

Knowing their pains with the service department, maybe spin off that side of the business too? Tata Vehicle Services (not to be confused with Tata Consultancy Services)! :)