On 4th March 2024, Listed Automobile Giant Tata Motors (TAMO) disclosed in its stock exchange filing its plan to demerge the Business into 2 separate listed companies namely Commercial Vehicles (CV) and Passenger Vehicles (PV).
According to the TAMO, the demerger is a natural progression following the subsidiarisation of the Passenger Vehicle (PV) and Electric Vehicle (EV) business undertaken in 2022. The company aims to let the units pursue their respective strategies more effectively ensuring higher growth rates and reinforcing accountability.
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The company has highlighted that over the recent years its Commercial Vehicle, PV & EV and Jaguar Land Rover (JLR) business have implemented distinct growth strategies since 2021, these units have been operating independently under their respective CEOs.
Demerger through Scheme of Arrangement to be approved by NCLT
The execution of this demerger will take place through a National Company Law Tribunal (NCLT) Scheme of Arrangement, ensuring that all shareholders of TAMO maintain identical shareholding in both listed entities. However, necessary shareholder, creditor and regulatory approvals could extend the process by 12 to 15 months.
The company’s board of Directors has shown the green flag to the proposal for the demerger, emphasizing its commitment to creating 2 distinct entities: one housing the commercial vehicles business and related investments, and the other encompassing Passenger Vehicles Businesses including PV, EV, JLR and associated investments.
The Chairman of Tata Sons, N Chandrasekaran expressed optimism about the move, stating, “Tata Motors has scripted a strong turnaround in the last few years. The demerger will help them better capitalize on the opportunities provided by the market by enhancing their focus and agility.”
Demerger to strengthen both verticals of consumer & passenger vehicles
While limited synergies exist between Commercial Vehicles and Passenger Vehicles businesses, Tata Motors stressed the significant synergies to be leveraged across PV, EV, and JLR units, particularly in emerging areas like electric vehicles, autonomous driving, and vehicle software.
Assuring stakeholders, Tata Motors emphasized that the demerger would not adversely affect employees, customers, or business partners. Instead, it aims to streamline operations, foster innovation, and enhance value for shareholders.
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The market responses were noted, with Tata Motors’ scrip on the BSE closing flat at INR 989 per share on March 4th, 2024. However, analysts anticipate that the strategic realignment could position Tata Motors for sustained growth and competitiveness in the dynamic automotive landscape.
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