Ratan Tata’s favorite company Tata Motors is going to be divided into two parts, after which their businesses will be separated. Actually, Tata Sons is preparing to form a holding company for Tata Motors. Tata Motors will have two businesses in the holding company, one passenger vehicle (PV) and the other commercial vehicle (CV). Both these businesses will be registered as separate entities. Whereas Tata Motors is now debt free, on the contrary it has a cash reserve of Rs 1000 crore.
Officials having knowledge of the matter said that after the creation of the new structure, the boards of these institutions will also be reformed. Tata Group Chairman N Chandrasekaran will chair the holding entity along with other key executives, officials said. PB Balaji, Chief Financial Officer of Tata Motors, who is credited with the successful restructuring of the automobile business and may take the lead. The merger is expected to help Tata Motors raise independent capital for its PV and commercial vehicle (CV) businesses.
How is CV different from PV?
According to the head of a leading Mumbai-based brokerage, “PV is a more solid growth story that is capable of commanding better valuations than the CV business, which helps unlock value for Tata Motors shareholders. As a result, we could potentially see the listing of an electric PV arm at Tata Motors after the separation of the CV and PV businesses.
This demerger is a logical progression of the subsidiarization of the PV and EV businesses planned for 2022, allowing both to have business accountability and their own strategies for faster growth. Another official associated with the matter said that there is limited coordination between CV and PV. At the same time, PV and JLR (Jaguar Land Rover) have a lot of synergy in the areas of EV, autonomous vehicles and vehicle software.
JLR’s revenue is important
This will help in separating the strategies of PV and CV after demerger. However, the business is inclined towards passenger business. In this, the revenue of UK luxury-vehicle maker JLR is very important. Tata Motors’ Indian business, which includes CV, PV and EV, is now debt free with ‘₹1,000 crore of positive cash. The auto major does not expect the demerger to put pressure on debt.
However, the gross debt of Tata Motors will be divided between the two new entities in proportion to the size of their assets. The current asset split between CV and PV is 60:40. Tata Motors recorded its highest ever consolidated revenue of ‘₹4.38 lakh crore’ in FY2024. JLR contributed 70% of the revenue, followed by CV at 18% and non-JLR PV business at 12%.