Tata Motors to Demerge Business into Two Separate Companies

Tata Motors, one of India's leading automakers, has unveiled plans to split its operations into two distinct entities, according to an exchange filing made on Monday.

In Short:

- Tata Motors is set to divide its business into two separate listed companies.

- The demerger will be executed through a scheme with the National Company Law Tribunal (NCLT), ensuring no adverse impact on employees, customers, or business partners.

- The move aims to refine focus on passenger and electric vehicle segments, empowering respective businesses for enhanced growth prospects and shareholder value.

The demerger, aimed at refining focus on passenger vehicles (PV) and electric vehicles (EV), comes as a logical progression following the earlier subsidiarisation of these businesses in 2022. By spinning off the commercial vehicles business and its related investments into one entity, and consolidating the PV businesses, including EV and Jaguar Land Rover (JLR), into another, Tata Motors aims to streamline operations for better growth prospects and agility.

"The demerger is a strategic step to capitalize on market opportunities and reinforce accountability within our automotive business units," stated Chairman N Chandrasekaran. "By empowering each segment to pursue their respective strategies independently, we aim to deliver superior customer experiences, drive employee growth, and enhance shareholder value."

The demerger scheme, subject to board approval in the coming months, will be implemented through an NCLT scheme of arrangement. Shareholders of Tata Motors will retain identical shareholding in both listed entities.

Tata Motors emphasized that the demerger will not disrupt ongoing operations, assuring stakeholders of a smooth transition. Additionally, the company highlighted the potential synergies across PV, EV, and JLR businesses, particularly in areas such as electric vehicles, autonomous vehicles, and vehicle software, which the demerger aims to leverage effectively.

Despite challenges in the commercial vehicle segment, including a decline in Small Commercial Vehicle (SCV) sales, Tata Motors remains optimistic about future prospects. The company's commercial business recorded a revenue of Rs. 20.1 thousand crore in the third quarter of FY24, with healthy growth observed in segments such as Medium and Heavy Commercial Vehicles (M&HCV) and Passenger Commercial vehicles.

In conclusion, Tata Motors' decision to demerge its business reflects a strategic move to enhance operational efficiency, capitalize on market opportunities, and drive sustainable growth in the rapidly evolving automotive landscape.