The Board of Directors of Tata Motors Limited (TML), at its meeting held on Mar 04, 2023, approved the proposal of demerging of Tata Motors Ltd into two separate listed companies. According to the filing, Tata Motors will split its Commercial Vehicles (CV) business and its related investments in one entity and the Passenger Vehicles (PV) businesses including PV, Electric vehicles (EV), JLR (which fetches over 80% of Tata Motors' revenue) and its related investments in another entity and separately list them, aiming to unlock value and signal its confidence in the prospects of both divisions. The demerger will be implemented through an NCLT scheme of arrangement and all shareholders of TML shall continue to have the identical shareholding in both the listed entities.
Chairman N Chandrasekaran 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 better capitalise on the opportunities provided by the market by enhancing their focus and agility. This will lead to a superior experience for our customers, better growth prospects for our employees and, enhanced value for our shareholders.”
The note further said, the demerger is a logical progression of the subsidiarisation of PV and EV businesses done earlier in 2022 and shall further empower the respective businesses to pursue their respective strategies to deliver higher growths with greater agility while reinforcing accountability. Furthermore, while there are limited synergies between Commercial Vehicles (CV) and Passenger Vehicles (PV) businesses, there are considerable synergies to be harnessed across PV, EV and JLR particularly in the areas of EVs, autonomous vehicles, and vehicle software which the demerger will help secure.
Demergers traditionally impress the market as they help in unlocking value, and experts anticipate a potential listing of Tata Motors’ EV businesses in the next 2-3 years, aligning with the broader industry trend of specialized entities focusing on emerging opportunities globally. Tata Motors had converted its differential voting rights (DVR) shares to ordinary shares in December and delisted its American Depository Receipts (ADRs) in January. There were rumors some time back that Tata might be going for listing of its Electric vehicle business after the Tata technologies IPO. The company has been introducing Variants in its passenger’s vehicles and at same time improving vehicles of its commercial segment.
Tata motor stock soared 7% intraday, touching all time high of Rs. 1061 following the demerger announcement and many brokerage houses has turned bullish on stock.
