Tata Motors Demerger: Board Approves Incorporation Of Commercial Vehicle Subsidiary

Tata Motors‘ share price went up around 2% on Wednesday morning recovering from the sharp 5% fall on Tuesday. However, the stock was extremely volatile.

What Happened: On Tuesday evening, the auto giant announced that its board had approved the establishment of a wholly-owned subsidiary to house its commercial vehicles business. The new unit is proposed to be named TML Commercial Vehicles Ltd (TMLCVL).

According to a regulatory filing, this entity will be a wholly-owned subsidiary of the company. This move follows the company’s announcement in March of this year regarding the demerger of its commercial and passenger vehicle segments into two separate listed entities. The purpose of this demerger is to better capitalise on growth opportunities in each segment.

As part of this strategic initiative, the commercial vehicle (CV) business and its related investments will be housed in the new subsidiary, TMLCVL.

Meanwhile, the passenger vehicle business, which includes electric vehicles and the luxury brand Jaguar Land Rover, along with their related investments, will be organised under a separate listed entity.

This restructuring aims to provide greater focus and operational efficiency within each business segment, enabling them to pursue targeted growth strategies and enhance shareholder value.

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The auto manufacturer also announced the merger of the Board of Directors of Tata Motors Limited (TML), Tata Capital Limited (TCL), and Tata Motors Finance Ltd (TMFL) have approved the merger of TMFL with TCL through an NCLT scheme of arrangement.

As part of this merger, TCL will issue its equity shares to the shareholders of TMFL, resulting in TML holding an effective 4.7% stake in the merged entity.

For FY24, TCL reported a profit after tax (PAT) of ₹3,150 crore, while TMFL reported a PAT of ₹52 crore. This merger aligns with TML’s strategic objective of exiting non-core businesses and focusing its capital expenditures on emerging technologies and products.

Currently, TCL has a limited presence in the commercial vehicle (CV) and passenger vehicle (PV) financing sectors. The merger will enable TCL to acquire new customers in these fast-growing segments, which it plans to serve with innovative products and digital offerings, the company said in a press release.

Price Action: Tata Motors’ share price was down 0.24% to trade at ₹901.70 as the markets opened on Wednesday.

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