Tata Motors announces additional details of CV demerger

The Board of Directors of Tata Motors Limited has today, (1 August 2024), approved a Composite Scheme of Arrangement amongst TML, TML Commercial Vehicles Limited (TMLCV), Tata Motors Passenger Vehicles Limited (TMPV) and their respective shareholders under Sections 230-232 and other applicable provisions of the Companies Act, 2013. 

As a part of the Scheme, TML will demerge its Commercial Vehicle undertaking involving the Commercial Vehicle business (all the assets, liabilities and employees relating to the Commercial vehicle business) and all its related investments into
TMLCV. Further, pursuant to the Scheme, the existing Passenger Vehicle business in TMPV, will be merged into TML, the existing listed entity.

Upon the Scheme becoming effective, both TMLCV and TML will be renamed, resulting in two separate listed entities:

1) The Commercial Vehicle business and its related investments, under the name TML, and

2) The Passenger Vehicle business, the Electric Vehicle (TPEM) business, JLR and their related investments, under the name TMPV.

Pursuant to the Scheme, shareholders of TML will receive ONE share of TMLCV of face value Rs 2/- fully paid up for each fully paid-up share of Rs 2 held in TML of the same class (“Entitlement Ratio”).

These actions would further empower the respective business groups to pursue their differentiated strategies with greater agility while reinforcing accountability and enhancing shareholder value. The Scheme will not have any adverse impact
on employees, customers, creditors and other business partners.

The Scheme is subject to all the necessary shareholder, creditor and regulatory approvals which can take around 12-15 months to complete.

PwC Business Consulting Services LLP has provided the share entitlement report for the transaction, with SBI Capital Markets acting as fairness opinion provider for share entitlement ratio for the demerger. AZB & Partners are the legal advisors to the transaction. Deloitte Touche Tohmatsu India LLP are the tax advisors for the transaction.

In March earlier this year, Tata Motors announced a major restructuring plan to unlock more value for its businesses, which entailed demerging the company into two separate publicly traded companies - one for the commercial vehicle business and the other for the passenger vehicle business, which will include electric vehicles and Jaguar Land Rover. 

The automaker noted that the demerger is a “logical progression of the subsidiarisation” of passenger and electric vehicle businesses done in 2022. Currently, three businesses – commercial vehicles, passenger vehicles and Jaguar Land Rover – operate independently under their respective CEOs.

"The demerger is an effort to unleash businesses, ensure they can get all the focus they deserve from the board, get the agility, get the focus and more importantly keep continuing to differentiate their strategies as they go forward and do the best in that particular business," Tata Motors' Group Chief Financial Officer PB Balaji had noted earlier. 

Balaji also noted that Tata Motors is working "feverishly" to simply its capital structure, which has been a major request from its investors. The company delisted its American Depositary Shares from the New York Stock Exchange earlier this year, in a bid to simplify financial reporting requirements and reduce administrative costs. The company has also got shareholder approval for its plans to convert its differential voting rights (DVRs) to ordinary shares.

Currently, Tata Motors' Indian business, which includes commercial vehicle, passenger vehicle and electric vehicle businesses, is now debt-free with Rs 1,000 crore positive cash and Jaguar Land Rover is expected to be net debt zero in this financial year. However, the standalone commercial business has a net debt of Rs 6,000 crore. "Together these companies will go forward as debt free. We do not expect debt to be a stress in the demerger," Balaji said.

He also noted that the gross debt of Tata Motors will be split between the two new entities in proportion to the size of their assets. The current asset split between the commercial vehicles and the passenger vehicles would be 60:40.

Tata Motors clocked its highest-ever consolidated revenue from operations of Rs 4.38 lakh crore during the financial year 2024. JLR is the main revenue contributor, accounting for around 70% of it. The remaining revenue comes primarily from the commercial vehicle business – around 18% – and the India passenger vehicle business - 12%.