Tata Motors eyes smooth transition in CV demerger

Tata Motors, the Indian automotive behemoth that has embarked on a corporate restructuring journey to hive off its commercial vehicle (CV) business, has assured stakeholders of a seamless transition, promising that operational disruptions from the demerger exercise will be "minimal to nothing."

PB Balaji, the group’s CFO, struck an optimistic note during a post-earnings call, asserting that the division of assets, liabilities, and personnel is well underway. Engineering, procurement, and other corporate functions are being split." Barring a very small set of IT and analytics team members, everybody will go into their respective businesses... We are expecting minimal to no operational disruption," he added, before explaining that most of the bifurcation has already happened, as was required for regulatory purposes.

Meanwhile, common facilities will continue to function on a "pay per use" basis, the top executive added.

While acknowledging the challenges inherent in such a complex operation, including IT system development, licensing, and property transfers, the CFO emphasised that the business side of things is on solid ground. The demerger, he assured, will be tax-neutral, with shareholders receiving one share each of the new CV and passenger vehicle (PV) entities. "One should not worry from the business perspective," he said.

Earlier in the day, the Board of Directors of Tata Motors Limited 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. The scheme is subject to necessary shareholder, creditor, and regulatory approvals, which can take around 12–15 months to complete.

As a part of the scheme, TML will demerge its commercial vehicle undertaking involving 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: the commercial vehicle (CV) business and its related investments, under the name TML; and TMPV, comprising the passenger vehicle (PV) business, the electric vehicle (TPEM) business, JLR, and their related investments.

"These two companies will get listed and on the record date, the shareholders of TML will get one share (of face value of Rs 2 fully paid up) of the CV company and one share of the PV company," Balaji continued, explaining that the demerger transaction will be tax neutral.

In March this year, Tata Motors announced a major restructuring plan to unlock more value for its businesses.

For the three months ended June, the CV business of Tata Motors reported a 5.1% year-on-year (YoY) increase in its revenue at Rs 17,849  crore. Wholesale volumes during the same period increased by 5.7% YoY to 93,7000 units. The M&HCV category grew by 10% YoY in Q1 FY25, and passenger carriers segment grew by 39% YoY, a company presentation revealed.