Tata Motors to split cars, commercial vehicles business
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India's top conglomerate Tata Group is splitting its automobile business into two listed entities by separating its commercial vehicle (CV) unit from its passenger vehicle (PV) arm, which will include the money-making Jaguar Land Rover (JLR).
Once this is done, the group will have four entities from the automotive space listed on the bourses.

The current listed entity, Tata Motors, will retain the CV business and its related investments such as Daewoo, while the other company will house the PV business and its related investments, including JLR.

 

Apart from the CV and PV entities, the other two listed companies are Tata Technologies and Automobile Corporation of Goa.


There is no clarity whether the other company will be an operating or holding entity of the PV business. Currently, the different segments of the PV business, such as the domestic electric cars (Punch, Nexon, Tiago), the domestic internal combustion engine four-wheelers (Harrier) and international luxury products (Jaguar, Range Rover) are subsidiaries of Tata Motors.

Since 2021, the India CV and PV businesses as well as the international luxury vehicle unit, JLR, has been run independently under separate CEOs. Tata Motors posted its first profit in five years in FY23, benefiting from the strength of its JLR business. JLR accounts for more than 70% of Tata Motors' revenue while CVs contribute about a fifth. While the two listed auto entities will have independent boards, shareholders of Tata Motors will continue to have an identical shareholding in both.

The demerger will help the two automotive companies "deliver higher growths while reinforcing accountability," said Tata Motors.

At one point, the domestic PV business used to piggyback on the lucrative domestic CV business. “This won’t happen anymore,” said Sharekhan by BNP Paribas’ deputy VP Abhishek Gaoshinde.

The move will also make it easier for the two businesses to raise funds in the future, said Gaoshinde. The domestic electric vehicle business has already attracted a Rs 7,500-crore investment from American firm TPG Rise Climate.


Post the split, Tata Motors will be a pure-play CV manufacturer. It is currently the market leader in CVs. In 1954, the entity, then known as Tata Engineering and Locomotive Company (TELCO), rolled out its first CV, a truck, in collaboration with Mercedes-Benz. It ventured into PVs in 1991 with the launch of Tata Sierra.

 

The demerger will offer individual investors the flexibility to play either on the CV or PV theme, Gaoshinde said. Tata Motors said while there are limited synergies between CV and PV businesses, there are considerable synergies across PVs including JLR, particularly in electric, autonomous mobility and vehicle software.

 

There is no clarity on how the vehicle finance business under Tata Motors and investments held by it in companies like Tata AutoComp Systems and Tata Hitachi will be split between the two entities.

 

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