Tata Motors demerger: PV entity could be 2.5 times of market leader Maruti Suzuki

Tata Motors Ltd. - the automobile arm from the Mumbai-based behemoth Tata Group - is on course to de-merge the two broad business segments - passenger vehicles (PV) and commercial vehicle (CV) into two separate entities. The de-merger plan while may take upto 15 months, is likely to create an Indian PV company that could be as large as 2.5 times of the long standing market leader Maruti Suzuki (MSIL).

In FY2023, Tata Motors’ PV unit raked in Rs 47,868 crore in revenue. The unit grew by an impressive 52% year-on-year last year as PV models like Nexon, Harrier & Safari reported healthy growth. But it’s the company’s Jaguar Land Rover (JLR) business that puts it on top of the charts in terms of revenue numbers. Acquired in June 2008 from the Ford Motor Company, the UK-headquartered luxury carmaker contributes nearly 66% towards Tata Motors’ topline. Post-demerger, the PV and the JLR business clubbed together under one entity, and the CV business under another, will by far be the largest passenger vehicle company in India.

If the FY2023 numbers to go by, Tata Motors PV entity’s revenue is as high as over Rs 2,75,000 crore - 2.4 times of MSIL’s Rs 1,17,571 crore. While the March quarter numbers are awaited for both the automakers, during the first nine months of FY2024, Tata Motors’ revenue has grown by 32.5% year-on-year to Rs 3,17,942 crore with the JLR division lifting its sales by growing at 34.6% over the same period previous year. In comparison, MSIL reported revenue from operations for the April-December period at Rs 1,03,387 crore - 20% higher than Rs 86,196 crore its had posted in the corresponding quarter previous year.

While the Tata Motors board yesterday approved the demerger, experts say, the company has been preparing the ground for the move for quite sometime. Once a pure-play commercial vehicle company that entered the business in 1954 by launching its first CV - the TMB 312 truck - in collaboration with Mercedes Benz, Tata Motors entered the PV space with Tata Sierra in 1991. Since then, the company management moved towards segregating the CV and PV businesses. Over the past few years, the CV, Passenger Vehicles (PV+EV), and JLR businesses of Tata Motors have delivered a strong performance by successfully implementing distinct strategies. Since 2021, these businesses have been operating independently under their respective CEOs.

According to the company, 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 CV and 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”.

“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” says N Chandrasekaran, Chairman, Tata Motors.

In the demerger entities, existing Tata Motors shareholders will get equal numbers of equity shares, in accordance to their holdings. After the announcement, today Tata Motors stock price peaked to a record high of Rs 1,065.60 and it closed at Rs 1,021.95 - 3.52% higher than the previous close.