Tata Motors, India’s most valuable automaker, has announced a strategic split into two listed entities, segregating its commercial vehicle and passenger vehicle businesses. This separation aims to enhance focus, agility, and capitalize on specific opportunities in each segment. The commercial vehicle business and related investments will form one entity, while the passenger vehicle business, electric vehicles, and British luxury car unit Jaguar Land Rover (JLR) will constitute another.
The move comes as Tata Motors aims to leverage the distinct characteristics of each business, acknowledging limited synergies between commercial and passenger vehicle operations. With JLR contributing around 70% of Tata Motors’ consolidated revenue, the restructuring is expected to boost the listed passenger vehicle business, surpassing the commercial vehicle entity in revenue terms.
Investors view the demerger positively, providing them with the flexibility to choose between commercial and passenger vehicle plays. While immediate value accretion might not be apparent, continued business performance is expected to benefit shareholders over time. Additionally, the demerger is anticipated to reduce the holding company discount, aligning the market capitalization more closely with the aggregate value of individual investments.
The demerger process, facilitated through an NCLT scheme of arrangement, is expected to take 12-15 months for completion. All existing Tata Motors shareholders will maintain identical shareholding in both listed entities, ensuring a seamless transition.
Analysts believe that the split will bring sharper focus, increased accountability, and facilitate independent performance evaluation for each business segment. The demerger aligns the domestic passenger vehicle business with comparable listed peers like Maruti Suzuki India, while the commercial vehicle business will be benchmarked against companies like Ashok Leyland Ltd. Tata Motors highlights the potential for considerable synergies, particularly in electric vehicles, autonomous vehicles, and vehicle software, which the demerger aims to secure.
