Tata Motors: The TATA brand, established by the visionary Jamsetji Tata is a testimony of time established in 1868. Over the course of time, the Tata Group has flourished in various industries and is currently portrayed as the salt to software conglomerate. One such industry that the group operates in is the Automobile sector through its company prominent known as Tata Motors.

In recent times, the company has shown tremendous improvement in its financials and since the crash during COVID-19 to this current period, the stock has witnessed a growth of more than 800%. Recently, the company board announced that there will be a demerger in the business of the company. In this article, we’ll look in brief about the history of Tata Motors, what the company does, its financial performance and how the demerger will work.

Background of Tata motors

Tata Motors was Founded in 1945, and it is one of the biggest automobile manufacturing companies in India. Because of its large-scale operations, the company is referred to as the Tata Motors Group.

Due to its large business, the company is segmented into four categories:

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  1. Commercial Vehicles: Tata is the largest player in the commercial segment along with a strong presence in the international market. Under this segment, the company manufactures a wide range of sales of trucks, buses, and other commercial vehicles. During FY24, the segment contributed a revenue of Rs.78,790 crores of the total operating revenue.
  2. Passenger vehicles: The company is the third largest player in the passenger vehicle segment. Under this segment, the company manufactures a diverse range of offerings ranging from  SUVs, hatchbacks, sedans, EVs, and cars for fleets. Furthermore, it number 1 EV player in India with 50043 units sold. As of FY24, the passenger vehicle segment earned a revenue of Rs.52,353 crores out of the company’s total revenue.
  3. Jaguar Land Rover: Acquired in 2008, this segment is the largest division of the company through which it sells premium cars and SUVs to key markets like China, Europe and North America are key markets for JLR. This segment is the moolah of Tata Motors which brought in a revenue of Rs.3,02,825 crores during FY24.
  4. Vehicle Financing: The vehicle financing segment holds two NBFCs Tata Motors Finance Limited and Tata Motors Finance Solutions Limited through which the group provides financing for new vehicle purchases, dealer/vendor business and used vehicle refinancing/repurchases. Along the remaining segments, the vehicle finance segment has brought in a revenue of Rs. 3,959 crores in FY24.

The following image will visually represent the contribution of the segment to the company’s total revenue:

Revenue of Tata Motors

Currently, the company has operations spread across the UK, South Korea, and South Africa in 125 countries through its 88 subsidiaries, 11 associate companies, 4 joint ventures, and 2 joint operations. The operations of the company are through its 25 manufacturing facilities situated worldwide and during FY23 have sold 13,35,819 units of their vehicles.

A look into Tata Motors Demerger?

In March 2024, the company announced that it is going to demerge its business and operate as two separate listed entities. After the demerger, the passenger vehicle segment including its money-making JLR segment will operate as a separately listed entity from its commercial vehicle segment. However, the management hasn’t disclosed how they will segregate their vehicle financing business.

The decision of the demerger is said to have taken place as the company its three business units of the company were operating independently under separate CEOs. Thus, this demerger will help the businesses pursue their respective strategies and enable them to raise easily raise funds.

Furthermore, there are limited synergies between Commercial Vehicles (CV) and Passenger Vehicles (PV) businesses. However, the demerger will help them harness the synergies across PV, EV and JLR, particularly in the areas of Electronic vehicles, autonomous vehicles, and vehicle software

The demerger will be completed in the next 12-15 months under the NCLT scheme of arrangement. It will be placed before the TML Board of Directors for approval in the coming months and will be subject to all necessary shareholder, creditor, and regulatory approvals. Post the demerger, there will be no adverse changes in the employees, customers, and business partners of the company. 

How will the Tata Motors demerger impact the investors?

Post the demerger, the investors will continue to hold an identical number of shares in both listed companies as they did in Tata Motors when it was just a single entity. That is, if a shareholder holds 100 shares of Tata Motors, he/she will hold 100 shares in the commercial vehicle business and 100 shares in the passenger vehicle segment after the demerger.

Furthermore, investors will get a clearer picture of the growth strategies implemented by each of the companies and provide separate investment opportunities based on their preferences. That is an investment option between the commercial vehicle segment and the passenger vehicle segment.

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Financial Performace of the company

Due to various challenges including the pandemic and rising commodity costs, Tata Motors has been incurring since 2019. However, the company witnessed a turnaround in FY23 where it earned revenue of Rs.3,45,967 crores from which it was able to retain a net profit of Rs. 2,689.87 crores.

The financial performance has furthermore improved in FY24 where it earned a profit of Rs. 437,927 crores and retained a profit of Rs.31,806.75 crores. However, it should be noted that this improvement in financial performance was primarily attributed to the Jaguar and Land Rover segment which accounted for over 70% of the company’s revenue in FY24.

Particulars20202021202220232024
Revenue from operations (Rs. in Crores)2,61,0682,49,7952,78,4543,45,9674,37,928
Net Profit (Rs. in Crores)-11,975.23-13,395.10-11,3092,69031,807
NPM- 4.16 %- 5.16 %- 3.99 %0.67 %7.17 %

Future plans of Tata Motors

In the JLR segment, the company expects the EBIT margins to stagnate in the next financial year and is also expected to spend more in order to increase the demand for its products. The company will also emphasise reducing its costs operationally to offset the marketing expenditure.

Furthermore, the company expects to spend around GBP3.5 billion on investments and is targeting to be net debt zero by the end of this financial year. In the commercial vehicle segment, the company is cautiously optimistic about the domestic demand, closely monitoring geopolitical developments, interest rates, fuel prices, and inflation to make informed decisions. 

Additionally, various factors like incentives from the government to improve productivity in both manufacturing and agriculture sectors, and continuing focus on infra is further expected to increase the demand for CVs from H2 FY25.

In the passenger vehicle segment, the company expects a strong demand, although the high base effect, coupled with extraneous factors elections, heat waves, etc. can further hinder the growth rate. 

Furthermore, the company will continue to focus on retail and deliver market-beating growth to sustain double-digit EBITDA margins and positive free cash flows for the PV business

Additionally, the company is concentrating on retail in order to achieve substantial growth to maintain double-digit EBITDA margins and generate positive free cash flows for its passenger vehicle business.

Key metrics of Tata Motors

ParticularsFiguresParticularsFigures
CMP₹ 986.9Market Cap (Cr.)₹ 3,57,284 Cr
EPS₹ 96.89Stock P/E10
RoCE (%)18.19%RoE(%)36.98%
Promoters Holding46.36%Book Value₹ 217.86
Debt to Equity1.85Price to Book Value4.47
Net Profit Margin(%)7.17 %Operating Profit Margin(%)14.53%

Conclusion

Tata Motors’ choice to separate its PV business and CV business is a strategic decision intended to unlock value, increase concentration, and prepare the company for future growth in the swiftly changing automotive industry. While the demerger process comes with its own set of challenges, it also can generate appealing investment prospects and foster lasting value for shareholders. What are your views about Tata Motors, please let us know in the comment section below.

Written by Aaron Vas

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