What is this demerger between?(Tata Motors demerger)
Tata has decided to split its division in two parts where one will now onward serve for the Consumer and Luxury vehicles, and other will serve for the Domestic vehicles like the trucks and other transportation vehicles. According to the chairman N Chandrasekaran, this decision has been made to gain an upper edge in their business. The business being together creates an unbalance in their balance sheet as both the divisions serve for different usage and consumers. As one serves for the Indian consumer market and other serves for the business market.
WHAT ARE THESE TWO DIVISIONS EXACTLY?(Tata Motors demerger)
Passenger vehicles: Tata still being the market leader with their EV division, has despite faced a downfall from previously held at 70% now drops to 55%. Along with JLR, Tata aims to achieve GBP of 15 billion through electrification for FY30.
Commercial vehicles: The commercial vehicles being sold directly for the economic cycle of India, the company has sold over approximately 96 thousand units with an increase of 12% year on year, and gained 49% of market share for both heavy and medium trucks currently being sold. The commercial vehicle division has reported over 75,000 crore of revenue for FY25.
WHY THIS DEMERGER?(Tata Motors demerger)
The company has witnessed around 16,000 crore of automotive debt as of march 2024. With this demerger the debt will be split between both the divisions. Post demerger, debt will be apportioned between the two companies, with the PV side expected to tolerate higher leverage in pursuit of growth and the CV side optimizing for stronger credit.
PROBLEM WITH BOTH THE COMPANIES TOGETHER?(Tata Motors demerger)
The companies being together the valuation of the company faced ups and downs due to both the passenger and commercial vehicles. Now the final sales figures being on the same table, the business created problems in each other’s performance.
WHAT NEXT?(Tata Motors demerger)
The cars and trucks that are being sold currently will no longer be made in the same companies. This is more of a refresh or reboot for the company to aim on specific production of the company. This will help the company to give priority to both the production line-ups that would help the company to work more effectively towards their products. From now onwards there will be no actual visible difference in both the categories of the products. The design and the interiors of both the vehicles will remain same and will be produced under the same Tata badge. The only difference made will be on the balance sheet that would make it easier for the companies to evaluate their yearly profit and loss. The enthusiasts of the share market will now onwards have to buy different shares as now both the companies will no longer fall under the same shed, there will different shares for both the commercial vehicles and passenger vehicles.
Conclusion:(Tata Motors demerger)
It seems that Tata has taken inspiration from Mercedes-Benz as similarly, this company has also tried the same thing previously. Splitting both the companies Daimler and Mercedes-Benz, it helped to gain better grip for both divisions the commercial and passenger vehicles. It helped the company to focus more towards their upcoming ICE line-up and EV lineup. And Tata being one of the largest automaker in India, this might help the company to gain better stats in their upcoming years. At the end the company gets a chance to give priorities to the both their products, and gives an upper edge to the company to manage their yearly profit and losses.
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