Tata Motors Announces Demerger to Boost Business Focus

Tata Motors Limited (TML) has officially approved the demerger plan to divide the company into two distinct entities, Commercial Vehicles (CV) and Passenger Vehicles (PV) along with related investments. This strategic move aims to enhance the focus on each business segment, such as CV and PV, EV, and JLR. The decision follows the autonomous operations of these segments under their respective CEOs since 2021.

Chairman N Chandrasekaran expressed confidence that the demerger will enable Tata Motors to capitalize on market opportunities with increased focus and agility. This shift is expected to result in a more seamless experience for customers, improved growth prospects, and enhanced shareholder value.

The demerger process will be executed through an NCLT scheme of arrangement, ensuring that all existing Tata Motors shareholders will maintain identical stakes in both post-demerger entities. The Board of Directors is set to review the NCLT scheme in the upcoming months, with the entire process, including necessary approvals, anticipated to take 12-15 months to finalize.

Emkay Global, a domestic brokerage, acknowledged the strategic significance of the demerger as a means to foster self-sustaining cash flows for each independent business. Although no significant operational changes are expected post-demerger, Emkay Global revised its SOTP-based target to Rs 950, anticipating a premium multiple for Tata Motors CV business compared to Ashok Leyland IN.

Historically, the CV segment has been performing well in generating healthy cash flows, while the PV business has faced challenges in consistent cash flow generation due to substantial investment in product development and market repositioning efforts. However, the management remains optimistic about the individual prospects of each segment post-demerger.