Tata Motors’ demerger is perhaps one of the most widely tracked business developments in recent months, given the size, scale, and significance of the company.
Tata Motors is a leading commercial vehicle manufacturer and one of the top passenger vehicle brands in India. It is also the parent company of the premium brands Jaguar Land Rover (JLR).
Tata Motors demerger FAQs: All questions answered
1. What is the Tata Motors demerger all about?
Tata Motors manufactures both commercial and passenger vehicles. In order to ensure a more focused approach and reap the benefits of independent management and strategies, Tata Motors has decided to divide its businesses into two separate companies.
2. Which businesses are being separated under the demerger?
Under the demerger scheme, Tata Motors will be divided into two separate business entities: Tata Motors Commercial Vehicles (TMLCV) and Tata Motors Passenger Vehicles (TMPV).
3. How may the demerger impact Tata Motors’ business?
Tata Motors manufactures commercial and passenger vehicles, which operate on different strategies, capital requirements, and are affected by different demand cycles.
The demerger could mean more operational agility, focused strategies, and better capital allocation.
4. What is the goal of Tata Motors’ demerger?
The basic goal of the demerger is to unlock value by separating the business into two distinct entities.
5. How will the Tata Motors demerger work?
The demerger has to be completed in accordance with the scheme of arrangement approved by the NCLT. Additionally, a company requires regulatory and shareholder approvals.
6. What will happen to shareholders after the demerger?
The demerger ratio for Tata Motors was fixed as 1:1. This means existing shareholders of Tata Motors will receive shares in both the new entities, based on their pre-demergers holdings in the company.
For example, if an investor has 10 Tata Motors shares on the record date of the demerger, they will receive 10 shares in each of the two new companies formed after the demerger.
7. What is the record date for the demerger?
The record date for the Tata Motors demerger was fixed as October 14. This means investors who had bought shares of the company on or before October 13 got shares in both the new companies. The CV business of the company will be listed separately on the exchanges in November.
8. Will the demerger affect Jaguar Land Rover (JLR)?
JLR, which is the vehicle subsidiary of Tata Motors, will stay under the passenger vehicles (PV) entity.
The PV segment is going through tremendous technological advancements, especially due to the emergence of EVs.
JLR provides Tata Motors with global exposure, while the company’s domestic passenger car segment is experiencing rapid growth.
9. What does Tata Motors’ demerger mean for investors?
Investors are not losing anything in this demerger as they are getting the shares in both segments- CV and PV.
Investors will now have more flexibility to choose between these two for investment. While CV is considered a long-term stable and cyclical play, the PV business is a high-growth business.
“After the demerger, Tata Motors’ Commercial Vehicles (CV) business will trade independently, allowing investors to value it purely on its own financial strength, earnings visibility, and sector-specific prospects rather than being clubbed with the passenger vehicle and JLR segments,” Seema Srivastava, Senior Research Analyst at SMC Global Securities, said.
10. What are experts saying about Tata Motors’ demerger?
According to stock market experts, after this , Tata Motors Commercial Vehicles will have 37.10% of the Tata Motors business, while Tata Motors Passenger Vehicles will have the remaining 62.90% of the Tata Motors business.
Experts say Tata Motors shareholders will benefit from the demerger as Tata Motors Commercial Vehicles shares may list around the ₹300 to ₹470 range, delivering a decent premium to Tata Motors demerger beneficiaries.
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