Tata Motors Announces Demerger As It Gets Set To Split Into Two Separate Companies, Here's Why

Just a couple of days after it overtook Hyundai as India's second biggest car maker, Tata Motors has announced a big decision. In an effort to create synergies and aim for greater growth, the board of Tata Motors decided on Monday to approve its demerger.

Tata Motors To Split Into Two Companies As It Announces Demerger

tata motors demerger/et

Through the demerger, Tata Motors has decided to go ahead with a division of the company's operations into the commercial and passenger vehicle businesses.

"The demerger is a logical progression of the subsidiarisation of the passenger vehicle and electric vehicle businesses done earlier in 2022 and shall further empower the respective businesses to pursue their respective strategies to deliver higher growths with greater agility while reinforcing accountability," the company said in a stock exchange intimation.

As far as its recent financial results are concerned Tata Motors had in the third quarter (Oct-Dec 2023) registered a profit of Rs 7,100 crore, which was 133% up year-on-year. Its revenue too had risen, seeing a 25% jump to Rs 1.11 lakh crore in the same period.

Also Read: When Tata Motors Came Out With A Nano Car Worth Rs 22 Crore

What Will Happen After Demerger Of Tata Motors?

Following the demerger, the passenger car business, which includes PV, electric vehicles, Jaguar and Land Rover, and related investments, would be housed in one entity, while the commercial vehicle business and its investments would be housed in another.

According to the company, an NCLT scheme of arrangement would be used to carry out the demerger. The approval of the NCLT plan by the Tata Motors board, shareholders, creditors, and regulators could take a year or two. Also, even post demerger, each and every Tata Motors shareholder would keep owning the exact same number of shares in each of the two listed companies.

tata motors/reuters

Also Read: Tata Motors Considering Revival Of Nano In EV Form

Not A Sudden Decision By The Tata Group Company

This does not seem to a sudden decision by Tata Motors, given that its commercial vehicle, passenger vehicle, and JLR divisions have operated separately under the leadership of their respective CEOs since 2021 . Tata Motors provided an explanation for this decision by stating that although there aren't many synergies between the PV and CV businesses, there are "considerable" synergies that it hopes to leverage between the three businesses, as per ET report.

The business believes it can capitalize on synergies, especially in the domains of electric vehicles, driverless cars, and automotive software. Tata Motors does not anticipate any negative effects from the demerger on our business partners, customers, or employees.

Tata Group Chairman Remains Optimistic About Demerger

Tata Group Chairman/fortune

"Tata Motors has scripted a strong turnaround in the last few years. The three automotive business units are now operating independently and delivering consistent performance. This demerger will help them better capitalise on the opportunities provided by the market by enhancing their focus and agility," said N Chandrasekaran, Tata group Chairman.

"This will lead to a superior experience for our customers, better growth prospects for our employees and, enhanced value for our shareholders," he added.

Also Read; Vedanta Plans Demerger Its Businesses, Separate IPOs

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