Tata Motors demerger: PB Balaji could unify Tata’s new auto businesses under Tata Sons

The planned demerger of Tata Motors into two separate listed companies—one each for commercial vehicles (CVs) and passenger vehicles (PVs) —could potentially set the stage for group CFO P.B. Balaji to serve as a unifying executive to ensure effective capital allocation for them, two people with knowledge of the discussions said.

While the companies will operate independently, Balaji is likely to play the role of chairman or vice-chairman for both the upcoming entities, or even double up as executive head of the PV business, the people said on condition of anonymity.

The demerger of the flagship automotive company of Tata Sons is expected to be completed in the next 12-15 months, subject to the completion of regulatory processes and approvals.

Setting the stage

The planned demerger of Tata Motors into two separate listed companies—one each for commercial vehicles (CVs) and passenger vehicles (PVs)—could potentially set the stage for group CFO P.B. Balaji to serve as a unifying executive to ensure effective capital allocation for them, two people with knowledge of the discussions said.

While the companies will operate independently, Balaji is likely to play the role of chairman or vice-chairman for both the upcoming entities, or even double up as executive head of the PV business, the people said on condition of anonymity.

The demerger of the flagship automotive company of Tata Sons is expected to be completed in the next 12-15 months, subject to the completion of regulatory processes and approvals.

Also read |  Tata Motors approves demerger into 2 listed cos, scheme to conclude in 15 months

Emails to Tata Motors and Tata Sons seeking comment on the demerger and potential appointments did not receive a response till press time.

While Balaji has the backing of Tata Sons chairman N. Chandrasekaran for his successful role as group CFO, the final decision will rest with the boards of both Tata Motors and Tata Sons, and no official decision has been signed off yet, the people cited above said. To be sure, Chandrasekaran is also the chairman of Tata Motors at present.

Leadership juggle

Structurally, the demerger will also bring fresh challenges in leadership realignment. One key consideration is appointing one dedicated executive head for the new PV company, which will include both the India PV businesses and JLR.

“The leadership structure at Tata Motors has historically been flexible to accommodate the company’s diverse global and domestic businesses," one of the people cited above said.

Also read |  Tata Motors says demerger will allow all businesses to unlock potential

“Given Balaji’s deep involvement with Tata Motors’ capital strategy and Chandrasekaran’s confidence in his fiscal oversight, he could potentially take on a 'double-hat' role as MD of PV, if needed, or act as a non-executive chairman for the CV division," the person added.

Deft captain

Balaji’s potential role as chairman reflects his strong track record of fiscal discipline and strategic decision-making within Tata Motors as group CFO.

Since joining the company in 2017 from Hindustan Unilever, where he was CFO, Balaji has overseen a sweeping debt-reduction plan that led to the company’s debt-free status, largely through disciplined capital allocation.

This included taking hard calls on the Jaguar brand, cutting further investment in the brand, and leading the India passenger vehicle division’s TPG deal in 2021, which brought in $1 billion investment for Tata’s EV plans at a $9 billion valuation.

Also read | Tata Motors’ demerger is backed by a dual-lane strategy

Balaji’s reputation for capital discipline, cash flow optimization, and improving returns on capital employed (ROCE) strengthened Tata Motors’ goals of improving its financial stability and expanding into the EV market.

To be sure, Tata Motors saw its domestic automotive business turn net cash positive in the fourth quarter of FY24, successfully concluding a deleveraging journey it had embarked upon in 2020, when an enormous debt of over ₹48,000 crore dragged down its PV business.

New road to build

The restructuring also underscores Tata Sons’ expansion focus.

Chandrasekaran has been expanding Tata’s footprint in sectors such as semiconductors, infrastructure, and defence manufacturing, areas that match India’s industrial policy objectives and growing demand for domestic manufacturing capabilities.

With these emerging ventures demanding significant capital and attention, Balaji’s appointment to a top role in Tata Motors’ newly defined automotive category would enable Chandrasekaran to focus on these initiatives while ensuring that Tata Motors remains fiscally sound and strategically aligned with the group’s broader goals.

Also read |  Tata Motors’s split could shift its passenger-vehicles business into top gear

The demerger is anticipated to help Tata Motors unlock shareholder value and enhance market focus for the two businesses. By separating the two businesses, Tata Motors gives investors the opportunity to evaluate their performances on their own merit.

Plus, it can play on the passenger vehicle electrification and premiumization themes without the overhang of an unrelated business (commercial vehicles).

The new framework is expected to enhance transparency, allow for targeted investment, and ultimately help both segments achieve long-term growth and profitability, analysts Mint spoke with said.