Tata Motors board approves demerger into two listed companies, scheme to conclude within 15 months

Tata Motors Ltd (TML) announced on Thursday, August 1, that its board approved the demerger scheme of its commercial vehicle (CV) arm, which will eventually lead to two separate listed entities. India's most valuable carmaker said the demerger scheme will likely be completed within 12-15 months.

As part of the scheme, the auto giant said that its board approved a composite scheme of arrangement amongst TML, TML Commercial Vehicles Ltd (TMLCV), Tata Motors Passenger Vehicles Ltd (TMPV) and their respective shareholders under sections 230-232 and other applicable provisions of the Companies Act, 2013.

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Tata Motors demerger: What does the scheme entail?

The demerger will involve the commercial vehicle business (all the assets, liabilities, and employees relating to the commercial vehicle business) and all its related investments into TMLCV. According to the scheme, the existing passenger vehicle business in TMPV will be merged into TML, the existing listed entity.

Also, the scheme entails shareholders of TML receiving one share of TMLCV of face value ₹2 fully paid up for every one fully paid-up share of ₹2 held in TML of the same class (“Entitlement Ratio”). After the scheme's effective date, TMLCV and TML will be renamed, resulting in two separate listed entities. 

The demerger of TMLCV and the merger of TMPV will happen simultaneously on the “Appointed date.” Tata Motors said that the indicative appointed date is July 01, 2025. The asset ratio, as of the appointed date, is expected to be 60:40.

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The auto major said these actions would further empower the respective business groups to pursue their differentiated strategies with greater agility, reinforce accountability, and enhance shareholder value. It added that the scheme will not adversely impact employees, customers, creditors, or other business partners. 

Tata Motors said the scheme is subject to all the necessary shareholder, creditor, and regulatory approvals, such as the National Company Law Tribunal, and can take around 12-15 months to complete. The merger of Tata Motors Finance with Tata Capital is also underway and expected to conclude within the next 9 to 12 months.

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Tata Motors Q1 Results

Tata Motors said on Thursday that its consolidated net profit increased 74 per cent to ₹5,566 crore in the June 2024 quarter, aided by robust performance by Jaguar Land Rover (JLR) and domestic business. The Mumbai-based automaker reported a net profit of ₹3,203 crore in the April-June quarter of last fiscal. 

British luxury car unit JLR reported revenue of 7.3 billion pounds, the best first-quarter revenue on record, up five per cent from the June quarter of FY24. The higher profitability year-on-year reflects favourable volume, mix and material cost improvements, offset partially by increased marketing spend compared to a year ago.

"The first quarter has carried forward the momentum of last year, with all businesses continuing to deliver on their distinctive strategies. We are confident we can sustain the performance in the coming quarters and deliver a strong year," said PB Balaji, Group Chief Financial Officer (CFO), Tata Motors.