Tata Motors, India’s leading automotive manufacturer, is set to embark on a strategic restructuring initiative aimed at streamlining its operations and optimizing its financial structure. The company plans to hive off its vehicle financing subsidiaries under Tata Motors Finance Ltd by merging them with Tata Capital, according to sources familiar with the matter.
This move is part of Tata Motors’ broader strategy to deleverage its balance sheet and enhance operational efficiency. As per the proposed share-swap agreement, Tata Sons, the group holding company, will offer shares of Tata Capital to Tata Motors. Consequently, Tata Motors will hold a minority stake in Tata Capital, aligning with its objective of consolidation and optimization.
The valuation of Tata Motors Finance is estimated to be in the range of Rs 15,000-20,000 crore, reflecting a substantial premium compared to its FY23 book value of Rs 5,625 crore. Bank of America is advising Tata Motors on this transaction, and a formal announcement is expected in the near future.
From Tata Capital’s perspective, this consolidation is aimed at streamlining its financial services portfolio ahead of its planned IPO in 2024-25. As per Reserve Bank of India (RBI) regulations, both Tata Capital Financial Services and Tata Sons, the holding company of the financial services business, are required to list by September 2025.
The restructuring exercise will also enable Tata Motors to deleverage its balance sheet, especially amidst the ongoing rationalization of its operations through the demerger of its passenger and commercial vehicles businesses. By unlocking value through its minority stake in Tata Capital, Tata Motors aims to capitalize on potential upside during the IPO listing.
Separating the finance arms is expected to reduce Tata Motors’ gross debt, which stood at Rs 1.25 lakh crore in FY23. This move will enhance transparency on leverage and mitigate the impact of downcycles in commercial vehicles, resulting in higher provisions.
Tata Motors Finance Holdings (TMFHL) is currently a wholly owned subsidiary of Tata Motors, comprising two 100% subsidiaries — Tata Motors Finance and Tata Motors Finance Business Services (TMFBSL). These entities play pivotal roles in vehicle financing, catering to dealers, vendors, and customers.
Despite facing challenges due to increased provisioning for post-pandemic finance receivables, Tata Motors Finance remains a key player in the industry. With a focus on expanding its market reach and optimizing its operations, Tata Motors is poised to navigate through evolving market dynamics and emerge stronger.
