Tata Motors will spin off its passenger vehicle (PV) business, including electric vehicles (EVs), unit into a separate subsidiary through a slump sale, the company said in a notification to the stock exchanges on Friday.
The move is aimed at securing "mutually beneficial strategic alliances" that provide access to products, architectures, power trains, new-age technologies, and capital, it added. The slump sale means the PV business will not carry any debt of the existing business.
The business will also see a change of guard. Shailesh Chandra, president of EV and corporate strategy, will replace Mayank Pareek as president of PV business, including EV, with effect from April 1. Pareek will be superannuating from the company after a six-year stint at the end of February 2021. Chandra and Pareek will work on transition over the next few weeks.
“TML (Tata Motors) Board has in-principle approved to subsidiarise company's PV business (including EV) by transferring relevant assets, IPs and employees directly relatable to the PV business for it to be fully functional on a standalone basis through a slump sale," the company said in the statement. All the changes are subjected to approvals from regulators, creditors, and shareholders, and the process is likely to be completed in a year.
The PV business has been a drag on the company for many years in terms of financial performance. It incurred an operational loss of Rs 500 crore in the first nine months of the current financial year. "It's a bold and positive move from the strategic point of view and will help them (PV business) get a partner. It will allow them to lend sharper focus on commercial and passenger vehicle business," said Mitul Shah, vice-president at Reliance Securities.
Certain shared services and central functions, however, will be retained at the firm to deliver cost efficiencies for the entire group. The proposed transfer shall be implemented through a scheme of arrangement, which will be tabled for approval to company's Board over the next few weeks, it said.
The move comes amid a rapidly changing landscape of the PV business in the form of tightening emission norms, push towards electrification, enhanced disruptions from autonomous, and connected technologies.
“Additionally, India continues to remain an attractive market for global OEMs while the aspiration levels of the Indian consumer continue to rise requiring stepped up investments in contemporary products in a competitive market," said the company.
Some are skeptical of the move, given the company's track record. "I am not sure if this will work in favour of the shareholders given their track record in seeking strategic partner,” Mahantesh Sabarad, head of equity at SBICAP Securities.
Tata Motors has hived off several companies in the past in a bid to find a strategic partner but hasn't got much success. The only notable example is the construction equipment business, which it successfully managed to sell to Hitachi Construction after spinning it off as a separate entity, he said.
Over the past few years, its PV business has implemented a strong turnaround in terms of products. It has earned its right to grow by launching a slew of successful products like the Tiago, Tigor, Nexon, Hexa, Harrier, and most recently the Altroz and Nexon EV.
While a fully refreshed BS-VI ready product portfolio based on the Impact 2.0 design philosophy has helped the overall business, the recent COVID-19 increases the challenges faced by the business. The company will take decisive steps to strengthen its business over the long-term.