Tata sons to offer shares to Tata Motors making it a minor shareholder

Tata Sons, the group holding company, is set to offer shares of Tata Capital to Tata Motors, granting the carmaker a minority stake in Tata Capital. This move is part of Tata Motors’ plan to streamline operations and reduce debt burden by merging its vehicle financing subsidiaries under Tata Motors Finance Ltd with Tata Capital. The share-swap agreement between Tata Sons and Tata Motors will see the latter gaining a minority stake in Tata Capital. Tata Capital, a flagship financial services company of the Tata conglomerate, offers a range of financial products, including commercial and consumer loans, wealth services, and private equity.

The valuation of Tata Motors Finance, the subsidiary being merged with Tata Capital, is estimated to be between Rs 15,000-20,000 crore, significantly higher than its book value. This strategic restructuring is also a precursor to Tata Capital’s planned IPO in 2024-25, as mandated by the Reserve Bank of India for non-banking finance companies. Separating the finance arms will help Tata Motors deleverage its balance sheet and unlock value by listing Tata Capital shares. It will also clarify Tata Motors’ leverage, reducing the drag on its consolidated financials during downturns in the commercial vehicle market.

Tata Motors Finance, primarily focused on used-vehicle finance, aims to improve its portfolio quality and return on assets through prudent sourcing, strengthening collections, and digitizing its operations. Despite challenges, Tata Motors Finance has improved profitability and asset quality. Overall, the restructuring reflects Tata Group’s efforts to optimize its financial services portfolio and strengthen its position in the market.