Tata Motors Plans NBFC Spin-Off with Tata Capital Pre-IPO

Tata Motors’ strategic move to spin off and merge with Tata Capital ahead of its IPO. This move will allow Tata Motors to offer its shares for Tata Capital.

Tata Motors is planning to split its vehicle financing subsidiaries, currently under Tata Motors Finance Ltd, and merge them with Tata Capital. As reported by Economic Times, this step aims to streamline operations and reduce its debt burden.

Spin-Off And Merger Plan

The proposed transaction will involve a share-swap arrangement, wherein Tata Sons, the holding company of the Tata Group, will offer shares of Tata Capital to Tata Motors.

This step will enable Tata Motors to secure a minority stake in Tata Capital. It's a key step towards streamlining operations and reducing debt burdens. The proposed division of Tata Motors will reduce the company's total debt, which stood at ₹1.25 lakh crore in fiscal year 2023.

The Merger: Beneficial Move

The merger is a part of Tata Capital's broader strategy to consolidate the TATA group's financial services portfolio under one entity before its planned IPO in 2024-2025. This strategy offers several advantages as:-

• The merger between Tata Motors and Tata Capital is anticipated to streamline Tata Motors' balance sheet. It would also reduce its debt. This aligns with Tata Motors' goals to simplify its operations by separating its passenger and commercial vehicle businesses.

• Another advantage of the merger is the potential for Tata Motors to unlock substantial value. The company could realize significant gains by selling its shares in Tata Capital during the listing process.

• The integration of Tata Motors' financial subsidiaries into Tata Capital could ease financial strain. It would especially help during downturns in the commercial vehicle sector.

Tata Motors: Valuation Overview

According to the reports, Tata Motors is estimated to be worth between INR 15,000 to 20,000 crore. The valuation is around 2.6 to 3.5 times higher than its book value of INR 5,625 crore in the financial year 2023. Much higher than what equity analysts at Tata Motors believe the company is worth.

However, the merger is expected to benefit both Tata Motors and Tata Capital by enhancing their financial stability. It will also enable them to leverage synergies in the vehicle financing space.

An official announcement regarding the merger is anticipated soon. Bank of America is said to be advising Tata Motors on the transaction.

About TATA Capital

Tata Capital is a financial services company. It is a 95% subsidiary of the major Indian conglomerate Tata Sons. It provides a variety of financial products. These include:

• Commercial Finance
• Consumer loans
• Home, education, personal, and car loans
• Loans against property
• Wealth management services
• Private equity services
• Distribution and marketing of Tata Cards

Tata Capital Anticipated IPO

As per the regulations by the Reserve Bank of India, both Tata Sons and Tata Capital are classified as upper-layer Non-Banking Financial Companies (NBFCs). The shares are to be listed before September 2025.The IPO could potentially be introduced to the market by the year-end.

Impact Of This Merger On Tata Capital Market Price

The merger could positively impact tata capital share price due to the following factors.

• Increased operational synergies-The merger can increase operational efficiency by combining the resources and capabilities of both Tata Motors and Tata Capital. This collaborative effort can lead to better financial performance. It will potentially increase the share price of Tata Capital.
• Unlocking value- The merger enables Tata Motors to monetize its shares in Tata Capital, thereby increasing its value. This may lead to a rise in tata capital share price as the perceived value of the company grows.

With a streamlined balance sheet and debt reduction, the merger has the potential to improve Tata Capital's financial performance and subsequently boost its current price. The restructuring plan highlights Tata Group's dedication to further enhancing its market position.

How Can You Invest In Tata Capital?

Currently, tata capital stock price is unlisted and high in demand. It traded at around Rs 1000 per share.

At Stockify, we pride ourselves on offering comprehensive financial data that empowers you to make well-informed investment decisions. Join our Whatsapp group to get regular updates for trending unlisted shares.