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Tata Motors Finance Ltd. will merge with Tata Capital Ltd., with Tata Motors holding a 4.7% stake in the merged entity. The merger aims to streamline operations and prepare Tata Capital for its IPO.
Tata Motors Finance Ltd. is set to merge with Tata Capital Ltd., a move approved by the boards of both companies and Tata Motors Ltd. This merger will be executed through a National Company Law Tribunal (NCLT) scheme of arrangement, involving a share swap agreement where Tata Capital will issue its equity shares to Tata Motors Finance shareholders.
As a result of the share swap, Tata Motors will hold a 4.7% stake in the newly formed merged entity. The entire merger process is expected to take between nine to twelve months to complete. According to the official statement, the merger will not adversely affect the customers or creditors of Tata Motors Finance Ltd. (TMFL).
The strategic rationale behind this merger is for Tata Motors to exit non-core businesses, allowing the company to focus on capital expenditure related to emerging technologies and products, aligning with previously stated objectives. Tata Motors Finance primarily provides loans for commercial vehicles, passenger vehicles, dealers, and vendors. Tata Capital's limited presence in these segments means the merger will significantly expand its customer base in vehicle financing.
While the boards of the respective companies have approved the proposed merger, it still requires regulatory nods from the Reserve Bank of India (RBI), National Company Law Tribunal, Securities and Exchange Board of India (SEBI), and other relevant authorities.
This merger is also a part of Tata Capital's operational restructuring, preceding its planned Initial Public Offering (IPO). To proceed with the IPO, Tata Capital must comply with the RBI's scale-based regulations, which mandate that upper-layer, non-banking financial companies (NBFCs) must list on exchanges within three years of being notified. Tata Capital was among the 16 upper-layer NBFCs notified by the RBI in September 2022, setting a 2025 deadline for its listing.
As per the statement, Tata Motors Finance has assets under management (AUM) worth Rs 32,500 crore and reported a Profit After Tax (PAT) of Rs 52 crore in FY24. In contrast, Tata Capital, on a consolidated basis, had a loan book of Rs 1.57 lakh crore, marking a 35% year-on-year increase in FY24. Its PAT stood at Rs 3,150 crore, up 37% year-on-year, with disbursals increasing by 40% year-on-year to Rs 1.05 lakh crore.
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