Tata Motors Demerger: Group CFO PB Balaji On Reasoning | NDTV Profit

You need to see it as a logical culmination of the interventions we've been making over the last few years. First, we are saying each business has to be self-sustaining. Then we said they have to have their own strategies to deal with winning in their respective marketplaces. Then we started simplifying the capital structures, where we cleaned out the ADRs. Then we had a scheme for the DVRs; we got some whopping shareholder approvals. So that's a problem that has been ruminating for a while now in terms of what to do with the DVR shareholder, because the asset has lost its charm. So we had to solve for that. Once that got simplified, you have to ensure that the business is debt-free, because you can't be demerging with debt. Then how will the business stand up on its own? So we made that debt-free. This then becomes a logical end point in terms of what do you do with the businesses. These businesses are pretty large. This business is now almost 4.2 lakh crore, $42 billion, 40 billion pounds, a $50 billion business. That's very large. If you look at just the commercial vehicle business, it's a $10 billion business, 80,000 crores. And look at the passenger vehicle business, it was very, very small, only about 10,000 crores if you go back in 2020. Now it's almost a 50,000 crore business. With that kind of scale coming through, you need to respect each of these businesses for the opportunity that they provide. By giving them, and we as part of the PV subsidiarization, we already split the teams because we knew this was coming down the tracks in any case. Therefore, with this, we are able to now see very clearly the opportunities in each of the sub-segments, where granular focus is very, very important. The board is able to then provide sufficient time for that business, which today it would have to do all the businesses together. This gives it more time. Also, at the same time, the customers, wherever benefits are there, we can secure. There are very limited synergies between CV and PV going forward, because the way the CAFE norms are evolving, the way technology is evolving, the roadmap that they'll have to take is going to be very, very different. So to overload that onto PV over it is not fair, and vice versa. It's going to be more software-intensive, it's going to be more features-led, so that's what the PV guys will be focusing on. Important to tease that out. And then as we become Euro 7, sorry, we're sitting in BS6 Phase 2 moving toward, and there it's going to Euro 7, the emission norms are coming together, add electrification. It's actually the same. We will be the only manufacturer in the world who will have a Tiago EV at one end and a Range Rover electric at the other end. So there are so many ways in which we can come together. Take batteries: Agratas is now going to supply both JLR and EV at the same time. We are sharing platforms between JLR and here. So the synergies are becoming bigger and bigger in this space. So leverage synergies wherever, dis-synergies are there, take them out, give them focus, agility. That is the purpose.

Thanks for asking this question. Somebody had to ask this question. You look at the CV business, it's eight verticals. We are very, very clear: we will reduce volatility of the profits and volatility of the cash flows in the case of CV by managing it within CV. Today, every aspect: the heavy commercials, the intermediate light. We are one of the few manufacturers in the world who go from a 500 kg payload to 55 ton payload. The HCV part of the business is intensely cyclical, ILCV lesser so, SCV even less so, buses even less so. So if these guys start stepping up the profitability, your volatility goes down. One second, you're looking at international business that is not necessarily that moves to a different cycle to this, so it can be counter-cyclical at times. At the same time, we are saying more vehicle park solutions coming in. Smart mobility is one, non-vehicular business spares is one. Earlier, spares were a small portion, but as more and more vehicles become more sophisticated, spares volumes go up because you want genuine spares because the vehicle is too expensive to play around with. Then you add the whole digital piece that we are looking at, add smart mobility. These are vehicle park solutions, and you are the largest market player in the market today. So your vehicle park will be even bigger than everybody else. That will ensure that the revenues from that will start becoming steadier. So our intention is to dramatically reduce volatility of the results coming out of the CV business, so that at an overall level, between revenue to profit, you need to be much less volatile. The demerger gives us the opportunity to demonstrate that. So I'm not looking at CV cyclicality being compensated by PV. I'm actually saying CV, HCV cyclicality being compensated by revenues from vehicle park and the remaining businesses that are out there. Which means I can discover better value out of CV. That is the whole purpose of the CV side of the piece. At the same time, focus, agility, and everything else we talked about.

Absolutely correct. Because CV today, take the RoCE of CV business, it's 36% last year. That's a very strong RoCE. We have a very, very strong brand. We have market share positions that have been challenged many, many years, but it's seriously robust market share position. The only thing I need to crack is the volatility in my results because of the HCV cyclicality, which we now have all the roadmap in place for that. And therefore, we do believe this business will have to be looked at differently. Let's do the work, let the market discover value for itself. Our job is to do our job. This is what our strategy is, this is what we'll deliver against. Let the market discover its own value.

There's an 80,000 crore business. We roughly double-digit EBITDA, and we'll keep increasing that. And then we spend about 2-3% on capex. So by design, its cash flows are positive. And it's a RoCE seriously strong. That combination is what we want to do. The problem to solve on the CV side is keep continuing to invest in technology, be the technology leader, build the brand, stamp out volatility. I think then we are on the right track.

Two things. One is, today the PV business, the top company that will be the PV business, is cash flow positive because it generates about 10% EBITDA, it spends about 6% capex, so about 4% is the free cash flows that it will generate, roughly broadly speaking. So that is self-sustained; it can be on its own. The only place where we need to invest, where we are investing in a planned manner proactively, is EV, for which funding has been secured. Then you add PLI to it. We got the money stacked up. Then EV will generate its own funds. We are already EBITDA neutral in the business.

If at all we need the money on that, and PV itself will be able to invest if needed because it is generating cash. There are JLR dividends coming from there. JLR is becoming debt-free as well. So therefore, there are enough sources of funds as far as the PV business or the EV investments are required.

Simple. JLR today is generating $2 billion, 2 billion pounds of cash after capex. Which means that capex is about 3.5, so it's generating 5.5 billion of operating cash flows. So there is enough cash being generated in JLR. That's a pivot to premium luxury. That is today at 8.5% margin. We'll then take it up to 10% margin next year. And the capex is about 3.5 billion. 10% on a 30 billion business is 3 billion. So you have enough and more cash available. EBITDA available for that business to deliver. EBITDA is almost cash in that business. Then we will want to lift that EBITDA margin to 15%, because that's the journey towards premium luxury that we are on to. All this while delivering a RoCE of 20% plus. So it is seriously capital-prudent, premium, cash-accretive, and it's got a dividend policy of 25% of PAT, 25 to 40% of PAT is the dividend policy. So we see no stress whatsoever, as long as this particular strategy is being executed flawlessly, which we are confident of.

Not just IPO, but also the restructuring that you are doing, the work you're doing on... It's also a learning phase for the market as well. If I say, I think the market will find its level. Investors are smarter than us. They will get the right value for the business. Our job is: this is the strategy, this is what we communicate, this is what we are executing. Let the market find its own level. From a shareholder point of view, we have done nothing that is shareholder-unfriendly. Therefore, every one of these is giving transparency, clarity of strategy, and we are executing against the strategy that we said. Market value will discover itself through various triggers. So we are not, I'm not here to drive up market value because that is not our job. There is a market to discover, unlock value on its own. Our job is to keep simplifying, clarifying, executing. If we get these three right, I think we are on the right journey, and the market will find its own level for us. But we have a task on hand to ensure that we make JLR a luxury player and get people to understand it in that way. That is our job number one. Job number two: we have to ensure CV becomes less volatile, strongly cash-accretive, and ensuring it continues to deliver profitable growth on a strong brand. That is job number two. Job number three: PV, continue to build shares, continue to drive profitability up. We are on the right track. EV, drive proactively to reach 30% plus penetration on EV. This is a task we are on to. This is what we'll execute. And whatever the value the market attributes to it, the market is wiser than all of us.

July next year is what we are internally targeting to get there. Obviously, the NCLT process is not under our control, but we believe that's a realistic date to work with.

Thank you.