Tata Motors Looks To Sell Stake In Vehicle Finance Arm

Tata Motors Ltd. is looking to sell stake in its vehicle finance arm as India’s largest truckmaker restructures the business.

The company is looking at monetising the non-bank lending subsidiary, PB Balaji, group chief financial officer, said in an interview to BloombergQuint. “We will continue to own the majority stake in the company, but are open to bringing in partners in this business.”

The unit posted losses in two out of last four years and bad loans rose to 26 percent in 2014. It managed to bring the non-performing assets to 4 percent in the year ended March, according to Balaji. And Tata Motors arm is focusing on both finance and refinance.

Assets under management of the vehicle finance arm grew at 24 percent last financial year, Balaji said. “We infused Rs 300 crore last year and we have to be prepared for infusing Rs 400 crore every year.”

Truck sales have increased in Asia’s third-largest economy on the back of Goods and Services Tax rollout and load restrictions. Tata Motors also stemmed the slide in its commercial vehicle market share and improved it by half a percentage point to 45.1 percent in the year through March.

But that was aided by heavy discounting to wrest share from rivals like Ashok Leyland Ltd.

“I want to clear the air on the discounting issue,” Balaji said. “Our variable marketing spend for this year is lower than last year, and with this the discounting issue is over.”

Turnaround And Dividend

Tata Motors said the measure of its turnaround will be ability to pay dividend, profitability and growth in market share.

“The basic milestone for ‘Turnaround 2.0’ is to declare dividend,” Balaji said. “And we are away from that.”

Tata Motors last paid dividend in July 2016.

$6-Billion Investment Plan

The company is looking to turn around its domestic business and also make fresh investments in its luxury arm Jaguar Land Rover to boost growth.

“We made positive free cash flows in the fourth quarter and full year, but decided to take the impairment charge this year,” said Balaji who took charge about six months ago. “For the first time we have same product development cost policy for both Tata Motors and JLR.”

Tata Motors plans to invest nearly $6 billion in the next two years, with about $5.6 billion on JLR. For the luxury automaker to grow, the company needs to keep the cost structures under control, Balaji said. “Our debt to equity ratio is comfortable. JLR has enough undrawn facilities and liquidity is comfortable for the next 10 years.”

Also, the new product development policy that will be prudent on capital, demand and will focus on breaking even. “There will be business cases for product development, but we will have to take a hard look at breakevens,” said Balaji.

This, according to him, will have a 100 bps impact on the earnings before interest and tax of JLR in the medium term even as the company guided for 7-9 percent in the long term. “We have maintained the EBIT margin guidance (adjusted for new product policy) and between fiscals 2019 and 2021 we want to do an EBIT of 4-7 percent.”

It also changed the dividend policy for JLR from a fixed amount of 150 million pounds to 20 percent of the profit after tax in fiscal 2018 and 25 percent in the next year. This is in line with the dividend policy of global auto majors of 25-40 percent, Balaji said.