Tata Motors' JLR - The Big Bet, The Big Reward
Anjal Agrawal
M&A and Strategy at Virtusa || Ex-IB at Nomura (PPO) || IIM Shillong (17-19) || CA || Yes Bank FutureReady Scholar || Ex-JPM || Ex-Baker Tilly DHC || #ProudSINKWAD
“The combined market cap of all listed Tata stocks crossed $365bn, surpassing Pakistan’s GDP!”
And one big contributor was – Tata Motors!
?
Tata Motors’ stock price has climbed 21% since the start of 2024, with its market cap surpassing that of rival Maruti Suzuki, a few times. This stock price boom came on the back of a strong recovery by subsidiary Jaguar Land Rover, as the company looks to bolster its already commanding lead in the domestic electric vehicle market.
In 2008,?Tata Motors?acquired JLR from Ford Motor Company for US$2.3bn in an all-cash transaction. The acquisition has been a great success and currently, JLR contributes close to 70% of Tata Motors revenues. The unit recorded a net profit of $1.2bn for April-December.
Established in 2016, InMotion Ventures is the venture capital arm of JLR and a key component of JLR’s open innovation programme, providing a unique combination of capital, partnership opportunities, domain expertise and exposure to the wider Tata group. InMotion Ventures invests early – Seed to Series A, across verticals electrification, connectivity, sustainability and Industry 4.0.
?
Tata Motors’ acquisition of JLR – The Big Bet, The Big Reward
Remember, we are talking about 2008. As the US market was slipping into recession and demand for luxury cars and SUVs was sliding, JLR was headed towards major losses. Ford was on the verge of bankruptcy and was looking for a suitable buyer for their Jaguar-Land Rover division. Tata saw this as an opportunity to acquire a global brand and enter the luxury and high-end premium segment of the global automobile market.
Other bidders: Apart from Tata Motors, other bidders included Mahindra & Mahindra, Italian manufacturer Fiat, US-based PE Apollo Management and One Equity Partners.
Deal Financing: A consortium of banks, including the Bank of Tokyo-Mitsubishi UFJ, Citigroup, ING Group and Standard Chartered Bank, provided Tata Motors with a $3bn debt facility.
The acquisition allowed access to superior technology to improve the Indian core products portfolio. The purchase consideration included the ownership by JLR or perpetual royalty-free licences of all necessary IPR, manufacturing plants, two advanced design centres in the UK, and a worldwide network of National Sales Companies.
Soon after the deal, Tata Motors posted its first loss in 7 years. Research analysts felt the timing of the acquisition couldn't have been worse and were apprehensive of the future. The stock naturally crashed. But the stock tripled within the next 18 months?rewarding believers with multi-fold gains.
How did the stock see such a jump? Ratan Tata who was directly involved in the business at the time travelled across the US, meeting dealers and responding to the market needs immediately. By 2013, the strategy to invest in new products started to pay off. JLR almost tripled its sales in 2017 from 2009 with revenues topping US$34bn. The losses notched up at the domestic businesses of Tata Motors over the years have been offset by the profits earned by JLR.
?
Undisputed EV Leader with a Lion’s Share of the Market
The automaker's electric vehicle strategy is a key to further lifting share price. Tata held an overwhelming 72% share of the Indian EV market as of 2023. UK-based MG Motor, ranked second, has only a 14% share. By model, Tata's Tiago hatchback ranked first among EVs with a 38% market share, followed by Tata's Nexon sport utility vehicle with 23%.
In Oct-21, Tata Motors raised $1bn for its EV business from TPG Rise Climate for an 11-15% stake in its EV business, at a valuation of $9.1bn.
To further solidify their market leadership, Tata Motors has further plans chalked out –
?
Demerger on the cards
Earlier this month, Tata Motors announced that it would demerge into two listed companies for commercial vehicles (CV) and passenger vehicles (PV) separately. The commercial side will handle trucks, buses and other vehicles, while the passenger auto unit will oversee Jaguar Land Rover and passenger EVs. The split, aimed at speeding decision-making and investment, is expected to be completed within one and a half years.
Over the past few years, the CV, PV (PV+EV), and JLR businesses of Tata Motors have delivered a strong performance by successfully implementing distinct strategies. Since 2021, these businesses have been operating independently under their respective CEOs. The demerger is a logical progression of the subsidiarisation of PV and EV businesses done earlier in 2022 and shall further empower the respective businesses to pursue their respective strategies to deliver higher growths with greater agility while reinforcing accountability.
Furthermore, while there are limited synergies between Commercial Vehicles (CV) and Passenger Vehicles (PV) businesses, there are considerable synergies to be harnessed across PV, EV and JLR, particularly in the areas of EVs, autonomous vehicles, and vehicle software which the demerger will help secure. With the PV business becoming a standalone entity, investors will have the opportunity to invest in a truly global PV company. Other demerger plans include –
领英推荐
?
Summarising a few other acquisitions that Tata Motors made along the way –
Here's how Tata Motors has performed for its shareholders –
?
This concludes the fourth case study in the series “Tata Group – The Globally Local M&A Strategy.” Tata Motors has a robust past of integrating and innovating with automobile brands. They have gained leadership across CV, PV and EV segments and further plans to create value from the Motors portfolio with its demerger. With the PV business becoming a standalone entity, investors will have the opportunity to invest in a truly global PV company, while the EV business continues to see a once-in-a-generation demand spike leading to lean and high growth.
In the next case study of this series, we will look at Tata Consumer's House of Brands and its acquisition of Capital Foods, owner of the brands Ching's Secret, and Smith & Jones, and Organic India. Within 48 hours of acquisition, there was only one consolidated supply chain for Tata Consumer instead of an exclusive supply chain for Capital Foods products as the former has a wider reach - a post-acquisition integration considered one of the fastest and most efficient in India. Until then, thank you for your time. Please post your feedback and comments.
?
?
?
?
Please find below all the information sources that have been instrumental to the above article, along with some additional reading materials. Gratitude to all the creators –
1.????? Mergermarkets