Updated: Sep 14, 2020

Tata Motors Ltd has started the process of selling stakes in units Tata Technologies Ltd and Tata Hitachi Construction Machinery Co. Pvt. Ltd as part of its future plan to turn debt-free in three years, three people aware of the plans said.

The divestment plans are critical for the parent of Jaguar Land Rover (JLR) Automotive Plc, which saw its net consolidated debt soar to ₹68,000 crore as of 31 July from ₹48,000 crore as of 31 March following extensive cash burn due to disruptions from the coronavirus outbreak.

“Tata Motors has resumed talks with multiple stakeholders for potential equity stake sales in its software arm (Tata Technologies) and in the Hitachi joint venture," said one of the three people, requesting anonymity.

“The intent is to monetize non-core assets and the exercise has begun with these two companies," the person added.

Tata Motors was in unsuccessful talks with American private equity firm Warburg Pincus three years ago for a potential stake sale in Tata Technologies.

“While Tata Motors has decided to sell stakes in these two companies first, more non-core businesses would be opened up for stake sale soon. The company is also open to equity infusion by promoters towards reducing its debt," said the second person.

“There is nothing fresh to share beyond what was said in the AGM (annual general meeting)," a Tata Motors spokesperson said when asked about the stake-sale plans.

N. Chandrasekaran, chairman, Tata Motors, told shareholders at an annual general meeting last month that while the management plans to make the automaker debt-free in three years, it is already taking action to generate free cash flows across its India and JLR businesses.

“The group will also look to unlock non-core investments," Chandrasekaran had said at the meeting, adding that Tata Motors group has halved its overall investments for this fiscal.

Tata Motors’ global vehicle wholesales in the June quarter, including its British unit JLR, fell 64% from a year earlier to 91,594 vehicles.

This contributed to a 48% drop in consolidated revenue at ₹31,983 crores, and a consolidated loss of ₹8,438 crores in the quarter.

Tata Motors has been taking various steps to control costs and save cash to generate free cash flows while shoring up liquidity to sail through the current crisis.

The company’s cost and cash-saving plans look to achieve cumulative savings of £6 billion at JLR and ₹6,000 crores of cash savings in its India business by the end of FY2021.

These include roll-back of CAPEX investments to £2.5 billion (from £4 billion earlier) at JLR and to ₹1,500 crores (from ₹4,500 crores) at its domestic business this fiscal.

The Tata Motors management wants to make the India business free cash flow positive by FY21, JLR by FY22, and passenger car business by FY23.

As part of the plan, it recently hived off its passenger car business into a separate legal entity and has been in talks for a strategic partnership for this business as part of its deleveraging plan.

Credit: Live mint