Looks like Tata Motors is taking some inspiration from Reliance’s latest fund-raising rampage and cutting its debt at the same time because the automotive manufacturer has announced its own unique plan to become debt-free. The company’s chairman, N Chandrasekaran, during a virtual annual general meeting, informed shareholders that Tata Motors intends to become a zero debt company within the next three years. While announcing the debt-free plan, he also added that Tata Motors’ endeavors to become debt-free will also include making TML free cash flow positive by 2022.
PB Balaji, CFO – Tata Motors, in a recent meeting hosted with a group of investors said, Tata Motors approach to achieve a near-net debt zero target by FY24, is mainly swung around revenue growth, cost reduction, and capex management plans laid out for four crucial businesses (including NBFC). Balaji communicated the business-wise roadmap to achieve positive free cash flow (FCF).
The goal of being a debt zero by FY24 is built on three crucial pillars – business level FCF generation, monetization of non-core assets, and raise equity.
To generate free cash flow The Mumbai-based firm has earmarked a capital expenditure of 2.5 billion pounds for JLR and Rs 1,500 crore for the Indian business and it is doubtful to see any difference in it in the coming future.
P B Balaji, chief financial officer, said at a recent investor meet organized by Motilal Oswal, A recovery in key markets of Jaguar and Land Rover —the US, Europe, China, the UK — bonded with cost curtailment actions and tightly monitored capital expenditure will enable Tata Motors group to generate free cash flow at the business level and bring down the debt to near-zero level.
The firm is embracing a holistic strategy to reduce both variables as well as a fixed cost. In the case of RM cost deduction would be pushed by reducing complexity, increasing commonality, and commercial negotiations. This, bonded with an improving mix and a higher share of fresh products. This would further help in the reduction of the breakeven point by improving gross margins as well as cutting fixed costs.
“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,” according to the reported citing unidentified sources.
“The intent is to monetize more assets and the exercise has begun with these two companies
As the monetization of non-core assets begins with the Tata Technologies and Hitachi JV (construction equipment), it would look at other assets as well. However, currently, it has no plans to monetize its stake in Tata Sons. The partnership between the PV segment and JLR is not the key part of its deleveraging strategy. The guiding principle for capex moves from ‘willingness to invest’ to ‘ability to invest’, i.e., capex would be supported by operating performance and would not be invested independently of operating performance.
Capex for FY21 would be restricted to GBP2.5b and would remain at similar levels beyond FY21. Capex control would be driven by avoiding investing in non-core areas (such as testing, which could be outsourced), forging more partnerships (such as BMW), and prioritizing capex for new platforms/products and EVs. Hence, Tata Motors is confident of turning cash positive from 2QFY21, driven by volume improvement, gross margin improvement, cost-cutting, and tight capex control. Meanwhile, the key focus for JLR’s new CEO, Thierry Bolloré, would be on devising a strategy to sustainably make the Jaguar brand profitable and growing the China business sustainably. JLR recently lost market share in China due to supply-side issues as SUVs 4 and 5 are imported from the Solihull facility, which was closed for two months due to lockdown. A no-deal Brexit could also impact the supply chain as it imports 35-40% of raw material from the EU it said.