Tata Motors Group has set itself a target of reducing its consolidated auto net debt (excluding the company’s auto finance activities) to near zero over the next three years, company chairman N Chandrasekaran (Chandra ) to shareholders at the 75th annual general meeting. .
“Currently, the group has a net automobile debt of Rs 48,000 crore and we are considerably reducing the indebtedness of this company. The objective is to bring it to a level of debt close to zero over the next three years, ”he said.
Sharpening the brand portfolio, improving the sales and service experience, and sustainable mobility will be areas that will be high on the company’s agenda, Chandra said.
At the end of 2019-2020 (FY20), the company’s net debt-to-equity ratio stood at 0.87, the highest in a decade, according to data from the company, Capitaline and Prowess.
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Debt reduction, Chandra said, will be one of the top five priorities for the flagship company, which has seen significant erosion in shareholder wealth over the past five years as its Indian operations have suffered losses and that Jaguar Land Rover, its UK subsidiary, faced headwinds. As a result, Tata Motors has not paid dividends to its shareholders for four consecutive years.
The company has already taken steps to reduce its debt, Chandra said. This includes making the company’s free cash flow positive by FY22. The group will also look to unlock investments in non-core businesses, he said. “The group’s overall investments have decreased by 50% during this fiscal year, and we will continue to manage this strictly in the future. ”
Speaking of the domestic passenger vehicle sector, Chandra said all new models – including the Nexon, Altroz and Harrier – have been well received and it shows that the investment has started to pay off.
Responding to a question on the progress of the creation of a subsidiary for the passenger vehicle (PV) activity, he indicated that the process was underway and that he would like it to end within the framework of of the current fiscal year.
Equity analysts, however, were divided over the company’s plan to reduce debt. “This is an ambitious goal” and not achievable unless Tata Motors releases a substantial stake in JLR, an analyst said. The other way could be a substantial injection of equity capital by Tata Sons.
Others were more optimistic. “The company is on the right track in terms of reducing costs and reducing capital expenditure. If the cycle resumes and a vaccine is found, the record will be much better, ”said Aditya Makharia, analyst at HDFC Securities. Global macros are expected to improve, he said, hinting at the opening of economies after the lockdown. “The cash generated by JLR and domestic operations over the next two years will not be sufficient to repay the debt. This will not be enough even if they sell shares in the photovoltaic sector. The two together – the deals and sales of PV stakes – will only net them 10,000 to 12,000 crore rupees at most, ”the analyst quoted earlier said.