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0 Tata Finance to be merged with Tata Motors. 1 Merger of Tata Finance with Tata Motors 1.The scheme has been approved today by the Board of Directors.

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Presentation on theme: "0 Tata Finance to be merged with Tata Motors. 1 Merger of Tata Finance with Tata Motors 1.The scheme has been approved today by the Board of Directors."— Presentation transcript:

1 0 Tata Finance to be merged with Tata Motors

2 1 Merger of Tata Finance with Tata Motors 1.The scheme has been approved today by the Board of Directors of Tata Motors Ltd. (TML) and Tata Finance Ltd. (TFL) 2.Appointed date of scheme : April 01, 2005 3.Scheme of amalgamation will be filed with the Stock exchanges in due course 4.The merger would be under a Scheme of Amalgamation under Section 391 to 394 of Companies Act 1956 and would be subject to approval of the Honorable High Court of Judicature at Bombay 5.Valuation conducted by M/s Bansi Mehta & Co.

3 2 Merger of Tata Finance with Tata Motors All equity shareholders of Tata Finance Ltd will get 8 ordinary shares of Tata Motors Ltd of Rs. 10/- ( Rs. Ten only) for every 100 equity shares of Tata Finance Ltd of Rs. 10/- (Rs. Ten only) 199,806,246 shares of TFL will get exchanged for 15,984,500 shares of TML

4 3 Valuation rationale Following three methods of valuation has been factored in arriving at the share exchange ratio Valuation based on the income approach ( considering the comparable earning multiples of the companies in the period from 2001-02 to FY 2004-05) Valuation based on the underlying net asset approach Valuation based on the market approach ( considering the volume weighted average of market quotations for 6 months upto Dec 04)

5 4 TML expects significant upside in Automotive Financial Services Automotive Financial services form an important & integral business for all the global Automotive OEMs Key global automobile majors have their own financing arms to address the different financing needs in the marketing value chain. GMAC, Ford credit, Chrysler financial corporation, Toyota financial services, Volvo Financial services have played an important role in their parent companys growth Manufacturers captive units dominate the financing industry in US, Europe and other markets They capture 39 -44% of OEMs total retail sales Contribute to 16- 48% to the net income of the parent company – substantially in economic downturns Bureau of Hire Purchase & Credit (BHPC), a financing division of TML, finances approx. 9% of TMLs domestic retail sales Tata Finance Ltd (TFL), on its own, finances approx. 8% of TMLs domestic retail sales Tata Motor Finance (TMF), a virtual entity formed in August 03 by BHPC and TFL, contributes around 17% of total TML domestic retail sales TML plans to grow vehicle financing business closer to international benchmarks Formidable captive financing arm by leveraging synergies of dealer driven sourcing model of BHPC and direct business model of TFL for supporting its core business Eliminate cost disadvantages Ensure better customer retention by bundling financing options across the value chain

6 5 Auto financing dominated by NBFCs and captive financiers Banks were only lenders to NBFCs Retail banking increasingly became focus area for leading private banks Large PSU banks turned aggressive- leveraging their network Softer interest rates fueled substantial drop in financing rates Banks focus on penetration and volumes Cut intermediaries to protect margins NBFCs with high cost structures became unsustainable Consolidation of NBFCs with banks (ALFS, Kotak, 20 th Century) Niche NBFCs / co-op banks continue to maintain focus (Sundaram, Chola) Dominant Phase Competition Consolidation Access to low cost funds Better credit decisions & controls Thin overheads with faster loan processing Relationship with dealers and OEM Critical Success Factors Till 1999 1999-2003 2003-2005 2005 and beyond Challenges for growth of captive financiers in Indian context Players with low CoF, better penetration and OEM / Dealer relationship will continue to dominate the market Indian auto-finance industry transitions

7 6 BHPC : At a glance TML started its vehicle financing division, Bureau of Hire Purchase & Credit (BHPC), in 1957. The objective of BHPC was to support sales of TML Helps TML to grow the market by providing finance in unrepresented areas Assists in new product introduction BHPC follows a dealer driven business sourcing model Dealer acts as a marketing, customer sourcing and collection front end for BHPC BHPC division has been profitable throughout and achieved growth at 32% CAGR in last three years TML started focusing on the vehicle financing business post 2000, more as a business proposition and not just as a sales support unit

8 7 Tata Finance Limited: A brief History Tata Finance Ltd was started by Tata Motors and Tata Industries in 1984 with an objective to support TML products sales by customer financing options In 1996-97, TDLF (Telco Dealers Leasing & Finance Co) was merged with TFL to boost its customer /dealer financing offerings TFL achieved finance disbursal of Rs. 1311 crores in FY 98-99 becoming a leading NBFC in auto-financing industry In late 90s TFL diversified in various non-core financial solutions such as merchant banking, stock broking, home loans, credit cards, two wheeler financing, foreign exchange dealing etc resulting in losses Losses in FY 00-01Rs. 381 crs Losses in FY 01-02Rs. 157 crs Losses in FY 02-03Rs. 76 crs

9 8 Restructuring of TFL TFL reemphasized auto-financing as its core business and divested/ run down all other no- core businesses The balance sheet size of non core businesses has been brought down from Rs. 1425 crs in June 01 to Rs. 426 crs as on Nov 04 All the necessary provisions have been made in TFL books TFL has met all its debt obligations Fixed Deposits repaid as per schedule (Rs. 859 crs in June 01 to Rs.4 crs as on Dec 04) TFL repaid all its loans from Rs. 2613 crs in June 01 to ~ Rs. 1200 crs as on Dec 04 The company also rationalized its manpower by 50% to current level of ~ 440 people The companys rating has been upgraded by CRISIL by three notches from BBB to A in July 04 The CoB of the company has significantly dropped from 13.60% as on June 01 The Company is now profit making for last consecutive 6 quarters FY 03-04 PBT of Rs. 17.48 crs H1 FY 04-05 PBT of Rs. 15.63 crs

10 9 Importance of formidable captive financier (CF) Expand / develop the markets Flexibility in sales and pricing to make offerings more attractive Enhancement of channel profitability and relationship de-risking from cyclicality of auto sales business Source of stable stream of annuity revenue Improvement in EPS bundling financing with the products Envelop additional profits by extended value chain of financing Better Synchronization with retail market Capture early signals of industry trends & retail buying patterns Continuous feedback on product economics and life cycles Improve replacement demand, control replacement cycle Enhance customer loyalty Increase customer loyalty with more customer touch points Increase repeat purchase, buying of spares and services Capture complete vehicle life cycle Extend value chain by combining financing offerings with insurance, fleet management, operating leases, re-finance, spares & service financing, fuel cards 5 4 3 2 1 Additional value propositions of Captive financier Generic benefits of financiers

11 10 Need for Merger BHPC and TFL formed joint marketing front end, Tata Motor Finance (TMF), in Aug-03 with an objective to leverage complimentary strengths and operational synergies The model has achieved early success ( disbursements and market share have improved substantially than on a stand alone basis) However, the model has certain limitations which need to be overcome The financial rate disparity between the two units due to substantial difference in CoB Integration related issues Ambiguous positioning of TMF in market place, among channel partners Duplication of support cost The issues are best addressed upon merger of TFL into TML among various options evaluated

12 11 Advantages of the merger to TFL shareholders 1.The auto-finance business will create more shareholders value on TML balance sheet, than that of TFL Benefits of being captive financier Low CoB and better financial strength 2.Participate in the growth of leading auto manufacturer 3.Fair exit value for all shareholders 4.Better appreciation on their investments, with an upside of dividends

13 12 Advantages of the merger to TML shareholders 1.Build a formidable captive financier by consolidating strengths available in- house and within The Group 2.De-risk the Companys revenue stream from the cyclicality of vehicles sales business 3.Ensure customer loyalty by enveloping a complete value chain of customers life cycle spending on vehicles 4.Generate sustainable profit stream to increase shareholders value

14 13 Thank You

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