Plans by Tata Motors and Mahindra and Mahindra (M&M) to sell stakes in their respective electric vehicle (EV) units have stalled over valuation mismatches, causing both to suspend the process, said people aware of the development.
Tata Motors and M&M had carved out their EV arms into separate subsidiaries and raised significant funds through stake sales in 2021 and 2022, respectively, at handsome valuations. However, investor appetite has slackened since, amid rate hikes by the US Fed. The companies are not keen to go ahead with investments unless they are at the right valuation, said the people cited above. Tata Motors had appointed Morgan Stanley earlier this year to find investors for Tata Passenger Electric Mobility (TPEML) at a tentative valuation of USD 10.5 billion. However, offers have failed to meet expectations. The development may push back its target of achieving zero net debt by the end of FY24.
“No comments on speculation and market rumours,” a Tata Motors spokesperson said.
M&M, which was in talks with investors to raise up to USD 1 billion through a stake sale in Mahindra Electric Automobile (MEAL), has not received bids at the valuation it was seeking, said the people cited above.
“We have the funding we need right now,” M&M managing director Anish Shah told ET on the sidelines of the company’s fourth-quarter earnings press conference on Friday. “There are a number of folks that keep calling us for a possible investment. So, we may look at it at some point in time.”
M&M had closed a deal in 2022 with British International Investment (BII) to raise USD 250 million for a minority stake in its EV arm at a valuation of USD 9.1 billion. The company itself will be making a similar investment in MEAL. The first tranche of investment from BII has been delayed from an earlier stated deadline of June 30 this year to March 31, 2024, as per regulatory filings. The second tranche is expected to come by July 2024.
Tata Motors had closed a deal to raise USD 1 billion from TPG Rise Climate in 2021 for an 11-15% stake in its EV business. The transaction valued TPEML at as much as USD 9.1 billion.
While that transaction with TPG was a primary infusion of capital, the second proposed transaction was expected to have a secondary component that could help the company reduce its debt burden, ET reported earlier.
Tata Motors has net debt of INR 43,700 crore, of which INR 30,300 crore is on account of British unit Jaguar Land Rover and INR 6,200 crore is attributed to the standalone India business.
If the company does not raise capital through the sale of equity, it may disrupt the timeline for achieving zero net debt status, analysts told ET. But they added that the company has other levers for debt reduction, including free cash flows and a planned public market debut of subsidiary Tata Technologies.
Tata Motors group chief financial officer PB Balaji said on a recent earnings call, “So, the FY24 net debt reduction plan, we are confirming, we will not be in a position to meet the FY24 numbers. But very clearly, (in) FY25 we want this issue sorted out.”
The company expects to pare JLR debt to under INR 10,000 crore this year through cash flows and also trim debt at the standalone company level but has not given any guidance for it.
