Tata Motors group says will cut consolidated debt to zero in 3 years

Company chairman tells shareholders investments are showing results and it's committed to Jaguar and Land Rover in the UK

The Tata Motors group has set a target of reducing its consolidated automotive net debt (excludes the company’s vehicle finance business) to near zero in the next three years, the company’s Chairman N Chandrasekaran (Chandra) told shareholders at the 75th annual general meeting on Tuesday. 

“Currently the group has a net automotive debt of Rs 48,000 crore and we are deleveraging this business substantially. The target is to bring it to near zero debt levels in the next three years,” he said.

Sharpening the brand portfolio, enhancing the sales and service experience, and sustainable mobility will be some areas that will top the company’s priorities, said Chandra. 

At the end of 2019-20 (FY20), the firm’s net debt to equity ratio stood at 0.87, the highest in a decade, according the data from the company, Capitaline, and Prowess.  

Debt reduction, said Chandra, will be among the five priorities for the flagship firm, which has seen significant erosion in shareholders’ wealth over the past five years as its Indian business incurred losses and Jaguar Land Rover, its UK subsidiary, faced headwinds. As a result, Tata Motors hasn’t paid dividend to its shareholders for four consecutive years. 

The company has already taken steps to reduce debt, Chandra said. This includes making the company free cash flow positive by FY22. The group will also look to unlock investments in non-core businesses, he said. “Overall investments of the group have reduced by 50 per cent during this fiscal year, and we will continue to manage this tightly going forward.” 

Talking about the domestic passenger vehicles business, Chandra said all the new models — including the Nexon, Altroz, and Harrier — have been received well and this shows the investment has started paying off. Responding to a question on the progress on setting up a subsidiary for the passenger vehicles (PV) business, he said the process was underway and he would like it to conclude in the current fiscal. 

Equity analysts, however, were divided over the company’s plan to reduce debt. “It’s a tall target” and not achievable unless Tata Motors lets go off a substantial stake in JLR, said an analyst. The other way could be a substantial equity infusion by Tata Sons. 

Others were more optimistic. “The company is on the right path in terms of cutting costs and scaling back capex. If the cycle picks up and a vaccine is found, the balance sheet will look significantly better,” said Aditya Makharia, analyst at HDFC Securities. There are expectations of the overall macros improving, he said, alluding to economies opening up after the lockdown.   “The cash generated by JLR and domestic operations over the next two years will not be enough to retire debt. It won’t suffice even if they sell stake in the PV business. Both put together – operations and stake sales in PV — will at the most fetch them only Rs 10,000-12,000 crore,” said the analyst quoted earlier.