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Mr Praveen Kadle (left), Executive Director, Finance and Corporate Affairs, Tata Motors Ltd, with Mr Ishaat Hussain, Chairman, Tata Finance Ltd, at a press conference in Mumbai on Monday. - Shashi Ashiwal

Mumbai , Jan. 10

SHAREHOLDERS of Tata Finance will get eight shares of Tata Motors for every 100 shares held by them.

This follows the approval by the boards of the two companies for a share swap ratio of 8:100 consequent to the merger of the two companies.

This merger is expected to enable Tata Motors to grow its vehicle financing business. Automotive financial services form an important and integral business for all the global automotive OEMs, said Mr Praveen Kadle, Executive Director - Finance and Corporate Affairs, Tata Motors.

At present, Tata Motors has its own financing division, Bureau of Hire Purchase and Credit (BHPC), which has a dealer-driven sourcing model. Post merger, the company will have a `formidable' captive financing arm that will help in eliminating cost disadvantages and enable the automobile company to offer bundled financial options, Mr Kadle said.

Post merger, the Tata group's holding in Tata Motors will edge up by two per cent to 34 per cent.

Tata Finance has currently an accumulated loss of around Rs 500 crore. Mr Ishaat Hussain, Chairman, Tata Finance Ltd, said Tata Motors is expected to benefit from a reduction in taxes on account of the set-off of the accumulated losses of Tata Finance.

"But tax benefit is an icing on the cake. The main benefit that accrues out of this merger is the consolidation of our vehicle financing business,'' he said.

For the first half of the current financial year, Tata Finance reported profit before tax of Rs 15.63 crore. Outstanding debt as on December 31, 2004 was Rs 1,200 crore down from a high of Rs 2,613 crore in June 2001.

"Over the next 6-12 months we plan to bring down the debt to zero levels,'' Mr Kadle said. According to him, the merger will further improve the cash flows of Tata Motors. Tata Finance undertook restructuring initiatives and in the process divested all its non-core activities and focussed only on auto financing business.

The benefits that will accrue to the shareholders of Tata Finance is that they will be able to participate in the growth of an automobile manufacturer. The auto finance business will create more shareholders' value on Tata Motors' balance sheet than that of Tata Finance. This is mainly because Tata Motors will reap the benefits of being a captive financier and its balance sheet strength will result in drop in cost of borrowings.

The auto finance business will also provide a hedge to Tata Motors against the cyclicality of automotive business.

"Our first objective is to grow the business,'' Mr Kadle said. At present, Tata Finance and BHPC finance around 17-18 per cent of the company's vehicle sales. "Our target is to take this to 35-40 per cent over the next 3-4 years,'' he said.

Tata Finance, which was started by Tata Motors and Tata Industries in 1984, has also rationalised its manpower by 50 per cent to the current level of 440 people. They will become employees of Tata Motors, Mr Kadle said.

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