Tata Motors to raise €1 bn via equity, stake sale to fund Iveco deal

Business Standard

5 days ago

Iveco gets India entry while Tata gains Latin American access
Indian commercial vehicle (CV) market leader Tata Motors plans to raise close to €1 billion through equity — either a rights issue or qualified institutional placement (QIP) — as well as monetise its stake in Tata Capital, to help repay the €3.8 billion (~38,000 crore) bridge loan it will use to buy Italy's legacy CV player, Iveco group. Meanwhile, it will also launch Iveco products in India or other markets where Tata Motors is strong and introduce Tata products in markets where Iveco has a foothold, such as Latin America (LatAm). With combined annual revenues of ~2.2 trillion (€22 billion) and sales of over 540,000 units, the Tata-Iveco merged entity will derive nearly 50 per cent of its revenue from Europe, 35 per cent from India, and 15 per cent from LatAm — making it a truly global company. It will also have a presence in the US, as well as Asian and African markets. Tata Motors' stock fell 3.4 per cent on Wednesday in anticipation of the deal. Group Chief Financial Officer P B Balaji allayed investor concerns on Thursday as he explained the funding strategy, which will be executed over the next 12–18 months. The stock was flat on Thursday and ended the day's trade on the BSE down 0.35 per cent. 'We had said during the demerger (announcement) that we would unleash the CV business. Taking it global was the logical next step,' Balaji said, adding that the deal was financially compelling, as they bought a profitable business at 2x earnings before interest, tax, depreciation, and amortisation (Ebitda). Raghunandan N L, Nuvama analyst, noted that Iveco's valuation of 2x 2024 Ebitda compares with 5x to 7x for CV players like Daimler or Volvo. 'From an earnings per share standpoint, this becomes accretive from Year Two after the capital raise is completed,' Balaji said. Tata Motors aims to pay off the acquisition debt within four years. The €3.8 billion bridge loan will be syndicated, with Morgan Stanley and Mitsubishi UFJ Financial group having committed to provide the initial funding. A drawdown is expected around April next year. Tata Motors will have around a year to term out the bridge loan through a mix of equity raise and long-term debt. Balaji said the capital raise could be either a rights issue or a QIP. 'We'll also be monetising our stake in Tata Capital to ensure we minimise the debt raised.' Moreover, as both Iveco and Tata Motors' CV businesses generate positive cash flows, this will allow them to use free cash flows toward debt repayment. Balaji told reporters that Iveco's Ebitda margins are comparable with Tata Motors', at 12–13 per cent. However, Ebit margins are lower due to high depreciation, and by improving volumes, this can be improved. Balaji expects the return on capital employed (RoCE) for the combined entity to stabilise at 20 per cent. 'Tata Motors' CV business operates at 40 per cent RoCE, and Iveco is at 14 per cent. Together, we believe we can generate substantial value — we can treble our revenue and almost quadruple some of our profitability numbers between the two of us to ensure that it still generates a 20 per cent kind of RoCE,' Balaji said. Tata Motors–Iveco synergies Tata Motors said its product portfolios and brand architectures are complementary. Girish Wagh, executive director, Tata Motors, said that the Tata Motors brand is more value-focused, rugged, durable, and trustworthy in the markets where it operates. With its Italian lineage, design, and engineering, Iveco is seen as a premium brand. 'I think in markets where we may decide later to play both brands, not just pricing, but even the brands will be complementary in terms of positioning,' he said. Thanks to this, they plan to introduce Iveco products in markets where Tata Motors is strong and vice versa. 'We can launch Tata Motors products in markets where Iveco is strong, especially LatAm,' he said. Tata Motors will look to introduce Iveco's vans, tippers, and buses in India to plug gaps in its domestic portfolio, while Tata Motors' light CVs may be exported to LatAm. The acquisition gives access to Iveco's Italian brands, manufacturing facilities, and after-sales networks across Europe and LatAm. 'Some capabilities, like retail financing and strong service channels, can take years to build organically. This acquisition shortens that timeline considerably,' Wagh said. Moreover, there are capital expenditure synergies too — shared research and development in areas like powertrains, advanced driver-assistance systems, heavy-duty vehicles, and electrification. 'By leveraging India's frugal engineering skills, we can reduce development costs and achieve material cost synergies for Iveco,' Wagh explained. Operational savings are also possible through portfolio simplification and design-to-value approaches. Tata has committed to non-financial covenants for two years after the deal, such as no plant closures or layoffs in Italy.
Sohini Das Mumbai
Indian commercial vehicle (CV) market leader Tata Motors plans to raise close to €1 billion through equity — either a rights issue or qualified institutional placement (QIP) — as well as monetise its stake in Tata Capital, to help repay the €3.8 billion (₹ 38,000 crore) bridge loan it will use to buy Italy's legacy CV player, Iveco group.
Meanwhile, it will also launch Iveco products in India or other markets where Tata Motors is strong and introduce Tata products in markets where Iveco has a foothold, such as Latin America (LatAm).
With combined annual revenues of ₹ 2.2 trillion (€22 billion) and sales of over 540,000 units, the Tata-Iveco merged entity will derive nearly 50 per cent of its revenue from Europe, 35 per cent from India, and 15 per cent from LatAm — making it a truly global company. It will also have a presence in the US, as well as Asian and African markets.
Tata Motors' stock fell 3.4 per cent on Wednesday in anticipation of the deal. Group Chief Financial Officer P B Balaji allayed investor concerns on Thursday as he explained the funding strategy, which will be executed over the next 12–18 months. The stock was flat on Thursday and ended the day's trade on the BSE down 0.35 per cent.
'We had said during the demerger (announcement) that we would unleash the CV business. Taking it global was the logical next step,' Balaji said, adding that the deal was financially compelling, as they bought a profitable business at 2x earnings before interest, tax, depreciation, and amortisation (Ebitda).
Raghunandan N L, Nuvama analyst, noted that Iveco's valuation of 2x 2024 Ebitda compares with 5x to 7x for CV players like Daimler or Volvo.
'From an earnings per share standpoint, this becomes accretive from Year Two after the capital raise is completed,' Balaji said. Tata Motors aims to pay off the acquisition debt within four years.
The €3.8 billion bridge loan will be syndicated, with Morgan Stanley and Mitsubishi UFJ Financial group having committed to provide the initial funding. A drawdown is expected around April next year. Tata Motors will have around a year to term out the bridge loan through a mix of equity raise and long-term debt. Balaji said the capital raise could be either a rights issue or a QIP. 'We'll also be monetising our stake in Tata Capital to ensure we minimise the debt raised.'
Moreover, as both Iveco and Tata Motors' CV businesses generate positive cash flows, this will allow them to use free cash flows toward debt repayment. Balaji told reporters that Iveco's Ebitda margins are comparable with Tata Motors', at 12–13 per cent. However, Ebit margins are lower due to high depreciation, and by improving volumes, this can be improved.
Balaji expects the return on capital employed (RoCE) for the combined entity to stabilise at 20 per cent. 'Tata Motors' CV business operates at 40 per cent RoCE, and Iveco is at 14 per cent. Together, we believe we can generate substantial value — we can treble our revenue and almost quadruple some of our profitability numbers between the two of us to ensure that it still generates a 20 per cent kind of RoCE,' Balaji said.
Tata Motors–Iveco synergies
Tata Motors said its product portfolios and brand architectures are complementary. Girish Wagh, executive director, Tata Motors, said that the Tata Motors brand is more value-focused, rugged, durable, and trustworthy in the markets where it operates. With its Italian lineage, design, and engineering, Iveco is seen as a premium brand. 'I think in markets where we may decide later to play both brands, not just pricing, but even the brands will be complementary in terms of positioning,' he said.
Thanks to this, they plan to introduce Iveco products in markets where Tata Motors is strong and vice versa. 'We can launch Tata Motors products in markets where Iveco is strong, especially LatAm,' he said.
Tata Motors will look to introduce Iveco's vans, tippers, and buses in India to plug gaps in its domestic portfolio, while Tata Motors' light CVs may be exported to LatAm.
The acquisition gives access to Iveco's Italian brands, manufacturing facilities, and after-sales networks across Europe and LatAm. 'Some capabilities, like retail financing and strong service channels, can take years to build organically. This acquisition shortens that timeline considerably,' Wagh said. Moreover, there are capital expenditure synergies too — shared research and development in areas like powertrains, advanced driver-assistance systems, heavy-duty vehicles, and electrification.
'By leveraging India's frugal engineering skills, we can reduce development costs and achieve material cost synergies for Iveco,' Wagh explained. Operational savings are also possible through portfolio simplification and design-to-value approaches. Tata has committed to non-financial covenants for two years after the deal, such as no plant closures or layoffs in Italy.