Tata Finance to be merged with Tata Motors

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Tata Finance to be merged with Tata Motors
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Merger of Tata Finance with Tata Motors

• The scheme has been approved today by the Board
  of Directors of Tata Motors Ltd. (TML) and Tata
  Finance Ltd. (TFL)
• Appointed date of scheme April 01, 2005
• Scheme of amalgamation will be filed with the
  Stock exchanges in due course
• 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
• Valuation conducted by M/s Bansi Mehta Co.

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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
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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)

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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

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Challenges for growth of captive financiers in
Indian context
Critical Success Factors
Indian auto-finance industry transitions

• Access to low cost funds
• Better credit decisions controls
• Thin overheads with faster loan processing
• Relationship with dealers and OEM

Consolidation

• 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,
  20th Century)
• Niche NBFCs / co-op banks continue to maintain
  focus (Sundaram, Chola)

Competition

• 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

Dominant Phase

• Auto financing dominated by NBFCs and captive
  financiers
• Banks were only lenders to NBFCs

2003-2005
2005 and beyond
1999-2003
Till 1999
Players with low CoF , better penetration and OEM
/ Dealer relationship will continue to dominate
the market
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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
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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 00-01 Rs. 381 crs
• Losses in FY 01-02 Rs. 157 crs
• Losses in FY 02-03 Rs. 76 crs

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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

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Importance of formidable captive financier (CF)
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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

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Advantages of the merger to TFL shareholders

• 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
• Participate in the growth of leading auto
  manufacturer
• Fair exit value for all shareholders
• Better appreciation on their investments, with an
  upside of dividends

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Advantages of the merger to TML shareholders

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

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Thank You