Last Updated: Tuesday, July 25, 2023

Tata Motors Leverages Capital Reduction: Replaces DVRs with Ordinary Shares

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In a groundbreaking move, Indian automaker giant Tata Motors has announced its intent to cancel all the Differential Voting Rights (DVRs) through a strategically crafted scheme of arrangement. The plan includes issuing ordinary shares to replace the DVRs, aiming to simplify their capital structure and optimize the value for their shareholders. This step marks a significant change for the company, which has kept DVRs as part of its financial architecture since 2008.

DVRs, issued by Tata Motors during a rights issue back in 2008, are essentially shares that carry different voting and dividend rights compared to ordinary shares. DVR holders typically receive a higher dividend but have lesser voting rights in the company. With this change, Tata Motors seeks to unify the two types of shares, reducing complexity and further streamlining its financial operations.

Tata Motors has always been a trendsetter in the automotive industry, and this new move is no different. The capital reduction consideration implies a premium of 23% on the previous day’s closing share price of 'A' Ordinary shares, which translates to a 30% discount over the Ordinary Share price, a significant value for shareholders.

The changes are subject to approval from the National Company Law Tribunal. Once approved, the move will allow the company to issue seven ordinary shares for every ten Tata Motors DVR share, a change aimed at capital reduction and creating parity between the two classes of shares. This restructuring also comes at a time when Tata Motors has delisted its American Depository Shares from the New York Stock Exchange.

This strategic move arrives on the heels of a robust financial performance by Tata Motors. The company reported an impressive consolidated net profit of Rs 3,203 crore for the quarter ended June, a sharp recovery from a net loss of Rs 5,007 crore a year ago. The revenue from operations saw a significant hike of 42% year on year, standing at Rs 1.02 lakh crore.

Tata Motors' financial turnaround can be attributed to the impressive performance of its British arm Jaguar Land Rover Automotive, in conjunction with a strong commercial and passenger vehicle business in India. In light of this financial performance, shares of Tata Motors ended 1.6% higher on the National Stock Exchange, with DVRs marking a nearly 5% surge.

With these changes in place, Tata Motors is poised to enter a new era of streamlined operations and value accretion. The move to replace DVRs with ordinary shares demonstrates the company's commitment to enhancing shareholder value and ensuring a robust and simplified financial structure for its future growth.

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