Mumbai: The Tata group’s financial services arm, Tata Capital Ltd, is in early talks to acquire or become a strategic partner of TVS Finance and Services Ltd (TVS-FS), the loss-making non-banking financial company (NBFC) of Chennai-based two-wheeler maker TVS Motor Co. Ltd, according to an executive familiar with the development. If successful, the deal would give Tata Capital a beachhead in southern states, where it does not have significant presence.
The company will also be able to take advantage TVS-FS’ network to provide vehicle loans in southern states for Tata Motors Ltd’s low-cost Nano cars, said industry experts. Tata Capital could also start providing loans to two-wheeler buyers.
TVS-FS chairman Gopal Srinivasan declined comment. “The company is currently in the process of de-listing its shares... We are not in a position to make any statement about the company,” he said in an email reply to Mint queries.
A Tata Capital spokesperson said he would not comment on market speculation.
TVS-FS’ promoters had decided earlier this year to de-list the firm as it had not been able to raise public holding to 25%—the minimum level prescribed by capital markets regulator Securities and Exchange Board of India.
The company has suffered losses in the past six fiscal years, accumulating losses of Rs84.17 crore over the period.
TVS Motor then appointed Mumbai-based Edelweiss Capital Ltd to hunt for a strategic partner, which pitched the firm to Tata Capital, said the executive mentioned earlier, who didn’t want to be named as?the?talks?are?at?an?early?stage.
Two international companies and another Indian firm are also keen to buy TVS-FS, which offers a margin of 5-6% on every two-wheeler financed, this person added.
“Since it’s a risky business with higher level of NPAs (non-performing assets or bad debts), the margins are a bit higher than other loans,” said a banking analyst with a domestic brokerage, who did not wish to be identified.
Two analysts whom Mint spoke with said TVS Motor, the flagship company of the TVS Group, is going through a rough patch and that it is natural that it would want to shed some ancillary businesses to focus on its core operation.
“TVS Motor’s product portfolio is weak and margins are under severe pressure. The two-wheeler industry as a whole is facing a slowdown. While Bajaj and Hero Honda are better off, TVS’ product portfolio needs an urgent revamp,” said Amar Ambani, vice-president (research) at Mumbai-based financial services firm India Infoline Ltd.
The maker of Apache, Victor and Flame motorcycles posted a third quarter profit of Rs5.83 crore, nearly half the Rs11.46 crore it posted a year ago. Its vehicle sales fell 21% year-on-year (y-o-y) in February, its 12th straight monthly decline.
TVS Motor’s sister firm, computer peripherals maker TVS Electronics, is also facing tough times. Its fourth quarter net profit dropped 37% y-o-y.
However, TVS Motor’s rivals, Hero Honda Motors Ltd and Bajaj Auto Ltd, have been faring better, garnering some of their business by financing their own products, which gives them additional margins.
Nearly 50% of the bikes sold in India are financed.
Hero Honda, India’s top bi-ke maker, plans to float its own NBFC for financing its bikes. Bajaj Auto, the second largest, already finances its two-wheelers through its NBFC wing Bajaj Auto Finance.
Yamaha Motor Co. Ltd recently signed a deal with Japan’s Mitsui Group and private sector lender Axis Bank Ltd to float an NBFC to finance its bikes in India. But stand-alone financiers and banks such as ICICI Bank Ltd , HDFC Bank Ltd, GE Money and Centurion Bank of Punjab Ltd have either wound up their portfolio or cut exposure to the sector due to rising delinquencies and low margins.
Vidhya Sivaramakrishnan in Chennai contributed to this story.