Tata Motors Limited plans to repay the €3.8 billion (approximately Rs 38,000 crore) acquisition debt it is raising for the buyout of Italy’s commercial vehicles maker, Iveco Group, within four years, aided by a mix of free cash flows, a potential €1 billion capital raise, and monetisation of Tata Capital stake, the auto maker's senior management told the media in an interaction on July 31.
The company is acquiring the commercial vehicle business of Iveco, excluding its defence business, through a voluntary tender offer at €14.1 per share, backed by bridge financing commitments from foreign banks Morgan Stanley and MUFG.
The acquisition marks a significant global expansion move for Tata Motors’ commercial vehicle (CV) business and is expected to close by April 2026, subject to regulatory approvals.
Speaking on a media call, Tata Motors CFO P B Balaji said the €3.8 billion bridge loan would be refinanced through a combination of equity and long-term debt over a 12–18 month period post-closure of the acquisition.
“We will pay down our acquisition debt over a four-year period,” he said. “The equity component could be in the range of €1 billion (around Rs 10,000 crore), through either a rights issue or QIP. We are yet to finalise the instrument.”
The company is also looking to monetise its stake in Tata Capital, which is planning to launch an IPO soon, to further ease the funding burden.
“Together, that more or less takes care of the acquisition financing. Also, remember that both businesses are already cash-flow positive, so their internal accruals will be key to servicing the debt,” Balaji added.
Deal will be EPS accretive from Year Two
Tata Motors said that it expects the acquisition to be EPS (earnings per share) accretive from the second year after the deal’s completion, with the synergy benefits and low acquisition multiple driving returns.
Balaji explained that while Iveco’s EBITDA margins are in line with industry benchmarks, its EBIT margins are compressed due to heavy depreciation and amortisation costs from earlier investments.
“We are confident that revenue and R&D synergies will help improve operating leverage and profitability,” he said.
The Indian auto major also said that the commercial vehicle business remains financially robust. Tata Motors has a 40 percent return on capital employed (ROCE), Balaji noted, while Iveco’s ROCE stands at around 14 percent.
“Combined, we can triple revenues and nearly quadruple profits of the two companies, while still generating over 20 percent ROCE,” Balaji noted.
The acquisition of Iveco gives Tata Motors a significant global footprint in commercial vehicles, with minimal overlap. Iveco has a strong presence in Europe and Latin America, contributing 75 percent and 12 percent of its revenues respectively, while Tata Motors is dominant in India and other developing markets.
"The geographical complementarity is striking," said Girish Wagh, Executive Director at Tata Motors.
Iveco’s operations span trucks, buses, powertrains and financial services. Its powertrain subsidiary FPT is a global top-five player in internal combustion engines and has made recent investments in electric and hydrogen technologies.
“Iveco brings cutting-edge technologies in powertrain electrification, ADAS (advanced driver assistance systems) and SDVs (software defined vehicles), which we can leverage for the Indian market,” Wagh said, adding that Tata Motors offers strong frugal engineering and design-to-value capabilities, which can help reduce product costs and complexity for Iveco.
Synergies are expected across revenue, R&D, and materials procurement, with the combined entity targeting €0.5 billion in free cash flow synergies by FY28.
While synergies will be actively explored, Tata Motors clarified that Iveco’s brand, channels and operations would remain independent.
“We want to preserve brand identities and front-end separation while sharing platforms, R&D and backend efficiencies,” Balaji said. The company cited learnings from the Jaguar Land Rover integration to highlight the importance of respecting cultural sensitivities and gradual convergence.
On labour concerns, the company said it had signed non-financial covenants with the Italian government to maintain the local industrial footprint.
“There will be no rationalisation of plants or headcount,” Balaji said. “This is a growth-led transaction, not a cost-cutting one.”
Tata Motors will also benefit from Iveco’s extensive sales, after-sales and financing networks, particularly in Europe and Latin America.
“Access to retail financing and distribution channels in these regions would take years to build organically,” Wagh added.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
