Tata Motors: Will Tata Motors’ ambitious Iveco acquisition strain its financial stability? – News Air Insight

ET Intelligence Group: Shares of Tata Motors slipped 3.5% on Wednesday on reports that the automaker is set to acquire Iveco, an Italian truck and bus manufacturer.

Given that Iveco stock has doubled over the past 12 months on Euronext Milan Exchange and trades at a near 52-week high, Tata Motors will be entering the deal at a higher price point. In addition, the latter had a free cash flow of ₹22,400 crore, equivalent to ₹2.2 billion euros or ($2.6 billion), as of March 2025. This compares with the likely deal value of ₹3.9 billion ($4.5 billion), which means the Indian trucks-to-car maker may have to opt for external funding. Analysts expect the deal to put pressure on the company’s balance sheet amid rising global tariff uncertainties.

According to reports, Iveco is demerging its defence business, which will not be a part of the Tata Motors transaction. In FY24, the defence segment’s share in revenue had increased to 7.4% from 6.2%. Iveco faces headwinds in its key markets. The truck segment is the largest division contributing around 65% to revenue. In FY24, its revenue declined 6.2% to ₹9,960 million, which in turn dragged the total revenue by 4.3% to ₹15,289 million.

For 2025, net revenue growth for industrial activities including power trains, trucks and buses is expected to be flat year-on-year after declining 4.4% to ₹14.9 billion in 2024. Iveco expects group adjusted operating profit (EBIT) to be between ₹980 million and ₹1,030 million for 2025 compared with ₹982 million in 2024. Out of which, ₹850-900 million would be from industrial activities (₹851 million in 2024). Free cash flow is expected to be between ₹400-450 million (₹402 million in 2024).

Analysts believe that though Tata Motors’ move to demerge the commercial vehicles (CV) business and pursue a global brand acquisition is an ambitious strategic shift, it would increase pressure on the balance sheet. “The plan (to acquire Iveco)-amid rising debt levels and continued EV investments-could pressure margins and profitability, while also raising integration challenges,” said Saji John, research analyst, Geojit Investments, adding that ongoing global tariff uncertainties may further weigh on near-term stock performance.

John, however, believes that despite these hurdles, the company’s long-term growth trajectory remains intact owing to its pedigree in transforming acquired businesses.