Tata Motors to Separate Passenger and Commercial Vehicle Businesses, Brokerages Optimistic about Demerger

Tata Motors to Split PV and CV Businesses, Brokerages Bullish

On March 5, 2024, Tata Motors made an announcement to separate its passenger vehicle (PV) and commercial vehicle (CV) businesses into separate entities.

This decision was welcomed by most brokerages, who see great potential for both businesses to create more value and have greater strategic flexibility.

Following this announcement, Tata Motors stock price rose by 4%, reaching a 52-week high of Rs 1,027.

Brokerages are optimistic about the demerger.

JP Morgan assigned an "overweight" rating and a price target of Rs 1,000, indicating a potential upside of 1.2%. Morgan Stanley praised the demerger, considering it as a sign of confidence in the PV segment's potential, and assigned a target price of Rs 1,013.

They also said that there could be synergies between Jaguar Land Rover and the domestic PV business, especially in the electric vehicle (EV) space. Nomura issued a "buy" call with a target price of Rs 1,057, representing a 7% upside.

They believe that the demerger will allow both businesses to pursue their individual strategies more effectively, especially the PV segment with its strong growth potential. An anonymous analyst believes that the demerger will attract EV-focused investors and could lead to further positive reactions and increased investment in the coming weeks.

However, Investec maintained a "hold" call on the stock, not expecting a significant impact on valuations. They see the demerger creating a "pure CV play" and a "global PV play." InCred issued a "reduce" call, anticipating valuations favoring the PV business at 62% post-demerger, with the remaining 38% going to the CV segment. They expect minimal changes in overall business operations.

The demerger will be executed through an NCLT scheme of arrangement. Existing Tata Motors Limited (TML) shareholders will retain identical shareholdings in both resulting companies.

However, the company cautions that obtaining necessary approvals from various stakeholders and regulatory bodies might take an additional 12-15 months.

Conclusion

Overall, most brokerages have a positive view of the demerger decision, seeing potential benefits for both the PV and CV businesses. Some brokerages hold a more neutral or cautious view, calling for further assessment of the long-term impact.

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