In a significant move, Tata Motors Limited (TTMT) has gained board approval for the demerger of the company into two distinct listed entities. The demerger will result in the formation of a) Commercial Vehicles (CV) and its related investments and b) Passenger Vehicles (PV), incorporating India PV, Electric Vehicles (EV), Jaguar Land Rover (JLR), and related investments.
Emkay Global Financial, in its latest research report on Tata Motors, notes that the demerger aligns with the ongoing trend of separate financial reporting for CV and India PV, managed by their respective Chief Executive Officers since 2021. The decision reflects the management’s confidence in the independent viability of both businesses, each operating with self-sustaining cash flows.
Outlook: While the research report anticipates minimal fundamental changes, considering the historical independence in business operations, there is an upward revision in the Sum-of-the-Parts (SOTP)-based Target Price (TP). The revised TP now stands at Rs 950, up from Rs 925, with the incorporation of a 10% premium multiple to TTMT’s CV business compared to its industry peer AL IN. This premium is attributed to the potential pure-play optionality on Commercial Vehicles (CVs) with a larger scale.
Despite the positive aspects of the demerger, Emkay Global Financial has downgraded its rating on Tata Motors to REDUCE. The downgrade is influenced by the recent surge in stock value, which, according to the report, leaves limited room for further upside.
Investors and market observers will closely monitor Tata Motors as it undergoes this structural transformation, with the expectation that the demerger will unlock value for shareholders and provide focused strategic directions for both the CV and PV entities.
