Analysts Predict Enhanced Value as Tata Motors Moves to Demerge Passenger and Commercial Vehicle Businesses.
Tata Motors Shares Surge 4% to Reach 52-Week High of Rs 1,027 Following Announcement of Passenger and Commercial Vehicle Business Split, Receives Positive Response from Brokerages and Investors.
In a recent assessment, brokerage firm JP Morgan has bestowed Tata Motors with an “overweight” rating and set a price target of Rs 1,000 for its stock, indicating a potential upside of 1.2 percent from the preceding close of Rs 988.
Meanwhile, Morgan Stanley has weighed in on Tata Motors’ decision to split its business into two distinct entities, viewing it as a testament to the company’s confidence in the personal vehicle (PV) segment’s ability to thrive independently. The move, according to Morgan Stanley, could pave the way for enhanced value creation for Tata Motors. The brokerage has assigned a target price of Rs 1,013 in light of this perspective.
Regarding the electric vehicle (EV) segment, Morgan Stanley highlighted potential synergies between Tata Motors’ British subsidiary, Jaguar and Land Rover, and its domestic passenger vehicle (PV) business.
Nomura has issued a “buy” recommendation with a target price of Rs 1,057 for Tata Motors, representing a 7 percent upside from the current market price. The brokerage emphasized that in the medium term, the demerged businesses would have the opportunity to pursue their individual strategies with increased autonomy.
Specifically, Nomura expressed optimism about the passenger vehicle (PV) business, noting its considerable potential for value creation in the coming years. The brokerage highlighted the PV business’s notable recovery since 2020, suggesting a positive trajectory for future growth and profitability.
An anonymous research analyst expressed optimism about the demerger, anticipating a positive market reaction and potential investment influx, particularly from investors favoring higher valuations in the electric vehicle (EV) space.
Contrarily, some brokerages hold a more reserved stance. Investec maintains a “hold” recommendation on Tata Motors, foreseeing minimal impact on valuations post-demerger, noting the creation of distinct segments focused on commercial vehicles (CV) and global passenger vehicles (PV).
InCred adopts a more cautious approach with a “reduce” call, suggesting that post-demerger, valuations may lean towards the PV business, representing 62 percent of the total, while the CV segment comprises the remaining 38 percent. The brokerage anticipates limited changes in the business landscape following the demerger.
The proposed demerger will be executed through an NCLT (National Company Law Tribunal) scheme of arrangement. Following the demerger, shareholders of Tata Motors Limited (TML) will maintain identical shareholding in both resulting listed entities. However, the company cautions that obtaining necessary approvals from shareholders, creditors, and regulatory authorities may prolong the process by an additional 12-15 months.
As of 9:37 am, Tata Motors stock was trading at Rs 1,030.55 on the National Stock Exchange, marking a 4.39 percent increase from the previous close.
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