With the decision to demerger, Tata Motors soars to a 52-week high, delighting brokerages

Analysts predict that Tata Motors’ plan to demerge its passenger car and commercial vehicle operations will increase value for both the company and investors.

Tata Motors soars to a 52-week high with the decision to demerger

A day after the firm announced its plan to split its passenger and commercial car divisions, a move that was welcomed by brokerages and investors alike, share price of Tata Motors increased 4% to reach a 52-week high of Rs 1,027 on March 5.

The company was given a “overweight” rating by brokerage JP Morgan, with a price objective of Rs 1,000, which indicates a 1.2 percent increase from the previous closing of Rs 988.

According to Morgan Stanley, the choice to split the company into two publicly traded companies shows the corporation’s belief that the personal vehicle (PV) market can support itself and that Tata Motors may benefit from increased wealth generation. The brokerage has set Rs 1,013 as the target price.

Morgan Stanley stated that there will be synergies between the company’s domestic PV business and its British affiliate, Jaguar & Land Rover, in the electric vehicle (EV) space.

Nomura has a “buy” call with a target price of Rs 1,057, which is 7% higher than the current market price. It stated that in the medium run, the companies should have more flexibility to pursue their individual plans.

“Specifically, we think the PV industry has significant potential to add value in the coming years and has experienced an impressive recovery after 2020,” the brokerage stated.

“The demerger appears to be beneficial for the company, and in the upcoming weeks, we might witness a positive response that could draw in investors as well. On the condition of anonymity, a research expert stated, “Investors who are willing to give higher valuations to the EV space would be more enticed than they initially would have been.”

Not other brokerages, though, are as optimistic. Investec expects no movement in values and has a “hold” call on the counter. “Creates a pure CV play and a global PV play” is how the demerger is described.

With a “reduce” call, InCred stated that following the demerger, values might favor the PV business at 62 percent of the total, with the CV sector holding the remaining 38 percent of the valuation. As stated in a memo, “We expect no major changes in the business.”

Through a scheme of arrangement approved by the NCLT (National Company Law Tribunal), the proposed demerger would be implemented. All TML (Tata Motors Limited) shareholders will maintain the same shareholding in both of the subsequent listed firms following the demerger. But the business warned that it might take an extra 12 to 15 months to get the demerger’s required approvals from creditors, shareholders, and government agencies.

The stock was up 4.39 percent from the previous close as of 9.37 am on the National Stock Exchange, trading at Rs 1,030.55.

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Frequently Asked Questions (FAQs)

1. What prompted Tata Motors to decide on a demerger?
   • Tata Motors aims to create better value by demerging its passenger vehicle and commercial vehicle businesses, allowing each entity to pursue its respective strategies with greater freedom.
2. How did the market react to Tata Motors’ demerger announcement?
   • Shares of Tata Motors gained 4 percent, hitting a 52-week high, signaling a positive market response.
3. What are the analysts’ views on the Tata Motors demerger?
   • Analysts, including those from JP Morgan, Morgan Stanley, and Nomura, are generally upbeat, citing potential for value creation and strategic flexibility.
4. What does the demerger mean for Tata Motors’ electric vehicle (EV) strategy?
   • The demerger is seen as beneficial for the EV segment, with potential synergies between Tata Motors’ domestic PV business and its British arm, Jaguar and Land Rover.
5. What are the potential challenges in completing the demerger?
   • The process requires approvals from shareholders, creditors, and regulatory authorities, which might take an additional 12-15 months.
6. How will the demerger affect Tata Motors’ shareholders?
   • Shareholders of Tata Motors Limited (TML) will continue to hold identical shareholdings in both resulting listed entities post-demerger.
7. What is the stance of brokerages like Investec and InCred on the demerger?
   • Investec has a “hold” call, while InCred suggests a “reduce” call, indicating a more cautious outlook compared to other brokerages.
8. How is the demerger expected to impact valuations according to InCred?
   • Post-demerger, valuations may favor the PV business, accounting for 62 percent of the total, with the CV segment representing the remaining 38 percent.
9. What was Tata Motors’ stock price after the demerger announcement?
   • The stock was trading at Rs 1,030.55 on the National Stock Exchange, up 4.39 percent from the previous close.
10. Where can investors find more advice and tips regarding the Tata Motors demerger?
    • It’s recommended to consult with certified investment experts for further analysis and investment decisions related to Tata Motors’ demerger.