Shruti Sneha, Pune
Major automaker Tata Motors announced the company’s demerger into two distinct listed entities on March 4 after market hours. The businesses that deal with commercial vehicles (CVs) and their associated investments will be housed in one entity, while the businesses that deal with passenger vehicles—including JRL, electric vehicles, and passenger cars—would be housed in the other. Tata Motors’ stock ended Monday’s trading session 0.12% lower at 987.20. Conversely, the benchmark BSE Sensex concluded the day at 73,872, up 0.09%.
Sharad Avasthi, Head of Research (PCG) at SMIFS, expressed his opinion on the demerger of Tata Motors, saying, “This is a good move by the company as both industries (CV and PV) move at different velocities.” The CV sector is more reliant on the industrial side and the longer-term logistics processes. The passenger car sector, especially in India, is less cyclical, on the other hand. Because of the way that JLR has grown in various areas relative to other global companies, they would gain more in terms of valuations.
He went on to say that the PV sector would be valued far higher than the CV sector. At the moment, Tata Motors trades at a combined enterprise of 9–11 times EV/Ebitda. “The passenger car segment would receive a premium following the split in comparison to the CV side of the firm. According to Avasthi, this would raise the company’s overall valuation.
Tata Motors has declared that February 2024 sales in the domestic and international market were 86,406 automobiles, up 8% from February 2023’s 79,705 units. At 84,834 units, total domestic sales were up 9% year over year. Conversely, domestic passenger vehicle sales increased 20% YoY to 51,267 units in February 2024, while domestic commercial vehicle sales fell 4% to 33,576 units.
The announcement of the demerger, according to Prashanth Tapse, Senior VP (Research), Mehta Equities, “is a much-needed strategic move and logical progression to further strengthen each segment and deliver higher development with greater visibility.” We still see significant development potential in the PV, EV, and JLR segments, especially in the areas of EVs, driverless cars, and vehicle software, all of which this action will assist ensure with a strong emphasis. We believe that by demerging, Tata Motors will be better able to take advantage of growth prospects and increase value for its long-term shareholders.