Tata Motors Announces Demerger: Analysts Weigh in on Potential Value Unlocking

Tata Motors has made a strategic decision to split its commercial vehicle (CV) and passenger vehicles (PV) business into separate entities, a move that has garnered mixed reactions from analysts assessing the potential value unlocking.

The Board of Directors of Tata Motors, in a recent meeting, approved the proposal for the demerger which will see the company bifurcated into two distinct listed companies— one focusing on the CV business and related investments and the other housing the Passenger Vehicles segment inclusive of PV, EV, as well as JLR and its associated investments.

UBS views the demerger as a step towards simplifying the organization’s structure but does not foresee any significant value unlocking through this move. The brokerage maintains a ‘Sell’ rating on Tata Motors with a target price of ₹600 per share.

Morgan Stanley, on the other hand, sees the demerger as a reflection of Tata Motors’ confidence in the PV segment’s ability to sustain itself and potentially drive better value creation for the company. The brokerage’s target price for Tata Motors stands at ₹1,013.

Nuvama Institutional Equities characterizes the demerger as a non-event in the immediate term, suggesting that clarity on the impact of the proposed split may emerge over the next 15 months as the process unfolds.

Analysts are closely monitoring the development as Tata Motors is currently part of all passive indices. However, once the demerger is completed and the smaller entity (CV business) becomes standalone, the stock is expected to exit Nifty 50 and Sensex, presenting a potential shift in its market positioning.

Global indices such as MSCI and FTSE will assess the market cap of the smaller entity post-listing to determine its eligibility. Nuvama Equities anticipates that the CV business segment securing around 25% of the total market cap could help it maintain its position in passive indices.

Motilal Oswal, having downgraded Tata Motors to ‘Neutral’ from ‘Buy’, maintains an unchanged target price of ₹1,000 per share. The brokerage notes the stock’s significant outperformance in recent years and has factored in most of the positive triggers in its estimates.