In the early trading session, Tata Motors shares soared to a 52-week high and surpassed the Rs 1,000 milestone following a surge of 8 percent, propelled by the company's approval of a proposal to bifurcate its business into two distinct listed entities, one dedicated to the commercial vehicles (CV) segment and the other to the passenger vehicles (PV).
This bullish movement in the automaker's stock was fueled by the positive reception of the demerger proposition by various brokerages, each expressing favorable sentiments towards the strategic decision. For instance, brokerage giant Morgan Stanley lauded Tata Motors' commitment to splitting its operations, viewing it as a testament to the enduring viability of the personal vehicle (PV) sector. The firm projected this move to potentially amplify value generation for Tata Motors, setting a target price of Rs 1,013, indicative of its optimistic outlook for the company's future trajectory.
Moreover, Morgan Stanley underscored the potential synergies between Tata Motors' British subsidiaries, Jaguar and Land Rover, and its domestic PV division in the electric vehicle (EV) domain, foreseeing mutually beneficial outcomes for both segments in the wake of this collaboration.
In a similar vein, Nomura reiterated its "buy" recommendation with a target price of Rs 1,057, emphasizing the heightened operational flexibility that individual entities would enjoy in pursuing their distinct strategies in the medium term. The brokerage particularly emphasized the promising prospects of the PV business, noting a notable resurgence post-2020.
However, contrasting viewpoints emerged from other brokerages, with Investec maintaining a "hold" rating on the stock, envisioning minimal impact on valuations post-demerger. According to Investec, the demerger would essentially create a distinct CV play and a global PV play.
Meanwhile, InCred adopted a "reduce" stance, speculating that post-demerger, valuations may favor the PV business, accounting for 62 percent of the total, while attributing the remaining 38 percent to the CV segment. The brokerage anticipated negligible alterations in the business landscape following the demerger.
In terms of the demerger process, Tata Motors outlined that it would be executed through an NCLT (National Company Law Tribunal) scheme of arrangement, assuring that all shareholders of Tata Motors Limited (TML) would retain identical shareholding in both resulting listed entities. However, the company cautioned that securing requisite approvals from shareholders, creditors, and regulatory bodies for the demerger could entail an additional 12-15 months to finalize.
