Tata Motors Demerger: Shares Soar on Split Plans | Expert Analysis

Amidst the hustle and bustle of the stock market, Tata Motors has made headlines with its recent demerger plans, sending its shares soaring to new heights. Here’s a comprehensive overview of what’s been happening and what experts have to say about it.

Tata Motors Shares Hit a Milestone

In an exciting turn of events, Tata Motors witnessed its shares reaching a 52-week high and crossing the coveted Rs 1,000 mark in early trading sessions. This surge in share prices came on the heels of the company’s announcement regarding its proposal to split its business into two distinct listed entities: one catering to the commercial vehicles (CV) segment and the other focusing on passenger vehicles (PV).

Brokerages Weigh In

Following the announcement, several brokerage firms shared their insights on Tata Motors’ demerger proposal. Morgan Stanley, for instance, expressed optimism about the move, citing it as a testament to Tata Motors’ confidence in the sustainability of the PV segment. The firm set a target price of Rs 1,013, underscoring its positive outlook on the company’s future prospects.

Similarly, Nomura maintained a “buy” recommendation, highlighting the potential for increased flexibility in pursuing individual strategies for each business segment. According to Nomura, the PV business, in particular, is poised for significant value creation in the coming years.

However, not all brokerages echoed the same sentiment. Investec, for instance, maintained a “hold” rating, anticipating minimal impact on valuations post-demerger. On a similar note, InCred issued a “reduce” recommendation, suggesting that valuations may tilt in favor of the PV business post-demerger.

Demerger Details

The proposed demerger, slated to be executed through an NCLT scheme of arrangement, aims to create two separate listed entities, each housing distinct business segments. Shareholders of Tata Motors Limited (TML) will maintain identical shareholding in both resulting entities post-demerger. However, obtaining necessary approvals from shareholders, creditors, and regulatory authorities could prolong the process by an additional 12-15 months.

Expert Analysis

Experts opined that Tata Motors’ demerger simplifies its corporate structure but may not necessarily lead to material value unlocking. UBS, for instance, holds a ‘Sell’ rating on Tata Motors, citing no significant unlocking of value. On the other hand, Morgan Stanley believes that the demerger reflects Tata Motors’ confidence in the PV segment’s self-sustainability and could pave the way for enhanced value creation.

Market Response

Tata Motors’ share price has witnessed a remarkable rally in recent times, propelled by improved financials and robust demand. Despite the demerger announcement, Motilal Oswal Financial Services downgraded Tata Motors shares to ‘Neutral,’ citing limited upside potential following the recent surge in stock prices.

In conclusion, Tata Motors’ demerger plans have stirred up the market, eliciting a mix of optimism and caution from experts. While some foresee potential value creation, others remain cautious about its immediate impact on valuations. As the company navigates through this transition, investors eagerly await further developments in this unfolding saga.