Tata Motors demerger: CV unit will exit Sensex, Nifty just like Jio Financial
Tata Motors into two separate listed entities — CV and PV — will eventually lead to the exclusion of the smaller stock (commercial vehicles unit) from Sensex and Nifty just like what happened during the demerger of Jio Financial Services from Reliance Industries (RIL).
«Tata Motors is currently a member in all passive indices. However, once the demerger is complete, with the smaller entity (CV business) becoming a standalone entity, it will exit Nifty50 and Sensex. We're looking at a wait of around 15 months or so for this to materialise,» Nuvama's Abhilash Pagaria said.
He said global indices MSCI and FTSE will evaluate the smaller entity's market cap around listing to determine its eligibility.
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«Assuming the CV business gets around 25% of the total market cap, we believe it should maintain its position in the passive indices. The key factors will be the market cap (Total and Free Float) of Tata Motors shares and the global cutoff levels,» Pagaria said.
BNP Paribas has valued the PV business at Rs 583 per share and CV business at Rs 336 per share.
«The board will likely appoint a valuation committee in the coming months to determine the share ratios for the demerged entities. This is a strong vote of confidence by the Tata Motors Board in the turnaround of its PV and JLR business, and its sustainability. We think JLR’s turnaround to become a modern luxury brand offers upside potential to our margin and FCF
