Tata Motors demerger: Will shareholders witness value unlocking? Analysts assess impact

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Tata Motors, at its meeting on March 4, approved the proposal of demerger of the company into two separate listed companies, which will house the Commercial Vehicles business and its related investments in one entity and the Passenger Vehicles businesses including PV, EV, JLR and its related investments in another entity. Read here: Tata Motors business divisions come to a fork in the road “The demerger will be implemented through an NCLT scheme of arrangement and all shareholders of Tata Motors shall continue to have identical shareholding in both the listed entities," the auto major said in a release. According to UBS, Tata Motors’ demerger simplifies the structure, but it does not see any unlocking of material value.

The brokerage house has a ‘Sell’ rating on Tata Motors and a target price of ₹600 per share. Morgan Stanley said the demerger reflects the company’s confidence in the PV segment being self-sustaining and could lead to better value-creation for Tata Motors. The brokerage has a target price of ₹1,013 on the stock.

Nuvama Institutional Equities believes the demerger to be a non-event on an immediate basis. “Initially, it's a non-event. We're looking at a wait of around 15 months or so for this to materialize," said Nuvama Institutional Equities.

Tata Motors is currently a member of all passive indices. However, the brokerage firm believes once the demerger is complete, with the smaller entity (CV business) becoming a standalone entity, it will exit Nifty 50 and Sensex. “Think of it like JIO's recent demerger from Reliance Industries, where JIO got listed separately and eventually (in the next few days) got excluded from the domestic indices," Nuvama Equities said.