Tata Motors’s split could shift its passenger-vehicles business into top gear
₹8,600 crore versus ₹4,374 crore for Ashok Leyland. The sheer size of TaMo deserves a valuation premium. Assuming a 10% premium to Ashok Leyland, the FY24 EV/Ebitda multiple of TaMo’s CV business works out to about 12 times, valuing the segment at ₹103,200 crore.
Since it is likely to be nearly debt-free, the EV will be equal to the market capitalisation. Deducting this from TaMo’s current market capitalisation of almost ₹376,000 crore shows us that the market is currently valuing that PV business, including JLR, at ₹272,800 crore. Motilal Oswal estimates TaMo’s net debt at the end of the year at Rs20,800 crore.
Assuming this pertains to the PV business, the segment’s EV would work out to ₹293,600 crore. Based on Motilal Oswal’s assumptions, the FY24 estimated Ebitda for the PV business (including JLR’s Ebitda of £4,658 million at the exchange rate of ₹105 per pound) works out to ₹52,409 crore. This shows that the market is valuing the PV business at EV/Ebitda of about almost 5 times.
In comparison, Maruti’s EV/Ebitda is about 17 times. Sure, this gap is rather wide. However, a strict comparison with Maruti isn’t appropriate as luxury car companies such as BMW and Mercedes command a lower valuation, which means JLR may be valued accordingly.
The demerger is likely to take 12-15 months. In the interim, TaMo’s investors will stay focused on domestic and JLR sales volumes. In FY25, JLR’s volume growth is expected to taper after it put up a strong show this year.
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