Tata Motors shares rally 5% to fresh high on value discovery hopes after demerger

economictimes.indiatimes.com:

Tata Motors on Tuesday rallied 4.5% as investors pinned hopes on better value discovery from the proposed demerger of its passenger vehicle and commercial vehicle businesses. Both Morgan Stanley and JP Morgan gave overweight ratings on the Tata stock which hit a fresh 52-week high of Rs 1,031.70.

The stock is, however, already trading above the target prices of both the global brokerages (Morgan Stanley's Rs 1,013 and JP Morgan's Rs 1,000).

While JP Morgan said the demerger might lead to better value discovery, Morgan Stanley said the move reflects confidence in PV business being self-sustaining and could help in better value discovery.

The demerger could take another 12-15 months to complete after which all shareholders of the company shall continue to have identical shareholding in both the listed entities.

«We believe this development signifies management’s confidence that the two businesses (CVs and PVs) will continue to operate independently with greater agility and self-sustaining cash flows (particularly the PV business). Historically, while the CV business has been generating healthy cash flows, the PV business has witnessed challenges in consistent cash flow generation due to its high spending on product development and the re-building phase in its market positioning,» Emkay Global's Chirag Jain said.

The brokerage has increased its target price to Rs 950 downgrade to reduce its rating after the recent run-up.