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regular-article-logo Friday, 24 May 2024

Tata Motors shares cross Rs 1000 as investors react positively to demerger decision

Brokerages were divided on what the demerger would bring to investors. While few analysts said there would be limited impact as the businesses are already managed independently, others such as Morgan Stanley felt the spinoff could lead to a better value discovery

Our Special Correspondent Mumbai Published 06.03.24, 10:22 AM
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The share price of Tata Motors crossed Rs 1,000 for the first time on Monday as the street reacted positively to its decision to demerge its passenger vehicle and commercial vehicle businesses into two listed entities.

However, the proposed spinoff has raised questions about any further upside for the stock, which has catapulted more than 200 per cent in the last 36 months.

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The Tata Motors stock finished with gains of 3.52 per cent at Rs 1,021.95 on the BSE after rallying almost 8 per cent to hit a 52-week high of Rs 1,065.60.

Brokerages were divided on what the demerger would bring to investors. While few analysts said there would be limited impact as the businesses are already managed independently, others such as Morgan Stanley felt the spinoff could lead to a better value discovery.

The target price (TP) of the Tata Motors stock given by most brokerages is now in the range of Rs 950-1050, which suggests little room for upside.

Market circles are not ruling out a correction in the short term, given the stellar rally of its shares in recent months.

According to Emkay Research, the development shows the management’s confidence in the operations of two businesses — commercial vehicles and passenger vehicles — operating independently with greater agility and self-sustaining cash flows.

“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,’’ the brokerage said.

While it upgraded the target price on the stock to Rs 950 from Rs 925 earlier, it downgraded holdings to reduce given the recent market run-up and limited upside.

“While we do not envisage major changes in the fundamentals due to this demerger (as the two businesses were operating largely independently with separate reporting and their respective CEOs), we revise our sum-of-the-parts based target price upward to Rs 950 versus Rs 925 earlier to factor in 10 per cent higher multiple for the CV business,’’ its analysts added.

The brokerage has put the equity value of its India CV business at Rs 233 per share, the PV (ICE business) at Rs 256 per share, the PV (EV business) at Rs 84 per share and JLR at Rs 296 per share.

The rest includes the JLR JV in China, Tata Motors’s holding in Tata Sons, Tata Motors Finance and Tata Technologies.

Brokerage Motilal Oswal also downgraded the stock to neutral from buy with an unchanged TP of Rs 1,000 per share. At the same time, Nuvama Institutional Equities said the demerger announcement was a “non-event”.

The analysts at Motilal Oswal have forecast a 7 per cent volume growth for JLR in 2024-25 and the following year after 25 per cent volume growth in 2023-24 compared with the weakness in global PV demand in key developed markets in 2024.

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