Tata Motors, on Monday (March 4), announced its intention to demerge into two separate listed entities. According to the company, this strategic move is expected to refine its focus on the burgeoning passenger and electric vehicle segments.
Market expert Prakash Diwan praised the move, stating, “This is absolutely a very, very smart thing to look at doing and very timely. And I will tell you why I say that, first and foremost, apart from the fact that both these businesses need a very different mindset, this kind of separation, gets them to make a two plus two is five kind of a growth, the agility that it gives and all that.”
Deven Choksey, from DrChoksey Finserv, commenting on the demerger, said, “In the PV portfolio you have domestic PV which is ICE portfolio and then you have electric vehicle (EV) portfolio. We will also have the JLR portfolio. So these three portfolios remain unique portfolios for global footprint and more specifically India footprint."
"Individually, these companies make more sense when they have to focus on expanding the footprint across. So cross-leveraging of the platform etc will happen sooner and at the same time having some kind of growth proposition/partnership tie-up in passenger vehicle could possibly become a reality if the portfolio is separated out of commercial vehicles,” Choksey added.
Diwan further explained the potential benefits of the demerger, particularly for the passenger vehicle segment. He said, “…the PV segment business will get a far higher multiple, and there will be a lot of value creation from that perspective.”
With the company promising to become net debt-free by March, and the demerger process estimated to take 12-15 months, Diwan suggested that the stock could run up another 25% after clarity on deleveraging. This indicates a positive outlook for Tata Motors in the near future.
He concluded that the demerger could lead to the balance sheet becoming net debt-free, which the company has promised by March, and that it could result in a lot of value creation, particularly for the passenger vehicle segment.
Tata Motors Chairman N. Chandrasekaran, has expressed optimism about the demerger. He stated that this strategic move would enhance value for shareholders and provide better growth prospects for employees. He also assured stakeholders that the demerger would not have any adverse impact on employees, customers, and business partners.
Abhishek Gaoshinde of Sharekhan By BNP Paribas, added, “In terms of SOTP (sum of the parts) valuations or value unlocking kind of thing, that would not be so significant but it will (give) individual investors an opportunity to play with individual companies as per the choice of their portfolio."
"We are not expecting a significant fundamental unlocking just on the basis of this process. But yes, we are positive on Tata Motors and considering that all of its business are doing well currently and have a proper and independent capital allocation along with the business plan, we are positive on its business — CV, PV and this JLR business,” Gaoshinde added.
In the fiscal year 2023, Tata Motors reported impressive sales figures. The company sold 4,22,637 commercial vehicles, 5,40,965 passenger vehicles, 50,043 electric vehicles, and 3,72,217 Jaguar Land Rover units.
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