Tata Motors Demerger: CV business to exit Nifty, Sensex, says Nuvama
Since Tata Motors is currently a member in all passive indices, once the demerger is complete and the smaller entity (CV business) becoming a standalone entity, it (CV entity) will exit the Nifty 50 and Sensex, Nuvama said in its research note.
Auto major Tata Motors' decision to demerge its businesses into two separate listed entities, namely the commercial vehicles (CV) and passenger vehicles (PV) businesses, is a "non-event" on an immediate basis as the entire process is estimated to get completed over the next 12 to 15 months, said Abhilash Pagaria, head - alternative & quantitative research, Nuvama Institutional Equities.
Since Tata Motors is currently a member in all passive indices, once the demerger is complete and the smaller entity (CV business) becoming a standalone entity, it (CV entity) will exit the Nifty 50 and Sensex, Nuvama said.
Citing an example of Jio Financial Services Ltd's recent demerger from Reliance Industries Ltd (RIL), it said Jio Financial got listed separately and eventually in the next few days got excluded from the domestic indices.
Impact on MSCI, FTSE flows
According to Nuvama, the global indices, including MSCI and FTSE, will evaluate the smaller entity's market capitalisation around listing to determine its eligibility. "Assuming the CV business gets around 25% of the total market cap, we believe it should maintain its position in the passive indices," it said.
The key factors will be the market cap (total and free float) of Tata Motors shares and the global cutoff levels," it noted.
Besides, the broking firm also cited DVR merger process with ordinary shares, which got announced in July last year and said the merger process of DVR (Differential Voting Rights) with Tata Motors (Ordinary shares) will coincide with the demerger process. Nuvama expects the process to be completed within six to eight months from now.
On Monday, the board of Tata Motors approved demerging the operations of the company's business into two separate entities. All shareholders of Tata Motors would continue to hold the same identical shareholding in both the listed entities.
Post demerger, one entity would house the CV business and its related investments while the other would house the PV business including PV, electric vehicles, Jaguar and Land Rover and related investments.
Tata Motors said the demerger would be implemented through an NCLT scheme of arrangement. The NCLT scheme would need a nod from the Tata Motors board, shareholders, creditors and regulators, all of which could be completed in 12 to 15 months.
Shares of Tata Motors closed 0.056% higher at ₹988.90 on NSE on Monday. The scrip has risen 25% so far this year and rallied 125% in the last one year.
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