Tata Motors's shares touch record high: What's fueling the rally
A day after Tata Motors revealed plans to split its commercial vehicle (CV) and passenger vehicle (PV) divisions into two separate entities, its shares have surged by over 7% to hit an all time high of Rs. 1,065.60 in today's session. The decision to demerge the two businesses has been welcomed by both investors and brokerages, with JP Morgan giving the stock an 'overweight' rating.
Demerger reflects confidence in PV segment
Morgan Stanley believes that the demerger demonstrates Tata Motors's faith in the PV segment's ability to be self-sustaining and could result in greater value creation. Additionally, Morgan Stanley pointed out that Tata Motors's British subsidiary Jaguar Land Rover, as well as its domestic PV business, will benefit from synergies in the electric vehicle (EV) sector. At the time of writing, the shares of Tata Motors were trading at Rs. 1,033,65, up by 4.7% since yesterday's close.
Nomura expects value creation and greater freedom
Nomura has issued a 'buy' call with a target price of Rs. 1,057. The brokerage is confident that the PV business will have more room for growth in the coming years, especially after its impressive turnaround after 2020. An unnamed research analyst stated, "Investors who are willing to give higher valuations to the EV space would be more enticed than they initially would have been." Tata Motors currently has a share of over 70% in India's EV market.
Demerger process and mixed reactions from brokerages
The demerger will be executed through an NCLT (National Company Law Tribunal) scheme of arrangement, but obtaining necessary approvals from shareholders, creditors, and regulatory authorities could take an additional 12-15 months. While some brokerages are optimistic about the demerger, Investec has a 'hold' call and InCred has a 'reduce' call, anticipating no significant changes in the business.