Tata Motors , one of India's leading automotive manufacturers, saw its shares rise by 2.4% to Rs 400.30 following the demerger of its passenger and commercial vehicle businesses. This corporate action marks a significant restructuring for the company, potentially unlocking value for shareholders.

Demerger Details

The demerger, which had a record date of October 14, involves the separation of Tata Motors' passenger and commercial vehicle operations. Shareholders received one share of Tata Motors Commercial Vehicles Ltd (TMLCV) for every share held in Tata Motors Passenger Vehicles Ltd (TMPV). This strategic move aims to create two distinct entities, each focused on its specific market segment.

Share Price Implications

The demerger has led to interesting price dynamics:

The implied value for the commercial vehicle arm (TMLCV) is Rs 260.75 per share, based on the difference between the pre-demerger price and TMPV's opening price.

Market Expectations

Brokerages view the demerger positively for value creation:

• ICICI Securities expects the CV business to trade at 11 times EV/EBITDA
• TMPV's fair value is estimated at Rs 450-500

TMLCV Highlights

TMLCV enters the market as India's largest commercial vehicle maker:

• Market share: 37.1%
• EBITDA margin: 12.2%

The company is pursuing a significant acquisition, aiming to purchase Iveco Group's commercial vehicle operations for €3.8 billion.

TMPV Overview

TMPV's business is heavily reliant on its Jaguar Land Rover subsidiary:

• 87% of revenue derived from Jaguar Land Rover
• Expected growth: 8-10%
• Growth drivers: New model launches and EV/CNG variants

Recent Corporate Action

According to the latest LODR data, TMLCV allotted 3,68,23,31,373 fully paid-equity shares of face value ₹2 each to Tata Motors' equity shareholders in a 1:1 ratio. This allotment marks the formal separation of the commercial vehicle business from Tata Motors.

The pre-Scheme paid-up share capital of TMLCV, consisting of 5,00,000 fully paid-up equity shares of ₹2 each held by Tata Motors, has been cancelled and reduced. As a result, TMLCV has ceased to be a wholly-owned subsidiary of Tata Motors.

TMLCV is expected to take necessary steps to obtain listing and trading permissions for these newly allotted shares on the BSE Limited and National Stock Exchange of India Limited in due course.

This demerger represents a significant milestone for Tata Motors, potentially allowing each entity to focus on its core competencies and create more targeted strategies for growth in their respective markets.

Tata Motors , one of India's leading automotive manufacturers, has undergone a significant corporate restructuring with the demerger of its passenger vehicle (PV) and commercial vehicle (CV) businesses. This move has caught the attention of market analysts, with Nomura maintaining a 'Neutral' rating on the company post-demerger.

Demerger Details

The demerger became effective on October 1, with October 14 set as the record date for shareholder entitlement. This corporate action has led to a notable change in the company's structure:

• The PV business now includes domestic passenger vehicles, Jaguar Land Rover, and stakes in Tata Sons, Tata Steel, and Tata Technologies.
• The CV business comprises domestic operations and the upcoming Iveco Group acquisition, valued at EUR 3.80 billion.

Nomura's Valuation

Nomura's analysis of the demerged entities reveals an interesting perspective:

The near-equal valuation of both segments underscores the balanced strength of Tata Motors' diverse automotive portfolio.

Passenger Vehicle Segment Outlook

Nomura highlighted several positive factors for the PV business:

• Improving momentum following GST cuts
• Strong bookings for Punch and Nexon SUVs
• Encouraging response to the Harrier EV

Management has set an ambitious target of achieving double-digit EBITDA margins in the medium term, up from 3.90% in Q1.

Jaguar Land Rover (JLR) Recovery

JLR, a crucial component of the PV business, is showing signs of recovery:

• Overcoming a September cyberattack
• Ramping up production
• Projected EBIT margins of 6.20% and 7.60% for the next two fiscal years

Commercial Vehicle Segment Projections

For the CV business, Nomura projects:

• 5% industry growth
• Initially, no significant value creation from the Iveco acquisition

Market Impact and Risks

The demerger has had immediate effects on Tata Motors' stock:

• Shares opened 40% lower at Rs 399.00 as trading began ex-demerger
• This drop reflects the notional removal of CV business valuation

Nomura warns of potential technical risks, including reduced index weights that could lead to share price volatility in the near term.

Corporate Name Change

In line with the demerger, the Ministry of Corporate Affairs has issued a Fresh Certificate of Incorporation, changing the company's name from "Tata Motors Limited" to "Tata Motors Passenger Vehicles Limited". This change is effective immediately, with the company's constitutional documents being amended to reflect the new name.

Conclusion

The demerger of Tata Motors marks a significant milestone in the company's corporate journey. While Nomura maintains a neutral stance, the equal valuation of the PV and CV segments suggests a balanced outlook for both businesses. Investors and market watchers will be keenly observing how this restructuring impacts Tata Motors' performance and market position in the coming years.