Tata Motors Demerger: A New Era for Investors
Tata Motors shares are in focus today, given that October 13 is the last day for the company to trade as a consolidated entity. The record date for the commercial vehicles business demerger has been fixed as Tuesday, October 14. Those who will be in the registrar will be eligible for shares of the demerged entity as well.
Understanding the Demerger
The demerger of the commercial vehicles business is a significant development for Tata Motors, and it is essential to understand the implications for investors. Post-demerger, the existing listed entity will be named Tata Motors Passenger Vehicles Ltd, which will house the Passenger Cars and JLR Business. Following this demerger, the CV entity will be renamed Tata Motors Ltd.
Shareholders are entitled to receive one share of the demerged entity for every one share they own as on the record date. The CV business is likely to be listed in November and could be a key differentiator because it contributes to almost 1/4th of the profits of the consolidated entity, while having just 17% revenue share.
Valuations and Indicative Share Price
Valuations for both commercial vehicles and passenger vehicle verticals trade at similar levels. Most brokerages value CV and PV Business at 10-13x EV/EBITDA, while JLR Business at 1.7-2x EV/ EBITDA, much lower than historical averages. Jaguar Land Rover business has seen heightened uncertainty led by cyberattacks, tariffs, etc.
Based on current multiples and historical averages, the CV business could be demerged around Rs. 312 per share. This is based on the vertical’s FY25 EBITDA of Rs. 8,841 crore and assumption of 13x EV/ EBITDA multiple. This value per share could be reduced from October 15 since the CV business will be demerged.
Regarding the Passenger Vehicle business, the price per share could be around Rs. 109 per share at multiples of 12x EV/ EBITDA on FY25 numbers. The JLR Business, which will be housed together in Tata Motors Passenger Vehicles Ltd, at 2x EV/ EBITDA multiple will be priced at Rs. 244 per share.
Together, the price of the current listed entity, which will be renamed Tata Motors Passenger Vehicles Ltd, could be around Rs. 356 versus the current market price of Rs. 670. To know more about Tata Motors Demerger, click here.
Investor Strategy and Next Steps
Investors need to be aware of the changes and the potential impact on their investments. The demerger of the commercial vehicles business is a significant development, and investors should consider their investment strategy in light of this change.
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Conclusion
In conclusion, the demerger of the commercial vehicles business is a significant development for Tata Motors and its investors. Understanding the implications and the indicative share price post-demerger is crucial for investors to make informed decisions. For the latest updates on Nifty trends and Sensex news, click here.
