By Aviion Business
Tata Motors explores the demerger of commercial vehicle (CV) and passenger vehicle (PV) businesses, prompting discussions on which may create more value.
Nomura suggests that the demerger may not immediately impact the valuation approach, but in the medium term, both businesses can pursue strategies with greater freedom.
Tata Motors PV Business Potential" Description: Nomura highlights the potential of Tata Motors' PV business to create value, citing a remarkable turnaround and an aim to become the second-largest PV player in India by FY25-26.
Tata Motors PV business has witnessed a turnaround since 2020, with market share increasing from mid-single digits to 13.5% as of 9MFY24, driven by a focus on safety, design, and feature-rich vehicles.
Tata Motors leads EV penetration in India with plans to have 10 EV models in its portfolio by FY26 and aims for 50% of its volumes from EVs by 2030, contributing to substantial value creation.
While PV business EBITDA margins are at 6.5%, ICE margins have improved to 9.4% in Q3FY24. The negative EV margins are expected to improve over time.
Nomura suggests potential re-rating in the CV business with improving market share and profitability. Future upside may come from success in e-Buses and e-LCVs, currently not assigned any value.
The demerger of Tata Motors will be implemented through the NCLT scheme, with identical shareholding for existing shareholders in both listed entities. Expected benefits include synergies in EVs, autonomous vehicles, and vehicle software.
The management expects multiple benefits from the demerger, including superior customer experience, better growth prospects for employees, and enhanced value for shareholders. The process is expected to take 12-15 months.
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