Shares of Tata Motors gained 4 percent to hit a 52-week high of Rs 1,027 on March 5, a day after the company announced the decision to split its passenger and commercial vehicle businesses, a move cheered by brokerages and investors alike.
Brokerage JP Morgan assigned an “overweight” rating to the stock and a price target of Rs 1,000, implying an upside of 1.2 percent from the previous close of Rs 988.
Morgan Stanley said the decision to demerge the business into two listed entities reflects the company’s confidence in the personal vehicle (PV) segment being self-sustaining and could lead to better value-creation for Tata Motors. The brokerage has assigned a target price of Rs 1,013.
On the electric vehicle (EV) front, Morgan Stanley said the company’s British arm Jaguar and Land Rover, and the domestic PV business will also have synergies.
Nomura has a “buy” call and a target price of Rs 1,057, which is a 7 percent upside from the current market price, It said in the medium term, the businesses should be able to pursue their respective strategies with greater freedom.
“In particular, we believe the PV business has more potential to create value over the next few years and it has seen a remarkable turnaround after 2020,” the brokerage said.
“The demerger looks like a good thing for the stock and we could see a positive reaction in the coming weeks which can attract investments as well. Investors who are willing to give higher valuations to the EV space would be more enticed than they initially would have been,” a research analyst said on the condition of anonymity.
Some brokerages, however, are as upbeat. Investec has a “hold” call on the counter and doesn’t expect a significant impact on valuations. The demerger “creates a pure CV play and a global PV play”.
InCred has a “reduce” call and said after the demerger, valuations may favour the PV business at 62 percent of the total, while the remaining 38 percent will be with the CV segment. “We expect no major changes in the business”, the brokerage said in a note.
The proposed demerger will be carried out through an NCLT (National Company Law Tribunal) scheme of arrangement. After the demerger, all shareholders of TML (Tata Motors Limited) will continue to hold identical shareholding in both resulting listed entities. However, the company noted that obtaining necessary approvals from shareholders, creditors, and regulatory authorities for the demerger might take an additional 12-15 months to complete.
At 9.37 am, the stock was trading at Rs 1,030.55 on the National Stock Exchange, up 4.39 percent from the previous close.
The article originally appeared on Moneycontrol.
