Tata Motors Shares Surge Over 4.5% on Demerger Announcement

In today's early trade, Tata Motors the global automobile manufacturer witnessed a surge in its shares by 4.52% reaching ₹1031.90 per share surpassing the milestone of ₹1000. This boost in share value comes in response to the company's strategic decision to demerge its commercial and passenger vehicle segments into two distinct listed entities.

Tata Motors Demerger Proposal

On Monday Tata Motors approved a demerger proposal dividing the company into two separate entities. First entity will focus on the Commercial Vehicles business and related investments while the second entity will encompass the Passenger Vehicles segment including PV, EV, JLR and their associated investments.

Over the past few years Tata Motors' Commercial Vehicles, Passenger Vehicles and Jaguar Land Rover businesses have demonstrated robust performance each operating independently under their respective CEOs since 2021. This strategic move aims to enhance the company's ability to capitalize on growth opportunities effectively.

This demerger will happen through a legal process overseen by the NCLT ensuring that all Tata Motors shareholders will have the same ownership in both newly listed companies resulting from the demerger. However necessary approvals from shareholders, creditors and regulatory bodies are anticipated to take 12 to 15 months to complete.

Leadership Perspective

Tata Sons Chairman N Chandrasekaran expressed confidence in the demerger highlighting its potential to enhance focus and agility within each business unit. Tata Motors reassured that the demerger won't negatively affect employees, customers or business partners.

According to UBS Tata Motors demerger simplifies its structure but doesn't unlock value. They have a Sell rating on the stock with a target price of ₹600 per share.

Morgan Stanley views the demerger as a sign of confidence in Tata Motors PV segment potentially leading to better value creation. They have a target price of ₹1,013 on the stock.

Nuvama Institutional Equities considers the demerger a non event initially expecting a wait of around 15 months for materialization. They anticipate that post demerger the smaller entity will become a standalone prompting Tata Motors's exit from Nifty 50 and Sensex similar to Jio recent demerger from Reliance Industries.

To Summarize

Tata Motors' decision to demerge its business segments aims to streamline operations and foster growth opportunities reflecting its commitment to enhancing shareholder value and market competitiveness. Investors are optimistic about the potential benefits of this strategic move as evidenced by the uptick in Tata Motors's share value.