Tag: valuation

Evaluating the Tata Motors Demerger

Recently, Tata Motors announced its demerger into commercial and passenger vehicle businesses, a move that has garnered attention from investors and industry experts alike. While this strategic decision seems to be a step in the right direction, it is important to assess the potential impact on the company’s valuation and future prospects.

According to Motilal Oswal, a leading brokerage firm, the demerger does not warrant a revision of their target price for Tata Motors, as their valuation is already based on a sum-of-the-parts (SoTP) approach. Despite factoring in most of the positive triggers, the brokerage sees limited upside potential for the stock, considering the recent sharp run-up in its price. As a result, Motilal Oswal has downgraded Tata Motors from a ‘Buy’ to a ‘Neutral’ rating, while maintaining an unchanged target price of Rs 1,000 per share.

Highlighting the stock’s strong performance across key business segments, Motilal Oswal notes that Tata Motors has significantly outperformed key indices, delivering a remarkable 204 percent return in the last 36 months compared to a 50 percent return in the Nifty. The brokerage also emphasizes that most of the positive triggers have already been factored into their estimates. Given the limited upside potential after the recent surge in the stock’s price, the downgrade to ‘Neutral’ seems justified.  Check Here More

On the other hand, Nomura India maintains an unchanged price target of Rs 1,057 for Tata Motors. While sharing a similar perspective on the limited upside potential, Nomura believes that the passenger vehicle (PV) business of Tata Motors has the potential to create better value in the coming years. Nomura suggests that the commercial vehicle (CV) business could witness further re-rating due to improving market share and profitability. Additionally, the success of e-Buses and e-LCVs could provide potential upside, which is currently not reflected in their valuation.

From a competition standpoint, Ashwin Patil, Senior Research Analyst at LKP Securities, highlights that the PV business of Tata Motors can now directly compete with the market leader Maruti Suzuki India. With the global ammunition in the form of Jaguar Land Rover (JLR), Tata Motors can bridge the gap on the valuation front. Furthermore, the upcoming listing of Hyundai adds an interesting dynamic to the market, potentially influencing the competitive landscape.

As the demerger unfolds and Tata Motors navigates through this transition, it will be crucial to monitor how the market reacts and reassess the company’s future prospects. While the recent run-up in the stock price may have limited the immediate upside potential, the long-term outlook for Tata Motors remains promising, especially considering the growth opportunities in the PV and CV segments.

In conclusion, the demerger of Tata Motors into commercial and passenger vehicle businesses has generated mixed opinions from brokerage firms. While Motilal Oswal downgrades the stock to ‘Neutral’ due to limited upside potential, Nomura India maintains an unchanged price target and highlights the PV business as a potential driver of value. The competition landscape is also expected to evolve, with Tata Motors directly competing with Maruti Suzuki India and the upcoming listing of Hyundai. As investors and industry observers, it is essential to closely monitor the developments and reassess the investment thesis for Tata Motors. click here