Tata Motors share price target, Which business may provide more value, PV or CV?

The demerger of Tata Motors Ltd. (TTMT) into the commercial vehicle (CV) and passenger vehicle (PV) divisions may not immediately alter the Street's valuation methodology, according to Nomura India on Tuesday. This is because, according to the report, India's CVs, JLRs, and PVs are well-managed and have appropriate disclosures.

But in the long run, Nomura thinks the companies ought to have more flexibility to follow their individual plans.

We think that Tata Motors' PV business, in particular, has greater potential to generate value in the next few years. Following 2020, the company's PV division saw a stunning comeback, with market share rising from the mid-single digits to 13.5% as of 9MFY24. We believe that this has been fueled by its emphasis on safety, stylish designs, and feature-rich automobiles. According to Nomura India, "We had previously anticipated that TTMT might have two models among the top 3 SUVs in India."

According to the international brokerage, Tata Motors may want to rank second in India's PV market by FY25–26F. Although Hyundai does have far larger margins, it was mentioned that Hyundai Motor India was looking into a possible IPO in India at a valuation of $22-28 billion. For the time being, Nomura India maintained its target price of Rs 1,057 for Tata Motors.

With a market share of more than 70% and plans to offer ten EV models by FY26, Tata Motors is leading the charge in driving the adoption of EVs in India. By 2030, it also hopes to have 50% of its volumes come from EVs. The company may create significant value if TTMT's approach is effective, according to Nomura India.

Although the EBITDA margins for Tata Motors' PV business are just 6.5%, in Q3 FY24, the ICE margins had already increased to 9.4%. The overall margin has decreased as a result of the negative EV margins (negative 8.2% in Q3).

We anticipate that EV margins will rise over time because product development expenses account for the majority of losses. Future re-ratings for the CV company may come from its increasing market share and profitability. Success in e-buses and e-LCVs may provide benefits that we are presently unable to quantify, according to Nomura India.

The NCLT scheme of organization would be used to carry out the demerger, and all current Tata Motors shareholders would have the same number of shares in each of the two listed companies.

After the subsidization of the PV and EV industries earlier in 2022, the demerger can be seen as the next natural step.

The management anticipates a convergence of synergies between PV, EVs, and JLR, especially in the domains of EVs, driverless cars, and vehicle software. It said that the approved demerger would improve employee growth opportunities, improve customer experience, and increase shareholder value, among other things.

The official business filing states that in the upcoming months, the TTMT Board of Directors will consider and approve the NCLT scheme of arrangement for the demerger, subject to receiving all required approvals from creditors, shareholders, and regulatory bodies. It should take between 12 and 15 months to finish.

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