Nomura India stated on Tuesday that the separation of Tata Motors Ltd (TTMT) into commercial vehicle (CV) and passenger vehicle (PV) divisions is not likely to immediately alter the valuation approach of investors. This is attributed to the well-managed operations and transparency in India CVs, JLR, and PVs.
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Nomura expects that in the future each department will have the freedom to pursue its strategies independently. Looking closely at Tata Motors PV segment Nomura sees potential, for value growth in the years. The PV business has seen changes since 2020 with its market share rising from single digits to 13.5% as of 9MFY24. This improvement is attributed to its focus on safety, attractive design, and feature-rich vehicles. Nomura previously predicted that Tata Motors would have two models among the three SUVs in India.
Moreover, Nomura mentioned Tata Motors’ goal of becoming the player in India’s PV market by FY25 26F. While Hyundai Motor India is considering an IPO in India valued between $22 and $28 billion and enjoys margins Nomura maintained a target price of ₹1,057 for Tata Motors.
Nomura also highlighted Tata Motors’ significant role in advancing EV adoption in India with over 70% market share. Tata Motors plans to introduce 10 EV models by FY26 and aims for half of its sales to come from EVs by 2030. Achieving these goals could greatly boost the company’s value.
Tata Motors’ profit margins, for its passenger vehicle segment, are currently at 6.5% while the margins for internal combustion engine vehicles have risen to 9.4% in the quarter of the year 2024. The negative profit margins for vehicles, which were at 8.2% in Q3 have had an impact on the overall profitability.
Nomura expects that the profitability of vehicles will improve over time mostly due to expenses related to product development causing losses. Moreover, it foresees an increase in the valuation of the commercial vehicle business due to enhancements, in market share and profitability. Nomura also suggests potential upside from success in e-buses and e-LCVs.
The demerger will be executed through the NCLT scheme of arrangement, ensuring identical shareholding for all existing Tata Motors shareholders in both listed entities. Expected to take 12-15 months, the demerger follows the earlier subsidiarization of PV and EV businesses in 2022. Management foresees synergies across PV, EV, and JLR, especially in EVs, autonomous vehicles, and vehicle software, promising enhanced value for stakeholders. The demerger plan will be presented to the TTMT Board of Directors for approval and will be subject to various shareholder, creditor, and regulatory approvals.
