Tata Motors Demerger: What Could Be The Indicative Share Price After Oct. 15?
Tata Motors Demerger: The record date for the commercial vehicles business demerger is Tuesday, Oct. 14. Those who will be in the registrar will be eligible for shares of demerged entity.
Tata Motors shares are in focus today given that Oct. 13 is the last day for Tata Motors to trade as a consolidated entity. The record date for the commercial vehicles business demerger has been fixed as Tuesday, Oct. 14.
The shareholders in the registrar will be eligible for shares of demerged entity as well. However, the key question among shareholders is what could be the reduction in share price starting the next day?
A day after the record date, Tata Motors will ex-trade its Commercial Vehicles business from Oct. 15. Let's break down the significance of the Commercial Vehicle entity and the indicative share price post demerger.
CV Business: The Key Differentiator
Post demerger, the existing listed entity will be named Tata Motors Passenger Vehicles Ltd. This will house the Passenger Cars and JLR Business. Following this demerger, the CV entity will be renamed Tata Motors Ltd.
Shareholders are entitled to receive one share of the demerged entity for every one share they own as on the record date and CV business likely to be listed in Nov. The CV business could be a key differentiator because it contributes to almost 1/4th of profits of consolidated entity, while having just 17% revenue share.
Valuations for both commercial vehicles and passenger vehicle verticals trade at similar levels. Most brokerages value CV and PV Business at 10-13x EV/EBITDA, while JLR Business at 1.7-2x EV/ EBITDA, much lower than historical averages. Jaguar Land Rover business has seen heightened uncertainty led by cyberattacks, tariffs etc.
Scenario Analysis: What do EV/EBITDA multiples indicate?
Based on current multiples and historical averages, the CV business could be demerged around Rs. 312 per share. This is based on the vertical’s FY25 EBITDA of Rs. 8,841 crore and assumption of 13x EV/ EBITDA multiple. This value per share could be reduced from Oct. 15 since the CV business will be demerged.
Regarding the Passenger Vehicle business, the price per share could be around Rs. 109 per share at multiples of 12x EV/ EBITDA on FY25 numbers. The JLR Business, which will be housed together in Tata Motors Passenger Vehicles Ltd, at 2x EV/ EBITDA multiple will be priced at Rs. 244 per share.
Together the price of current listed entity which will be renamed Tata Motors Passenger Vehicles Ltd, could be around Rs. 356 versus the current market price of Rs. 670.
