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ICICI Securities Report
Tata Motors Ltd. approved proposal of demerger of existing listed entity into two listed entities, one with-respect-to commercial vehicles plus related investments and the other including Jaguar Land Rover, India passenger vehicles/electric vehicles.
With identical shareholding post demerger, we believe this development would help investors manage their holdings in the CV business, as per their assessment of CV cycle's trends.
This demerger, in our view, would bring to the fore the synergistic benefits within the PV domain more efficiently and help Tata Motors unlock further value in domestic PVs versus valuing India CV+PVs at 10-12 times enterprise value/Ebitda – India PVs shall be valued at 15 times EV/Ebitda, 10% discount to Maruti Suzuki India Ltd., pushing up overall valuation by ~6%.
We downgrade Tata Motors to 'Reduce' from Hold, post its ~40% rally in past three months, with an SoTP-based target price of Rs 901 (implying ~13 times/2.5 times FY26E India/JLR EV/Ebitda).
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