Updated March 5th, 2024 at 11:14 IST

Tata Motors shares soar above Rs 1,000 for first time on plan to split into two listed firms

The demerger aims to enhance focus, agility, and accountability within each business unit, enabling them to pursue growth opportunities more effectively.

Reported by: Tanmay Tiwary
Tata Motors | Image:Tata Group JLR
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Tata Motors zooms: Shares of Tata Motors climbed as much as 4.50 per cent to surpass the Rs 1,000 milestone for the first time. The shares hit an intraday high of 1,033.80 per share during early trade.

The rise comes in response to the automaker's announcement of its decision to split into two listed companies, separating its commercial vehicle business from its passenger vehicle arm.

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In an official exchange filing, Tata Motors outlined its proposal for the demerger, stating that the Board of Directors had approved the plan. The demerger will involve creating two distinct listed entities: one housing the Commercial Vehicles business and related investments, and the other encompassing the Passenger Vehicles businesses, including passenger vehicles (PV), electric vehicles (EV), Jaguar Land Rover (JLR), and their associated investments.

Ashwin Patil, Senior Research Analyst at LKP securities said, “The announcement of demerger between the two businesses of Tata Motors into CVs and PVs shall split the business value into half and should enable focussed approach and flexibility. Also the synergies are lacking in both the businesses, which explains the move. Their volume performances, margins, drivers, and competitors are totally diverse. Therefore it is a smart move from the company, which was always on the anvil for a while now."

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The demerger, to be implemented through an NCLT scheme of arrangement, ensures that all Tata Motors shareholders maintain identical shareholdings in both listed entities.

Why such a move?

The move stems from Tata Motors' strategy to capitalise on the individual strengths of its Commercial Vehicles, Passenger Vehicles, and Jaguar Land Rover businesses. 

Over recent years, these segments have operated autonomously under separate CEOs, demonstrating strong performance through distinct strategies. 

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Patil further said that from a competition point of view, the PV business can now directly compete with the market leader Maruti, with the global ammunition in the form of JLR and bridge the gap on valuation front. With Hyundai's listing on the cards and M&M as the fourth rival, the tussle in the PV space will be interesting to watch and can give an investor a fair choice to select between four of them. On the CV front, Tata Motors will compete straightaway with the pure play domestic player Ashok Leyland. 

The demerger aims to enhance focus, agility, and accountability within each business unit, enabling them to pursue growth opportunities more effectively, the company said. 

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“Tata Motors has scripted a strong turnaround in the last few years. The three automotive business units are now operating independently and delivering consistent performance. This demerger will help them better capitalise on the opportunities provided by the market by enhancing their focus and agility. This will lead to a superior experience for our customers, better growth prospects for our employees and, enhanced value for our shareholders,” said Chairman N Chandrasekaran.

“The NCLT scheme of arrangement for the demerger shall be placed before the company’s Board of Directors for approval in the coming months and will be subject to all necessary shareholder, creditor and regulatory approvals which could take a further 12-15 months to complete,” the company added.

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Notably, the shares have climbed over 33 per cent year-to-date (YTD). As of 9:28 am, shares of Tata Motors were trading 4.44 per cent higher at Rs 1,031 per share.

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Published March 5th, 2024 at 09:31 IST