Tata Motors Completes Historic Split Into Two Independent Companies
Tata Motors finished its demerger exercise on October 14, formally splitting India’s biggest auto maker into two separately listed companies. The passenger vehicle business started trading at Rs 400 a share after a special price discovery session held by the stock exchanges. Though the demerger took effect from October 1, the company chose October 14 as the record date for fixing which shareholders would be eligible to get shares in the new commercial vehicle company.
The existing Tata Motors’ shareholders were given one share of TML Commercial Vehicles Ltd for each share they had in the parent firm. This is a major shake-up in the Indian automobile industry because one of the nation’s best-known manufacturing conglomerates divided its main businesses to allow the divisions to grow individually. Splitting the company was a decision made after months of deliberations and preparation that took several months to unfold, with the management thinking the divisions would be better to address their respective market needs.
Share Price Realignment Reflects Demarcation of Business Values
In a special pre-opening session from 9:00 AM to 10:00 AM, the stock exchanges implemented a price discovery mechanism to determine the fair market value of the company. Tata Motors shares closed at Rs 400 on the Bombay Stock Exchange and National Stock Exchange, a fall of 39.5% from the last close’s level of Rs 660.90. But the market experts were quick to point out that it was not a loss of value per se but a mathematical correction that documented the demerger of the commercial vehicle business from the company’s overall value.
N. Chandrasekaran, Chairman of the Tata Group, explained the reasoning behind this corporate move by saying that the demerger would add more strategic simplicity and operating flexibility to both businesses. The passenger vehicle business, which is being renamed Tata Motors Passenger Vehicles Ltd, includes the domestic passenger car business, electric vehicle portfolio, and luxury auto brands Jaguar and Land Rover. On the other hand, the business vehicle operations will remain as Tata Motors Ltd as soon as TMLCV finishes its standalone listing process, which is likely to happen within the next 45 to 60 days.
Market Analysts Give Diverse Valuations for Newly Independent Entities
A number of major brokerage houses have come out with their valuation of the two newly independent entities, although the valuations differ significantly. SBI Securities estimated that the passenger vehicle division would trade in a band of Rs 285 and Rs 384, and that the top of this band would be dependent on whether Jaguar Land Rover can oversee a recovery in sales volumes. This attention to JLR is significant because the luxury car business accounts for around 87% of the overall revenue derived by the passenger vehicle business division.
For the commercial vehicle business, SBI Securities predicted a wider trading range of Rs 320 to Rs 470, underlining the company’s aggressive plans to buy out Iveco Group’s commercial vehicle business in a transaction worth €3.8 billion. On the other hand, Nuvama Wealth Management presented varied figures, putting the passenger vehicle business at Rs 410 per share and the commercial vehicle business at Rs 280 per share. They also pointed out that
TMLCV would be entering the market as India’s largest commercial vehicle maker, with a 37.1% market share. The demerger is at a tough time for Tata Motors since the shares of the company had fallen for seven straight trading sessions until the record date and have declined over 11% thus far in the current year. A major driver of this decline has been production interruptions at Jaguar Land Rover plants after a cyberattack in September. Even on these near-term headwinds, market analysts broadly perceive the split as a good thing that will liberate value for investors by enabling them to invest specifically in separate automobile niches while bringing clearer operational focus to both management teams.
News at a Glance
- Tata Motors finalised its demerger on October 14 into two independent listed companies
- Shares of passenger vehicles started trading at Rs 400 a share after the price discovery session
- Demergers came into effect from October 1, with October 14 as the record date for shareholders
- Shareholders already present got one TMLCV share for each Tata Motors share held
- Domestic cars, electric vehicles and Jaguar Land Rover operations are part of the passenger vehicle unit
- The commercial vehicle business will finalise its independent listing process within 45 to 60 days
- SBI Securities places a value on the passenger unit at Rs 285 to Rs 384 based on JLR performance
- TMLCV will be India’s biggest commercial vehicle manufacturer with a 37.1% market share
FAQs
- When did the Tata Motors demerger become effective?
The demerger was effective from October 1, with October 14 being the record date for shareholders.
- What is the demerged share price of Tata Motors?
The shares of the passenger vehicle business settled at Rs 400 per share after the price discovery process.
- Shareholders of how many shares of the commercial vehicle firm will they get?
Shareholders will get one share of TMLCV for each share of Tata Motors held by them on the record date.
- What businesses are part of the passenger vehicle business?
The segment consists of home passenger cars, electric cars, and Jaguar Land Rover premium brands.
- When will the commercial vehicle business start independent trading on stock exchanges?
TMLCV will finish its independent listing process in the next 45 to 60 days.
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